Ministry of Economy and Finance: 13 questions on the tax bill – The 12 tax cuts, incentives and reforms

Ahead of the new tax bill, the Ministry of Economy and Finance answers 13 questions to make it more clear what changes are coming in this section. The 12 tax cuts that are being enacted, the incentives given to businesses and all the reforms to the tax law.

The 13 questions and answers on the new tax bill

1. What are the most important provisions of the new tax bill?

The new tax bill brings new tax cuts, income support for citizens, incentives for businesses and major reforms to tax laws. First, it includes 12 tax cuts and measures to boost citizens’ income, following the Prime Minister’s announcements at the TIF. It also establishes a new framework for filing tax returns, with discounts for the punctual and penalties for government officials and companies that delay in transmitting the necessary data to the AADE.

In addition, provisions are included for:

– providing incentives for mergers and acquisitions of enterprises, strengthening innovation and empowering start-ups,

– the extension of tax incentives for scientific and technological research and the introduction of new deductible expenditure limits for the development and innovation of enterprises and investors,

– the modernisation of the administrative model governing the AADE to make it even more efficient,

– the introduction of a tax-free allowance of up to EUR 300 per month for tips and exemption – in their entirety – from social security contributions,

– strengthening the resilience of the Greek economy against the effects of climate change.

Finally, a 2nd Supplementary Budget for 2024 is also submitted, aiming to finance important infrastructure and projects currently underway by a total of 400 million euros. Thus, after the recent addition of €900 million and with the new increase of €400 million, the national MFF for 2024 increases by €1.3 billion. This is an increase of 15% of the MFF resources, which now stands at €9.85 billion (€7.1 billion for the co-financed part and €2.75 billion for the national part) from the initial forecast of €8.55 billion (€6.5 billion for the co-financed part and €2.05 billion for the national part).

2. What are the 12 tax cuts?

The tax bill includes 12 tax cuts that permanently and socially equitably boost citizens’ income. Specifically, it provides:

1) A reduction of an additional 1 point in insurance contributions. Insurance contributions have already been reduced by 4.4 percentage points in recent years by the current government. This additional reduction will benefit both employers (through further reduction in non-wage costs) and private and public sector employees through an increase in their net earnings.

2) Abolition of the business tax for all natural persons (freelancers, self-employed as well as employees paid on a “blockchain” basis).

3) Income tax exemption for 3 years for properties up to 120 sqm that will be rented between September 8, 2024 and December 31, 2025 with contracts of at least three years’ lease and which were previously declared as vacant or made available for short-term lease.

4) Exemption from premium tax (15%) on health policies for children up to age 18. In case of a family or group policy, the tax is reduced in proportion to the number of minor members covered.

5) Double reduction of ENFIA from 2025 (from 10% to 20%) for residences of individuals, taxable value up to 500,000 euros, insured for natural disasters (fire, earthquake, flood).

6) Abolition of fixed telephony fee (5%) for fiber optic connections (≥100 Mbps).

7) Tax exemption of voluntary business benefits for young parents (for allowance up to 5,000 euros for each child plus 5,000 euros for each additional child and for allowance up to 5,000 euros per year to cover the cost of daycare and kindergartens).

8) Taxation of remuneration for on-call doctor’s fees at a rate of 22%. The monthly net benefit on average for doctors is estimated at 150 euros and in many cases exceeds 200 euros.

9) Providing incentives for mergers and acquisitions of companies related to “small” entrepreneurship, at a total cost of 40 million euros.

10) For 2025, a law already passed also provides for stamp tax reductions on a number of transactions at a total fiscal cost of €30 million.

11) A law recently passed by the Parliament has made permanent the refund of the VAT on agricultural oil, a measure with a total fiscal cost of 100 million euros per year.

12) In the next bill of the Ministry of National Economy and Finance, the VAT exemption for new buildings is scheduled to be submitted for voting for 2025.

In addition, the bill provides for an extension until December 31, 2026 of the suspension of the imposition of capital gains tax on the transfer of real estate and sets, among other things, a 50% reduction of the minimum net income from business activity for freelancers who carry out their activity and have their main residence in municipalities with a population of less than 1,500 inhabitants.

3. Are there provisions specifically for vulnerable population groups that are in greatest need of support?

Following the Prime Minister’s announcements at the TIF, the Government is moving forward in December, with the passage of the bill, to provide emergency financial assistance to 1.9 million economically vulnerable citizens with a total amount of €243 million. This amount will be paid in the form of an extraordinary social solidarity benefit and will cover the following:

1) Extraordinary financial assistance to pensioners with a personal allowance of more than €10. It is granted until 31 December 2024 as follows:

– 200 euros for a pension of up to 700 euros.

