PLANNING A LOGISTICS BUSINESS IN GREECE: HAVE YOU FACTORED IN TAXATION? W

ith the European Union (EU) operating as a single market and international trade between Asia’s giants and Europe’s traditional and emerging economies ever expanding plus free trade with North America on the horizon, Greece offers a geostrategic location as an entry port and a hub not only for Europe but also for the Middle East, North Africa and the Balkans.

In this context and despite its unsteady financial landscape, Greece already provides incentives, including VAT exemptions on certain large-volume imports, in order to facilitate international trade. Taking also into consideration the escalation of e-commerce activity and the focus on supply chain management, this indirectly results in a significant positive impact on the logistics business. Additional measures are needed, including the introduction of call-off and consignment stock facilitations, so as to foster further growth in international trade which will in turn give further impetus to logistics activities. As it is reasonable to expect business opportunities to grow over the next years, foreign investors contemplating to engage in logistics activities in Greece should be well prepared to meet their tax obligations, taking into consideration not only the global trend towards stricter anti-avoidance rules, but also the ever-changing Greek tax framework, which can become a significant barrier at a later stage, or eventually even a show stopper, if not factored in during the planning stage.

What follows is a summary of the main tax issues an investor can expect to face when carrying out a logistics business in Greece, from the initial formalization of a physical presence in Greece, through to the operating stage and even later when deciding to wind down or sell their operations.

Setting up a logistics business

Foreign investors intending to operate in the Greek logistics sector are normally advised to formalize their presence in Greece either by incorporating a local subsidiary or by establishing a Greek branch. No taxes arise on the initial capital contributed to a subsidiary nor on working capital provided to a Greek branch of an EU parent whereas a 1% capital concentration tax applies in the event of certain subsequent capital injections to its subsidiary and as well as on working capital provided to a Greek branch of a non-EU entity. A formalized presence gives rise to a number of regulatory, administrative and compliance obligations (including bookkeeping and record-issuing requirements). Most importantly however, by formalizing their presence in Greece correctly from the onset, investors can avoid disputes on certain issues in the course of a future tax audit that could otherwise lead to significantly adverse tax implications.

Given that logistics activities often involve the acquisition of warehousing facilities, investors should be aware that the purchase of new buildings can burden them with 24% VAT; otherwise, the transfertax burden plunges to 3.09% on used premises, which is the effective rate of the real estate transfer tax applying to any real-estate property transfers not subject to VAT. Tax benefits are available through the use of financial leasing of premises as described below.

Operating a logistic business

Direct tax implications

Like all businesses in Greece, profits earned from logistics operations are subject to corporate income tax currently set at 29%. Taxable profits are generally derived following deduction from gross income of qualifying expenses, including interest and depreciation (under conditions).

Transactions between associated companies should be at arm’s length, i.e. they should be carried out under economic or commercial conditions similar or identical to those applying between nonassociated companies. Failure to comply with transfer-pricing rules and documentation obligations can result in the upward adjustment of corporate income tax and the imposition of heavy penalties.

Certain payments trigger withholding tax at rates determined by domestic legislation, unless the beneficiary is established in a country with which Greece has signed a treaty for the avoidance of double taxation and such treaty provides for a lower withholding tax rate. The most frequent payments triggering withholding tax obligations include royalty and interest payments, which are currently subject to the domestic rates of 20% and 15%, respectively, although exemptions can apply under conditions. The distribution of dividends is currently subject to the domestic rate of 15%, with exceptions generally applying to dividends distributed by Greek branches to their foreign head offices and by subsidiaries, under conditions. Payments for services can also be subject to 20% withholding tax, but exemptions apply subject to conditions.

Indirect tax implications

From an indirect tax perspective, the most important tax is VAT, whose standard rate is currently set at 24%. Logistics services are normally burdened with 24% VAT, with an exemption applying for certain cases involving only transportation services. However, when logistics services are rendered to foreign entities Greek VAT may not be due if such services do not primarily involve warehousing activities. It should be appreciated that not assessing Greek VAT should constitute a decision based on solid legal grounds, since it can otherwise trigger adverse implications, involving monetary penalties and even criminal sanctions.

Although the importation of goods from outside the EU is generally subject to 24% import VAT as well as customs duties (which vary depending on the nature of the goods imported), such levies should not normally burden logistics businesses, since importations are usually effected in their clients’ name (thus burdening the clients). Finally, investors should bear in mind that certain transactions such as the granting of loans by lenders who are not financial institutions or the assignment of claims, can be subject to stamp duty (normally 1.2%, 2.4% or 3.6%), although exemptions can apply in a number of cases.

Taxation on real estate

Foreign investors intending to carry out logistics business in Greece through a privately owned warehouse will be burdened annually with Unified Real Estate Ownership Tax (UREOT). UREOT is the most prominent real-estate ownership tax in Greece and is assessed on any Greek or foreign company owning Greek immovable property. It consists of a main tax and a supplementary tax, with the main tax ranging from EUR 0.001 to EUR 13 per square meter (and is then multiplied by certain coefficients); the supplementary tax is calculated at the rate of 5.5‰ on the objective tax value of all Greek real-estate holdings.

