Greece gains investment activity from foreign private equity funds
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Greece gains investment activity from foreign private equity funds

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Michael Stefanakis of Deloitte Greece explains how investors can avoid certain pitfalls when considering tax structures for foreign private equity funds.

After a long economic recession, Greece has started to see investment activity from foreign private equity funds. This review focuses on tax structuring considerations that are relevant to this type of investor in the context of local mergers and acquisitions (M&A) transactions.

While the complexity of the Greek tax system has reduced after the introduction of the new Greek Income Tax Code as from January 1 2014, certain grey areas continue to exist. As the Greek tax authority does not commit to a binding ruling or otherwise provide guidance on the tax consequences of a transaction, investors should rely on expert advice to avoid pitfalls.

Asset deal v. share deal

A business acquisition can be structured as an asset deal or a share deal. There is often a misconception that an asset deal limits buyer’s exposure to the target company’s historical tax liabilities.

In an asset deal, however, the buyer may become jointly liable for the historical liabilities of the target (including tax liabilities), if the acquisition involves a business as a going concern or even the most significant assets in target’s balance sheet, with such liability capped at the amount of the purchase price.

Asset deals are generally taxable transactions with seller’s capital gain taxable at the prevailing corporate income tax rate. On the other hand, the buyer benefits from tax deductible depreciation on the step up of the assets. Stamp duty or VAT as well as real estate transfer tax may apply depending on the composition of the transaction perimeter.

From a legal perspective an asset deal does not guarantee the continuity of the contractual relationships of the target to the same extent that a share deal does. Based on the foregoing, asset deals are generally less common in practice.

If the target company has assets that the parties want to place outside of the transaction perimeter it may be possible to perform a tax neutral corporate reorganisation to carve out the unwanted assets or, alternatively, carve out the transaction perimeter. Thereafter, the parties can structure the deal as a sale of shares. The delineation of the transaction perimeter is generally a bona fide reason for undertaking a tax neutral corporate reorganisation prior to the sale.

Greek or foreign BidCo

In terms of structuring a share deal, the initial question is whether the buyer should set up a Greek or a foreign holding company (often called BidCo) to acquire the shares in the target company.

There are wider considerations, besides tax, that weigh in on this decision, including the exit strategy and the anticipated preferences of future buyers.

Often, the reason for interposing a Greek BidCo is to bring acquisition debt financing down to the level of the target company via a domestic merger between the two. The merger is usually a hard requirement of local lending banks, in order for the acquisition debt to be repaid directly from the operating cash flows of the target company.

Stamp taxes and capital duty

The transfer of shares is generally exempt from stamp duty and outside the scope of VAT. No real estate transfer tax applies to the transfer of shares, even if the target company is real estate rich.

Capital duty applies at a rate of 0.5% on nominal share capital increases with an additional 0.1% duty in favour of the Hellenic Competition Committee (HCC) applicable to share capital increases in societes anonymes, in particular.

“As the Greek tax authority does not commit to a binding ruling or otherwise provide guidance on the tax consequences of a transaction, investors should rely on expert advice to avoid pitfalls.”

The share capital introduced on incorporation of a company is exempt from capital duty (albeit subject to the 0.1% duty in favour of the HCC in case of societies anonymes). It is therefore advisable for private equity investors to advance any equity financing on incorporation of Greek BidCo as this results in a 0.5% tax saving.

Loans are, in principle, subject to stamp duty at 2.4% on the principal amount and on interest payments. Per recent case law, loans provided by entities which are subject to VAT may on conditions be exempt from stamp duty. This case law has not been explicitly accepted by the Greek tax authority.

Bank loans are exempt from stamp duty, subject instead to a levy of 0.6% (annual rate) on the unpaid principal balance of the loan. Bond loans issued by societes anonymes are exempt from indirect taxes, which is why acquisition financing from local banks is often structured as a bond loan. Bond loans can only be issued by societes anonymes, which are, however, per se corporations for US tax purposes. For US private equity funds there is a tradeoff between having to use a per se corporation to acquire the shares in target and avoiding indirect taxes on debt financing.

Other instances of stamp duty may arise in case the buyer assigns or novates the share purchase agreement. This is often the case in practice, since BidCo is usually established after the SPA has been signed. Stamp duty concerns arise in particular when the novation entails a financing element, for example an advance payment has already been made to the seller thereby reducing the purchase price payable by BidCo.

Interest deductibility

BidCo is usually financed with a mix of equity and (external and/or related party) debt to acquire the shares in the target company. From a corporate law perspective there are no thin capitalisation restrictions.