– 150 euros for a pension from 700.01 euros up to 1,100 euros.

– 100 euros for a pension from 1,100.01 euros to 1,600 euros.

It is also stressed that pensioners who do NOT have a personal difference will see their pensions increase at a rate of 2.4% from the beginning of 2025 (with January pensions paid in advance at the end of December).

2) Extraordinary financial support of €200 by 31 December to vulnerable groups, namely:

– beneficiaries of disability benefits under the e-EFKA,

– beneficiaries of the absolute disability allowance for pensioners of the former OGA who receive only the basic pension if they have a lifetime disability rate of 100%,

– to the beneficiaries of the sickness and disability benefit for public sector pensioners,

– the beneficiaries of the extra-institutional allowance granted by the e-FSCA,

– the beneficiaries of the disabled persons’ allowance of OPEKA,

– uninsured elderly persons,

– especially the beneficiaries of the OPEKA child benefit will receive an extra instalment,

– provision of an additional 50% of the monthly allowance to the beneficiaries of the minimum guaranteed income.

4. Do the tax increases and reductions exceed the increases in inflation?

Over 60 taxes have been eliminated or reduced since 2019. For example, the introductory tax rate for the poorest was reduced from 22% to 9%, the ENFIA was reduced by 35%, the tax-free allowance for children was increased, the solidarity tax was abolished and insurance contributions were reduced, which are further reduced by 1% from 1-1-2025. Greece also, according to Eurostat, had the largest tax cut as a share of GDP among EU countries, from 42.8% in 2022 to 40.7% in 2023.

At the nominal earnings level, the minimum wage increased from €650 in 2019 to €830 in April 2024 and will rise further in 2025, with the consultation process in place. The average salary according to ERGANI data from 1,046 euros in 2019 is now estimated at over 1,300 euros.

The analysis of the data shows that:

The increase in net earnings from 2019 for an employee receiving the minimum wage (depending on the number of children and including the reduction in social security contributions from 1-1-2025) is about 30%, while for an employee receiving the average wage the increase is about 25%.

Similarly, between 2019 and September 2024 the cumulative increase in the consumer price index is 17.5%.

That is, real wages increased more than inflation. In no way are we underestimating the problem of accuracy. The truth, however, is that wage subsidies are quite significant in terms of the economy’s potential and respond to a significant extent to the need to support people’s incomes. And furthermore, as long as tax evasion is addressed, further tax reductions will be achieved, which indirectly further supports citizens’ incomes.

5. Are these new measures – especially those relating to tax cuts and increases in citizens’ incomes – compatible with the new fiscal rules?

The answer is yes, as the basis for all policies implemented by the Government is fiscal seriousness. While the budget and fiscal rules are being exhausted, under no circumstances will fiscal destabilisation be allowed. Given the crisis of the last decade, this would be extremely dangerous for our country. The pay rise and tax cuts for 2025 of around €1.5 billion are based on stronger economic growth and successes on the front of curbing tax evasion. It is worth noting, moreover, that data on the first half of 2024 collections show that, excluding tax increases, 10.3% more tax revenue was collected than in the first half of 2023, with inflation of around 3%. The additional revenue comes from both the growth of the economy and the reduction of tax evasion by promoting e.g. the interconnection of POS with cash registers. By 2027, with the further implementation of measures to combat tax evasion, a gradual increase in government revenues of about €2.5 billion is estimated.

6. What is your response to those who argue that with the intervention concerning the way tips are taxed, the Government is placing a new tax burden on workers?

With the tax bill we are not coming to impose a tax on tips but to reduce it! The taxation of tips has been in place for at least 30 years based on the Income Tax Code and on relevant case law produced by successive Supreme Court decisions. This provides that tips were to be declared as earnings, included in taxable income and taxed in the same way as the employee’s salary is taxed. This legal provision was previously practically unenforceable. It has, however, acquired another dimension recently due to the proliferation of electronic transactions, the interconnection of POS-cash machines and the intensification of controls by the AADE.

The Ministry of National Economy and Finance is proceeding with the adoption of a fair and balanced provision that for the first time provides for a tax-free allowance of up to 300 euros per month for tips received by employees (indicatively in catering businesses, personal care services, etc.) to be implemented from 1 November 2024. At the same time, for the entire amount from tips, employees and employers are exempt from social security contributions (unless otherwise provided for by individual or collective agreements). The tax-free amount of EUR 300 was chosen as the most fair as it was taken into account that employees in other companies do not receive tips or are taxed normally, e.g. for bonuses they receive.

