Greece introduces the concept of Family Offices to attract high-net-worth individuals (HNWI)
It is the next step in Greece’s national effort towards becoming a tax haven within the EU and a global destination for the world’s wealthy. With new law 4778/2021, the government introduced the concept of family offices in Greece. This new law allows the operation of such entities for the first time in Greece, regulates their business purpose and practice, the nature of services to be provided as well as their tax treatment in terms of both incentives and obligations (gross income determination, profit margins, taxable income, VAT incentives, etc)
What is the purpose of a Family Office?
Family offices are privately-held wealth management companies that serve high-net-worth individuals and their families with the goal being, to effectively grow and transfer family wealth across generations, the company’s financial capital being the family’s own wealth. They are different from traditional wealth management firms in the sense that they offer complete autonomy to wealth owners by completely handling and outsourcing the management of their investments and overall financial needs, providing an array of services such as budgeting, investment planning, charity involvement guidance, property administration, tax management, day-to-day of family-owned businesses, payroll and household management, etc.
According to Campden Research, “The total estimated assets under management of family offices stands at $5.9 trillion, while the wealth of the families behind them totals a vast $9.4 trillion.” Forbes notes that “increasing numbers of companies labeling themselves as “multi-family offices” have been popping up to grab their share of the market for the better part of the last decade”.
Why Greece?
This new piece of legislation sets the legal framework, securing transparency and providing financial incentives for Family Offices to be established in Greece. Family Offices can be set up in any form of available company types acknowledged by National Commercial Law, such as Société Anonyme(S.A.), Private Capital Company, Limited Liability Company, Personal Entity etc). Apart from attracting foreign capital, the Greek government believes Family Offices will create additional growth thanks to the relocation of foreign employees and executives that will staff said companies.
According to the Ministry of Finance, the law follows some of the best international practices in the field. The Greek government believes Family Offices will further supplement its previous measures to attract tax residents in Greece. These measures are:
– the “Non- dom” scheme introduced in 2019, for investors who make significant investments in Greece and choose to move their tax residence in the country. They benefit from a favorable tax regime for their global income.
– the favorable tax regime (flat 7% tax on global income) for pensioners who transfer their tax residence in Greece (introduced in 2020)
– the 2020 tax incentives to attract in Greece foreign workers and corporate nomads, as well as Greeks who left the country during the financial crisis,
Obligations & Operation
The above entities may employ personnel or outsource the provision of services regardless of the country of origin of service providers (with an exemption on the application of Greek Income Tax Code restrictions on deducting expenses paid to an individual or legal entity, holding tax residence in a country with no active cooperation agreement with Greece on tax matters.
Family offices should cumulatively
– incur annual expenditure of at least 1,000,000 euros
– employ at least 5 employees within the first year of its establishment and on a regular basis (Close family members cannot be employed by the Family Office
A joint decision of the Minister of Finance and the Director of the Independent Public Revenue Authority is expected in the coming months, which will determine among else, the exact nature of services that can be provided by these companies and will also indicate the sources of their revenues.
Income & Tax
The following provisions are effective from the fiscal year 2021 and onwards
– The gross income from services provided by the Family Office is defined by adding a profit of 7% to all expenses and depreciation, with the exception of income tax.
– The determination of taxable income, expenses, upon which the above-mentioned profit is calculated, are deducted from generated gross income, provided that they are evidenced by supporting documentation in accordance with the provisions of Law 4308/2014 (cost plus profit margin).
– The income tax is calculated at the same rate as that of regular legal entities, which is 24%.
– There is no special exemption for the taxation on dividends to be distributed to the partners, nor any exemption from the obligation under Greek Tax Law to pay the annual Special Solidarity Contribution tax.
– The general provisions for the submission of annual tax returns for legal entities and the payment of corporate income tax, both apply equally.
– Family Offices are required to withhold income tax for payments they execute for the acquisition of goods and retainer fees, as per the general rules.
– “Internal transactions” provided between the Family Office and the individuals who participate therein (partners), are exempt from the obligation to contribute VAT. Further clarifications are required underlying and regulating the purpose of such “internal transactions” excluded from the scope of VAT as well as the compatibility with EU Laws.
Family Offices as an opportunity for growth!
It seems that this new tax incentive program can offer HNWI’s the opportunity to relocate the administrative center of their wealth to a more favorable tax environment, in which case they would benefit from two of the main advantages of operating under such a tax regime: competitiveness and stability. Τhis initiative used in combination with other recent legislative measures can lead to the rise of Greece as a pillar of financial growth, during a period of significant turbulence within the EU, especially due to BREXIT and the subsequent insecurity that follows in regard to the financial and commercial relationship between the UK and the EU.