Interest on acquisition debt is not tax deductible. Acquisition debt is defined as loans financing the acquisition of a subsidiary, whose dividend distributions will be exempt from tax under the Greek participation exemption. This rule has been interpreted by the Greek tax authority strictly and applies regardless of the distribution of dividends from the subsidiary.

There are strong arguments that interest on acquisition debt should be deductible post merger, i.e. after the participation in the target is extinguished as a result of the merger between BidCo and the target. The way the merger is structured could provide additional arguments in favor of the deductibility. Buyers should obtain expert advice to assess their filing position, in the absence of ad hoc guidance on the topic from the Greek Tax Authority.

Other ways of introducing debt in the structure is by financing the target company to distribute reserves and/or share capital. This requires a detailed review of the target company’s balance sheet to determine the amounts that can be distributed, noting that there are corporate law restrictions on the distribution of non-realised profits as well as net equity restoration provisions that may limit the amount by which the share capital can be reduced.

In addition, there may be instances where the distribution of share capital or reserves triggers corporate income tax, particularly if these balance sheet figures originate from untaxed profits. It should be noted that interest deductibility on debt that finances the distribution of reserves or a share capital reduction is usually challenged by the Greek tax authorities.

Refinancing target’s loans is also a way to introduce related party debt in the structure to facilitate cash repatriation. The deductibility of arm’s-length interest on this type of debt is more easily defendable.

Anti-hybrid rules came into effect as from January 1 2020 with the Greek tax authority yet to issue any guidance. Being a literal translation of the ATAD II Directive, the Greek anti-hybrid rules provide, broadly, that a deduction (including an interest deduction) may be denied, on conditions, where there is a deduction/non-inclusion, a double deduction or an imported mismatch outcome.

The scope for direct hybrid mismatches in most Greek structures is limited given that the related party lender is usually a taxable entity, in order to access the benefits of the EU Interest and Royalties Directive. Consequently, interest that is deductible in Greece is also taxable in the jurisdiction of the lender.

The scope for double deductions is also limited, given that the corporate type of most large businesses in Greece is the societe anonyme which is a per se corporation for US tax purposes. However, an imported mismatch may arise if the interest payment finances a hybrid mismatch higher up the holding chain. Anti-hybrid rules require a detailed review of the topside structure of the fund with the help of tax experts from various jurisdictions, depending on the complexity of each case.

Finally, the deductibility of otherwise deductible interest expense is limited by the interest limitation rule (30% of tax EBITDA). Interest that is disallowed on these grounds can be carried forward indefinitely. Net interest expense up to $3 million ($3.4 million) on an entity-by-entity basis is exempt from the interest limitation rule.

Special real estate tax

Another peculiarity of the Greek tax system is the so called special real estate tax (SRET).

SRET is a 15% annual tax that applies where non-natural persons hold ownership or rights in rem over property located in Greece. In essence, it is an anti-abuse measure, rather than a tax, which makes it undesirable to hold passive real estate assets through structures safeguarding anonymity. The tax is levied on the tax value (also referred to as the ‘objective value’) of any property held by the non-natural person as at January 1 of each year.

Companies (irrespective of the country of their establishment), exercising commercial, manufacturing or industrial activity in Greece, provided that in a given tax year, the gross revenue from this activity is higher than the gross revenue from the real estate property are exempt from SRET. As such, this exemption would typically apply to (for example) operating businesses such as hotels.

However, funds investing in passive real estate assets fall within the scope of SRET. In order to claim exemption from SRET, a fund would need to disclose the ownership chain of all the shares in the real estate owning company up to the level of the entity or entities that receive advisory services from a regulated investment manager.

The disclosure is subject to detailed documentation requirements, usually scrutinised in tax audits. The exemption through disclosure requires careful review of the topside structure on an ongoing basis and alertness to timely collect the necessary documents to substantiate it.

Click here to read all the chapters from ITR's M&A Special Focus

Michael Stefanakis


Senior manager


T: +30 210 6781 171


Michael Stefanakis joined Deloitte’s Greek member firm in 2012 and is now a senior manager in the international tax team. The team focuses on the tax structuring aspects of M&A transactions and inbound investments. He has significant experience in the real estate, hospitality and financial services industries having advised some of the world’s largest private equity firms in landmark Greek deals.

Michael has also advised funds acquiring non-performing loans and financial leasing exposures.

Michael is a graduate of the University of Athens and the University of Michigan law school, where he obtained an undergraduate and a master’s degree in law, respectively. He teaches international tax-related topics at Deloitte Academy – the firm’s training arm in Greece.

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