When considering a property purchase in Greece, one of the main decisions is whether to buy as a private individual or through a legal entity (company). This choice has significant implications for taxes, costs, and long-term planning. Below are some of the advantages and disadvantages of purchasing real estate through a legal entity.
Advantages of Buying Real Estate Through a Company
Tax on Rental Income: Income generated from property is taxed at a flat rate of 22% as business profit. This can be more favourable than the progressive tax rates applied to individual rental income, especially when the property generates significant rental revenues.
Deduction of Business Expenses: A legal entity can deduct most expenses related to the operation of the property, including maintenance, cleaning, and loan interest, helping to reduce the taxable income.
Depreciation of Real Estate Assets: Property depreciation is allowed for legal entities, with a depreciation rate of 4% on buildings, constructions, and installations. Depreciation is applied only to the value of the buildings, not the land, which reduces taxable profits over time.
Flexibility in Inheritance Tax Planning: Using a legal entity for property ownership provides flexibility in tax planning, particularly for inheritance purposes, allowing you to optimize your tax position when transferring assets to heirs.
Disadvantages of Buying Real Estate As a Company
Dividend Tax: In addition to the 22% tax on rental income, dividend distributions to shareholders are taxed at a 5% rate in Greece. If the shareholders do not have their tax residency in Greece, additional dividend taxes might be levied in their home country. However, depending on other sources of income, you may have flexibility in timing the dividend distribution to manage tax liabilities.
- Short-Term Rental Tax: Starting January 1st, 2024, a 13% Value Added Tax (VAT) is imposed on short-term rentals, affecting all legal entities. Private homeowners don’t pay VAT on rental income unless they own three or more rental properties.
Establishment and Operating Costs: Setting up and maintaining a company involves ongoing costs, including legal and accounting fees. These annual costs can easily range from €3,000 to €5,000, regardless of the income generated by the property.
Capital Gains Tax: Any capital gains realized from the sale of the property are taxed at a fixed rate of 22% as business income. In contrast, private individuals are exempt from capital gains tax when selling a property in Greece.
Property Tax (ENFIA): Legal entities are subject to both principal and supplementary property tax (ENFIA). The supplementary tax is calculated at a rate of 5.5% on the total value of the real estate or 1% for properties used for business purposes.
Income from Self-Occupation: If the company itself uses the property, the income is presumed to be 3% of the property’s objective value, which is considered business income. This imputed rent is deductible, making the effect on taxes neutral as long as it doesn’t exceed 3% of the property’s value.
Special Real Estate Tax for Non-Cooperative Countries: Legal entities from non-cooperative countries are subject to an annual special real estate tax of 15% on the property’s value unless they meet specific disclosure requirements for ultimate beneficial owners (UBOs). Exemptions are available for companies whose UBOs have a Greek tax identification number and meet transparency rules.
Greek State Bureaucracy: Starting and owning a business in Greece requires regular updates with the Chamber of Commerce, along with other ongoing responsibilities.
Buying as a Business (Table)
| Advantages | Details |
|---|---|
| Flat Tax Rate on Income | Income from property is taxed as business profit at a flat rate of 22%, potentially lower than individual rates. |
| Depreciation | Legal entities can apply a 4% depreciation rate on buildings and constructions. |
| Tax Flexibility for Inheritance | Purchasing through a legal entity allows for flexible inheritance tax planning. |
| Disadvantages | Details |
|---|---|
| Dividend Tax | In addition to the 22% tax on income, dividend distributions are taxed at 5%. |
| Short-Term Rental Tax | A 13% Value Added Tax (VAT) is imposed on short-term rentals, impacting all legal entities. |
| Capital Gains Tax | Any capital gain from property sale is taxed at 22%, higher than the 5% rate for individuals. |
| Operating Costs | Setting up and maintaining a legal entity involves high costs (€3,000 to €5,000 annually). |
| Property Tax (ENFIA) | Legal entities are subject to both principal and supplementary ENFIA taxes (5.5% on property value, or 1% for business properties). |
| Special Real Estate Tax | Companies from non-cooperative countries are subject to a 15% annual real estate tax unless exemptions apply. |
| Greek State Bureaucracy | Owning a business in Greece requires regular updates with the Chamber of Commerce and other administrative responsibilities. |
Whether you choose to purchase real estate as an individual or through a legal entity depends on your financial goals, the size of the investment, and how you plan to use the property. Legal entities provide more flexibility with expenses and depreciation, but they come with higher setup and operational costs. Individual buyers face higher income tax rates but benefit from fewer ongoing costs and no special real estate taxes. For larger investments, typically above €500,000 – € 600,000, buying through a company may be more beneficial.
Summary Table
| Aspect | Individual | Legal Entity |
|---|---|---|
| Tax on Rental Income | Progressive rates between 15% – 45% | Flat rate of 22% |
| Short-Term Rental Tax | Applies after three or more rentals | 13% VAT on all short-term rentals |
| Operating Costs | Minimal costs | €3,000 – €5,000 annually |
| Depreciation | Not applicable | 4% annual depreciation on buildings |
| Expense Deductions | No deductions allowed | All business-related expenses are deductible |
| Dividend Tax | Not applicable | 5% on distributed dividends |
| ENFIA | Principal tax only | Principal tax + 5.5% supplementary tax |
| Special Real Estate Tax | Not applicable | 15% tax for properties in non-cooperative countries |
| State Bureaucracy | None required | Regular updates to Chamber of Commerce required |
