Regime of Law 89/1967 is strengthened - Significant incentives for the creation for the creation of Shared Services Centers in Greece
The recently published document No. Ε.2076/14.5.2019, published the provisions of article 38 of Law 4605/2019 (Official Gazette issue A’ 52/1.4.2019) which amended the provisions of Law 89/1967, in order to broaden the relevant framework and incentivize the creation of Shared Services Centers in Greece. Furthermore, the existing framework is supplemented by incentivizing companies subject to the provisions of the aforementioned law.
The framework of Law 89/1967:
Law 89/1967 refers to enterprises whose purpose is to offer exclusively certain support services to their head office/affiliated entities (both in Greece and abroad) based on the fulfillment of certain prerequisites. The innovative feature of the regime in scope relates to the way the taxable base - that shall be subject to income tax – is calculated, which offers stability and certainty. Specifically:
1. Transposition of anti-tax avoidance rules into the Greek tax legislation in compliance with the Directive 2016/1164
- The gross income of the enterprises under scope, which shall be subject to income tax, is determined based on the cost-plus method, hence with the application of a predetermined mark-up on their total expenses and depreciations, excluding corporate income tax.
- The said mark-up would differ on a case by case basis and would be determined by virtue of a Ministerial Decision, issued further to a proposal of a Committee of experts in the Ministry of Economy and Finance. The mark-up will be reassessed every five years at the latest, and cannot be less than 5%.
- All expenses on which the said mark-up applies, shall be tax deductible for income tax purposes, on the condition that they are supported by the lawful fiscal documents.
The necessary prerequisites are the following:
- They have to employ at least 4 employees (one may be part-time employee)
- Their annual operating expenses incurred should amount to least €100.000.
The amendments introduced with the Law 4605/2019
1. Broadened scope of services provided
The permissible services prior to Law 4605/2019 were the following:
- advisory services,
- central accounting support,
- quality control of production, product process and services,
- design of studies, projects and contracts,
- advertising and marketing services,
- data processing,
- supply of information,
- research and development.
Further to the existing allowed services, additional categories of services are added with the new law as follows:
- T software development, computer programming and IT support,
- storage and management of records and data,
- management of suppliers, customers and supply chain, excluding transportation by own means,
- HR management and training of employees, and
- computer-based call center and telephone information services.
The provision of the above services does not constitute a place of effective management in Greece1 by the foreign company established in our country or its affiliates. However, given that the new regulation does not refer generally to the development of business activity in Greece, but rather to the specific services for which an operation permit has been granted, in case that, apart from the provision of such services, the conditions of article 4 par. 4 of Law 4172/2013 are met, i.e. upon clear violation of the operation permit, Article 4 (4) of Law 4172/2002 shall apply, resulting in these companies (or their affiliated companies) being considered tax residents in Greece, based on the recent clarifications of the Independent Authority for Public Revenue (E.2076/14.5.2019).
2. Granting of Incentives
Substantial incentives are granted to enterprises subject to the provisions of Law 89/1967,which are setting up large Shared Services Centers, upon the condition that:
i. they develop a new activity either in terms of the services provided or in terms of the companies, to which services are rendered, to the extent that such services have not been provided in Greece during the last two years until the application’s submission date by the same or other group entities; and2
ii. the new activity creates a minimum number of new jobs, which are maintained for at least a specific time period, to be defined by a ministerial decision.
The incentives granted vary in nature. Specifically:
a. Incentive for first-year salary costs for the recruitment of disadvantaged employees (long-term unemployed, etc.) and persons with disabilities3
b. Incentive for research and development projects4
c. Incentive for professional training programs5
d. Incentive for salary costs and IT and telecommunications installation costs6
The above incentive categories are provided in the form of a subsidy, which constitutes the provision of an amount destined to cover part of the aided expenditure and is determined as a percentage thereof.
The subsidy shall be granted for the first five-year period expenditures as of its granting and up to a maximum amount, to be determined by a Ministerial Decision. In addition, the individual subsidy percentages shall be specified within the limits set by the relevant Regulations, as well as the procedural issues, any sanctions in case the conditions for granting the subsidy are not met, and any other relevant detail which remains to be determined.
3. Granting of Incentives to enterprises not subject to the regime of Law 89/1967
Finally, the granting of the above-mentioned incentives is also extended to sizeable, in terms of personnel number, Shared Services Centers established in Greece as branches of foreign companies as well as to domestic companies providing exclusively L. 89/1967 services to companies that do not necessarily belong to the same group, upon the condition that the new activity will generate at least one hundred and fifty (150) new full-time jobs for the first (1st) year after the granting of the incentive.
Law 89/1967 as a driver for investment attraction
Law 89/1967 is a valuable instrument for attracting foreign investment to our country by allowing foreign and domestic groups to set up a Shared Services Center in a context of increased legal certainty through the regime of advance pricing arrangement (which resembles the APA7) effectively provided under the provisions of the new law in scope, namely the process of a predetermined mark-up in accordance with the OECD Guidelines, for the application of the arm's length principle in relation to specific transactions over a certain period of time, prior to their implementation.
The new provisions place Greece on the top list of countries that a group can take into account when setting up such centers, along with various emerging economies worldwide.
It is a fact that the existing list of allowed services did not follow global developments, leaving outside from the said framework services such as Call Center or Software Development. The abovementioned amendments entering into force with the new L. 4605/2019 (expanded list of services & incentives provided), aim to fill this gap and address new market trends, according to which businesses establish Shared Services Centers within their business structure to increase their operational efficiency and at the same time reducing the cost of providing the services.
Therefore, together with the incentives offered, the Greek regime becomes more competitive compared to similar foreign Shared Services Centers and investment interest is awaited from more groups for setting up a “L.89/1967 office” in Greece, considering the high level of talent combined with competitive salary costs in Greece.
1. accordance with the meaning of Article 4 par. 4 of Law 4172/2013.
2. Exceptionally, companies submitting an application until 28 June 2019, may have developed the new activity before submitting the application for the granting of incentives, but not before 1.1.2019, on which date the last two (2) years are counted.
3. Articles 32 and 33 of Commission Regulation (EU) 651/2014
4. Article 25 of Commission Regulation (EU) 651/2014
5. Article 31 of Commission Regulation (EU) 651/2014
6. Commission Regulation (EU) 1407/2013
7. Advanced Pricing Agreement