Establishing a foreign branch is a common and quite popular choice, as it offers numerous competitive advantages to the company. Foreign companies wishing to develop all or part of their activities in Greece or companies seeking to transfer their registered offices abroad yet maintain a branch in Greece, usually opt for this solution.
Establishing a foreign branch: Legal Framework:
Following the adoption of Law 4635/2019 “Investing in Greece and other provisions”, Articles 98-101 exclusively regulate the operational framework for foreign branches. This way the legal paradox of two laws (Law 3190/1955 for limited companies and Law 4548/2018 for SAs-following decades of application of Law 2190/1920) regulating the same matter was solved. Specifically, Article 115(1) provides that:
“1. From the date this Law comes into force, the following are repealed:
Articles 57, 58 and 59 of Law 3190/1955.
Article 170(5) and Articles 172, 173, 174 and 175 of Law 4548/2018
Article 42 of the Commercial Law.”
Further interventions should be made for this issue. To receive a Tax Identification Number (TIN), foreign branches need to follow the typical procedure, i.e. visit the competent Registry Department of the Tax Office, where quite often the competent employees ask for documents that have already been submitted to the competent services of the General Commercial Register (GEMI). In our opinion, foreign branches should be included in the one-stop-shop service provided in Law 3419/2005, despite such service applies to establishing a new company of any legal form and, by the letter of the law, does not include foreign branches.
Another issue resolved by Law 4635/2019 is the appointment of a permanent representative without requiring the appointment of a procedural representative.
In terms of taxation, insurance and accounting, we note the following:
- A branch of a foreign company does not have an independent or separate legal personality from the parent company. From a legal and organisational perspective, it constitutes part of the parent company and therefore it is subject to the laws regulating the parent company’s operation. As a consequence, it has the same legal form as the parent company.
- Foreign branches’ business profit is taxed in accordance with the provisions of Article 21 of Law 4172/2013 on Income Tax. Currently, taxed profit is transferred to the parent company without withholding tax (foreign branches do not distribute dividends, but they transfer the entire amount of the taxed profit to the foreign parent company). In accordance with Law 4172/2013, no tax is withheld on the profit transferred from the foreign branch to the parent company, in contrast to the previously applied Article 114 of Law 2238/1994 which was repealed on 1/1/2014, as provided in Article 72(25) of Law 4172/2013.
- The legal representative is exempted from getting insured under the Unified Social Security Institution (EFKA), regardless of whether he provides salaried services or not, because the same person is considered to be both employer and employee, therefore there is no dependency.
- Foreign branches have no equity since they are not independent, and they are being financed by the headquarters. The “Share-corporate capital” account is illustrated through account No. 48 under the Greek General Chart of Accounts or account No. 81 under Greek Accounting Standards.
- More flexible internal borrowings Money transactions between headquarters and branch are not subject to stamp duty as they do not constitute a loan contact.
- Following the amendment introduced by Law 4446/2016 (Article 124), Article 27(4) of Law 4172/2013 provides that: “4. Losses incurred abroad when conducting business activities through a permanent establishment may neither be used to calculate profit for the same tax year nor offset future profit. Losses incurred by business activities through a permanent establishment in another EU/EEA country, with which Greece has entered into a Double Tax Treaty, based on which business activity profit is not exempted, are excluded.
Finally, it should be highlighted that in all cases the Double Tax Treaty should be carefully studied, when there is one.