In addition, an anti-tipping provision is introduced for any employers who would consider artificially reducing wages by declaring part of them as tips: In the event of a reduction in regular pay, with an equivalent increase in gratuity pay, the employer will be required to pay a 22% levy on the reduction in regular pay. Note that in order for the employer to cease paying the penalty, the employer will have to restore the employee’s salary to the original amount prior to the reduction.

7. Are there any provisions in the bill to support property owners?

Yes, and important ones at that. Homeowners and those who want to own property are benefited by 6 specific provisions:

– With the doubling of the ENFIA deduction from 2025, from 10% to 20%, for residences of natural persons, taxable value up to 500,000 euros, insured for natural disasters (fire, earthquake, flood). It should be noted that the 10% exemption from ENFIA still applies to residences insured for natural disasters above 500,000 euros.

– With income tax exemption for 3 years for properties to be rented out that were previously declared as vacant or allocated for short-term rental.

– By promoting procedures for the granting of financing in the form of a loan to cover the housing needs of first homes and energy upgrading of properties through the Recovery Fund (the “MY HOME II” program).

– By increasing the housing repair subsidy of the “Renovate – Rent” programme and its retroactive application. In more detail, it is planned to increase the subsidy for repair and renovation costs on the property included in the program up to 13,500 euros from 10,000 euros today, which includes the required materials and works. The subsidy now amounts to 60% of the costs incurred, up from 40% today.

– By extending until 31 December 2026 the suspension of the imposition of capital gains tax on the transfer of real estate.

– Also, in a subsequent bill of the Ministry of National Economy and Finance, the submission for voting of the VAT exemption of new buildings for 2025 is also being initiated.

8.
Are there any thoughts that the measure of suspending the provision of new houses for short-term rent for one year in areas of the Municipality of Athens should be extended to other areas in and outside Attica? Do you think that this measure and the tax exemption for vacant properties to be rented out are sufficient to address the housing problem?

In the neighborhoods of Athens where the availability of new homes for short-term rentals is suspended for one year, short-term rentals occupy a significant percentage of all housing, taking into account the housing needs of citizens in these areas. This is the reason why the measure was chosen to be applied there, the results of which will be judged at the end of 2025 to take decisions on whether to extend it or extend it to other areas which in the meantime may also record high rates of short-term rentals etc.

But this is not the only intervention. The Government is promoting a coherent housing policy with programmes totalling €2.25 billion, the most emblematic of which is the “MY HOME” programme for low or interest-free housing loans for young people, which has already benefited more than 20,000 people. It includes a package of initiatives such as the HOME II programme, the procedures for launching which are also provided for in the tax bill, as well as increased aid for the renovation of buildings, social renting, etc. At the same time, the Government has also proceeded to expand the maximum limits for the Golden Visa in Athens, Thessaloniki and the tourist islands to 800,000 euros and 400,000 euros in other areas, with a lower limit (250,000) for preserved buildings, in need of investment funds. And of course, the non-taxation of closed properties for 3 years if they are put back on the market, as well as those converted from short term to long term rental properties, will also contribute in turn to addressing the housing problem.

9. How will you ensure that tax returns are filed each year within a specific timeframe?

For the first time, a clear and predetermined timeframe for the submission of tax returns is being established, which has been a constant request of both citizens and the Hellenic Chamber of Commerce. At the same time, the state stops asking only of citizens and asks of itself in order to be consistent in the deadlines for submitting returns through the imposition of significant financial penalties on the executives of public organizations that delay in transmitting to the AADE the data necessary for the pre-filling of returns. In this way, the issues of pending returns, tensions and extensions are in practice addressed, primarily by taking advantage of the suggestions of the main stakeholders, i.e. the tax profession. In particular, it is envisaged that the submission of tax returns will take place from 15 March to 15 July each year, for both individuals and legal entities.

Incentives are also provided for citizens to contribute to this effort. In particular, a rebate is introduced for those who pay the full amount of income tax by 31 July and if they submit their tax return, as follows:

– 4% discount for anyone who files a return between March 15 and April 30.

– 3% discount from May 1 to June 15.

– 2% discount from June 16 to July 15.

At the same time, sanctions are introduced for the governors of organizations, the State’s service secretaries and the general secretaries of municipalities as well as the payroll managers for any delays in sending data to the AADE that are necessary for the timely completion of tax returns. In case of non-timely, inaccurate transmission of the above data to the AADE or non-registration in the Register, a fine of EUR 2 500 is foreseen for the persons responsible. Such persons are considered to be the heads of legal entities of the State (e.g. EFKA, EOPYY etc.), for the State the service secretaries, for the municipalities the general secretaries and horizontally the heads of payroll. In case of late transmission, the fine is increased by 50 euros for each day of delay.

