Investment
incentive allowances have, at the time of writing, the
following characteristics:
- Regional
Variation:
The extent of the fiscal benefits available depends
on the region in which the investment is made and
for these purposes Greece is divided into 4 regions.
Larger tax incentives have traditionally been given
to investments made in regions which have high unemployment
rates, are remote or have a dwindling population.
- Promote
Economic Development: Irrespective of the region
in which the investment is made the more the investment
is deemed to promote economic development the higher
the tax incentives granted.
- Activities:
Investment allowances are available for any investment
that promotes the private sector, creates jobs, boosts
regional development or promotes business competitiveness.
Thus allowances are granted for investments that involve
the construction of business premises, the expansion
or modernization of manufacturing or other installations,
the purchase and installation of modern machinery
& the introduction and application of modern technology
and know how.
- Fiscal
Incentives: The fiscal incentive consists of the
right to deduct from taxable profits a sum representing
a percentage of the cost of the investment which sum
must be transferred into a non-distributable tax-exempt
reserve which has the following characteristics:
- Value
of the Reserve: Into the reserve
can be transferred an amount equivalent to between
40%-100% of the cost of the investment. This sum is
deductible from taxable profits and the allowable
percentage that can be transferred depends on the
region in which the investment was made and the value
which the investment has in terms of economic development.
Investments which greatly contribute to economic development
and which are made in remote areas with high rates
of unemployment attract a higher percentage allowance.
- Limit:
The sum deducted from taxable profits and transferred
into the tax-exempt reserve cannot currently exceed
60%-100% of annual profits in the year in which the
transfer is made. Consequently the transfer of a sum
into the reserve which would leave a taxable trading
loss is forbidden. If the value of the investment
exceeds the annual profits figure it can be carried
forward and set off against future profits for up
to 10 years. The percentage figure depends on the
region in which the investment is to be made with
a higher percentage being allowed where the investment
is to be made in a remote area with high unemployment.
- Depreciation:
The right to transfer the cost of the investment into
a tax exempt reserve is additional to the legal right
of a business to depreciate capital assets over their
useful life and set off the same against taxable profits.
Thus a company with annual corporate profits of EUR12m
which invests EUR1m in manufacturing machinery which
is to be depreciated over 10 years using the straight-line
method, and which has been granted the right to create
a 40% investment tax reserve will be able to set off
against its first year's taxable profits the sum of
Euros 100,000 representing depreciation and an investment
allowance of Euros 400,000.
- Distribution
of Tax Exempt Reserve: Funds transferred into
the reserve must not be distributed as dividends i.e.
they must be used to strengthen the liquidity and
asset base of the company.
Greece
is committed to improving its tourism product, and as
such is offering attractive incentives for new tourism
projects, as well as for upgrading. The Investment Incentives
Law 2601/98 outlines the legal framework for the tourism
sector. These incentives have traditionally taken the
form of either cash grants of up to 45% of eligible
expenses depending on the area in which the investment
is located and depending on what kind of investment,
or of tax allowances ranging from 40%-100%. In both
cases an interest subsidy of up to 45% of the long-term
loan used for the financing of the investment cost is
also provided. The disbursement of the cash grant is
in three stages; 60% (in two installments) during construction,
20% upon completion of construction and 20% upon operation.
The cash grant cannot exceed the amount of EUR45,000
per job created by the investment (including seasonal
jobs appropriately adjusted). This limitation does not
apply to investments in the modernisation of integrated
hotels. Equity provided by the investor cannot be less
than 40% of eligible expenses.
In the case of investments of at least EUR75 million
with the creation of at least 300 permanent jobs, both
incentive options (i.e. cash grants or tax allowances)
are alternatively applicable. Also, exceptions to the
limitations in minimum equity, the procedure for disbursement
of the grants, size of the grants, interest subsidy
(duration and percentage), maximum amount of the bank
loan, percentage of tax allowances and allowances in
the leasing of equipment, conditions for transferring
company shares, as well as the possibility of public
corporations assuming part of the cost of the investment.
However,
aspects of the Greek regional investment incentive regime
were included on the list of 'Harmful Tax Practices'
issued by the EU's Code of Conduct Committee. The government's
2005 investment incentive programme has had an impact
on the size and nature of regional investment incentives.
The incentive provisions under the new Investment Incentives
Law highlight the three main categories of investment
incentives: cash grants, subsidies or tax allowances.
The objectives of the new law, according to government
officials are:
-
To challenge and reinforce new entrepreneurial activities,
e.g. theme parks, broadband networks, renewable energy
sources, environmental protection, desalination plants,
warehouses, logistics and distribution centres; and
-
To give special emphasis to capital intensive investments.
Cash grants under the new law are available up to 55%.
A new committee has been formed to facilitate and simplify
administrative investment procedures and to check whether
the following requirements
are met:
-
Minimum own equity contribution required is 25%. Evaluation
time for business plans within two months. Upon approval
of the investment incentives application, the incentives
payment plan is predetermined and scheduled. Investments
located in industrial and business areas, investments
for the development of four and five star hotels etc.,
receive an additional 5% subsidy.
-
Small and medium size companies are eligible for up
to 15% cash grants.
The Incentives Law is applicable to enterprises having
business activities in the following sectors:
-
Primary (e.g. greenhouses, animal farms, fisheries
etc). Secondary (e.g. manufacturing, energy etc).
-
Tertiary: Tourism (hotel units, conference centres,
marinas, theme parks, golf courses, development of
mineral springs, thalassotherapy centres, health tourism
centres, centres for training-sports tourism etc);
-or other services (e.g. applied industrial research
laboratories, commercial centres, software development,
supply chain services, logistic centres etc.).
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