Finally, it is envisaged that fines will also be imposed on persons other than public sector entities (e.g. banks, listed companies, servicers, educational institutions, etc.) that are obliged to transmit or submit annually to AADE data for the pre-completion of declarations. The fines start from 20,000 euros for the violation of late initial transmission/submission of data and for the violation of late submission of supplementary and/or corrective data and may go up to 50,000 euros if the gross revenue of the liable parties exceeds the amount of 1 million euros.

10. In the bill there are provisions for the change in the structure of the AADE. These interventions come as a result of documented malfunctions in the services of the AADE or inefficiencies in the Authority;

On the contrary! The significant changes being initiated in the administrative model of the AADE are aimed at providing the tools for the Agency to become even more efficient and operate with greater speed and effectiveness in the direction of improving citizen service, digitizing its services and strengthening its audit and tax collection role. In this direction, the establishment of 3 Deputy Directors, each with a distinct role and scope, the possibility of recruiting directors from the private sector for specific areas (e.g. digital functions of the AADE, communication, etc.) as well as issues related to the functioning of the Management Council which acquires a more institutional role.

11. Do you consider that the measures related to mergers and acquisitions and interventions to support start-ups respond to market needs?

Those measures provided for in the Bill are the result of consultation with market representatives in response to their requests with the aim of improving market conditions and strengthening the market. Mergers and acquisitions are a key tool for the transformation of the economy as they lead to the creation of larger and more dynamic companies that can compete internationally and offer more and better quality jobs. Moreover, they are linked to attracting investment, which entails an inflow of capital into the country, but also often an inflow of know-how from abroad. Particularly with regard to business transformation, there is currently a scattered and fragmented framework dating back to 1972 and spread over laws from different decades. And this, understandably, is not conducive to an investment-friendly environment.

The aim of the interventions included in the bill is to establish a clear regulatory framework that will be the central reference point for companies and investors who want to engage in mergers.

In addition to incentives for business mergers and acquisitions, the measures in the draft law also aim to boost innovation and strengthen start-ups, extend tax incentives for scientific and technological research, establish new deductible limits for development and innovation costs for businesses and investors.

With all of the above, we are promoting perhaps one of the most competitive tax incentive frameworks in the EU for research expenditure in order to encourage risk-taking by businesses to invest in research, to strengthen the link between businesses and universities and to direct more investment into productive activities.

Finally, in addition to the above measures for mergers and acquisitions and innovation, additional financial incentives are created. In particular, the NSRF action of around 350 million to finance 50% of the investment costs of SMEs, to be announced shortly, will provide further subsidies (+10%) for investments by enterprises that are the product of a merger. In addition, a Patent Fund will be created by the end of the year by the Hellenic Development Bank through which the acquisition of an international patent and the development of a Minimum Viable Product based on this patent will be financed.

12. Why is the Government proceeding to submit an additional budget for 2024 for the second time? Where will these resources be directed?

This is indeed the 2nd supplementary budget submitted to strengthen the National Public Investment Programme for 2024. More specifically, it increases by 400 million euros the funding of important infrastructure and projects underway as follows: by EUR 100 million the 2024 public investment budget is increased by EUR 100 million for the national component to cover the costs incurred due to the rapid pace of implementation of the National Development Programme (NDP) projects, especially at the regional level, and by EUR 300 million for the co-financed component for the repayment of projects of the previous NSRF 2014-2020 programming period.

Thus, after the recent addition of €900 million and with the new increase of €400 million, the national increases for 2024 by €1.3 billion. This is an increase of 15% of the MFF resources, which now stands at €9.85 billion (€7.1 billion for the co-financed part and €2.75 billion for the national part) from the initial forecast of €8.55 billion (€6.5 billion for the co-financed part and €2.05 billion for the national part). In total, the amount allocated together with the resources of the Recovery and Resilience Fund rises to €13.5 billion without taking into account the disbursements of the banks, which are projected at €1.7 billion in the loan arm of the CDF.

13. What is the objective of imposing the resilience fee on tourism services? Has it been calculated whether it will be a “drag” on tourism traffic?

This particular intervention, apart from the general objective of strengthening the resilience of the Greek economy against the effects of climate change, ultimately aims precisely at upgrading the tourism product and boosting the country’s tourist traffic. In particular, both the revenues from the climate resilience fee on tourist accommodation and cruise passengers will be directed to cover the costs of prevention and rehabilitation of natural disasters, climate change adaptation projects and infrastructure improvement costs to support the country’s tourism product.

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