In addition to UREOT, Greek and foreign companies are subject to an annual Special Real Estate Tax (SRET), calculated at the rate of 15% of the objective tax value of all Greek real-estate holdings held on 1 January of each year. Several exemptions can be invoked and the relevant conditions for exemption must be fulfilled as at 1 January of each year and evidenced on the basis of specific, and rather formalistic, documentation.

As an alternative to the ownership of real estate, foreign investors can opt to lease warehousing facilities either directly, or under sale-and-leaseback schemes involving transfer tax exemptions. In this way, investors can benefit from income tax deductions (e.g. leasing expenses/interest and, under conditions, depreciation) and increased cash flows, since funds that would have been applied to the purchase of warehousing facilities and to the respective acquisition and ownership taxes, can now be channelled to productive activities and further investment.

Exit taxes

Where a foreign investor wishes to seize operations in Greece, the shares or the business can be sold or the company liquidated/branch wound down. Profits arising from the transfer of shares are treated as business income and generally taxed at 29%. However, this tax would not apply to foreign investors without any physical presence in Greece, if they sell shares in their Greek subsidiaries. Capital gains arising if the Greek branch or subsidiary sell the logistics business and/ or its assets are treated as regular profits and are subject to tax at 29%. If the sale qualifies as a transfer of a business as a going concern for tax purposes, it can trigger stamp duty; otherwise, transfers of assets are subject to VAT. Proceeds of liquidation distributed to shareholders/ head office are treated as dividends/profit distributions respectively and taxed as such.

Final Words

Being strategically located in the region of South-East Europe and in view of the ever-growing international trade between East and West, Greece can play an important role in logistics activities.

In this context and in spite of its seemingly complex and continuously changing tax framework, if the investment is planned ahead correctly, taxation in Greece may not be such a significant barrier for foreign investors intending to carry out a logistics business in Greece given currently available incentives as well as facilitations to come.

GREENWOODS INSURANCE BROKERS LTD. INSURANCE & LOGISTICS

The term insurance is closely linked to the concept of risk and the literature referred to as “the concentration of random and unpredictable risks by transferring them to insurers who agree, for a premium, to indemnify the insured for accidental damage or provide other financial benefits or services related risk “.

In general terms, the risk represents uncertainty of occurrence of a harmful potential and the possibility that there is a possibility it may not be favorable. The risk exists in various situations involving individuals, enterprises and society as a whole. However, the definition of risk may be different when used as an analytical tool for financial analysts, statistical analysts, decision analysts or security analysts. Within the insurance industry, risk represents either a risk insured against an event (e.g. fire) or a property covered by an insurance policy.

Stages of a risk are five: prevention, detention, transfer, loss control and insurance. The way chosen by each person or company or society in general related to the way it manages the risks (risk management). Where the insurance is selected to be used as a method of risk management, should be highlighted, inter alia, the choice of insurance coverage, the option of the insurer, the negotiation of insurance terms, information on insurance coverage and the periodic review of the insurance program chosen.

The private insurance as an idea comes from ancient times with some strong indications appearance in Mesopotamia. During land transport development, traders were making agreements among themselves, in order to face together as a whole any loss or damage of goods carried during the journey.

This led historically to adopt unconventional security mechanisms as in ancient Greece, and the Roman era, in Spain, Italy, Portugal, Netherlands, where was established and the first insurance company for the shipping insurance while in London (1666) created the first insurance company for fire.

The competition in the Greek insurance market is fierce. Causes of this fierce competition is the large number of companies operating in the industry, the slowdown in market growth and the strong bargaining power of customers, reinsurers and insurance products distribution network.

The potential competition from the risk of entry of new firms in the industry is an important determinant of the industry structure and the insurance companies’ profitability level. At the same time, the provision of insurance services from companies that are not established in Greece, but also the existence of 46 specialized insurance companies, which can operate in specific segments of the insurance market creates strong competitive pressures in the industry and help reduce their profitability. Insurance is no longer just an option, but a necessity.

General Background

Hellenic Logistics and Transportation industry is a very important sector, with a reasonable share in the European market, while Supply Chain sector is another major component of imports-exports which is rapidly and continually growing.

Hellas’ imports and exports are rising and are expected to continue to do so as measures to increase competitiveness are implemented. The destination of over one-half of Hellas’s exports was the European countries for many years, and Germany remains its largest export customer.

The development of Hellenic commerce is notable. Hellenic economy includes a large Logistics and Transport sector. Hellenic Transport industry, shipping, road, air and rail, has ranked among the most important industries in the world for a lot of years. The financial sector is rapidly developing and holds great export potential. This sector displays an obvious tendency towards internationalization.

Transportation and Logistics

An industrialized society cannot exist without an efficient transportation system. We often assume that products will move from where they are produced to where they are consumed with a minimum of difficulty, in terms of both time and cost. In most industrialized economies transportation is so pervasive that we often fail to comprehend the magnitude of its impact on society. The logistics is a relatively modern service industry that combines transportation to storage and distribution. The provision of logistics services play an important role in international entrepreneurship, and is an important factor for attracting investments.

The term “logistics” is defined as the management of all transportstorage functions, including ancillary activities in moving the product from the point of production to the consumption points.

The development of logistics services in Greece time rendering sector is placed at the beginning of the 1990s to EU Directive 92/106 / EEC, which allowed the substitution of public customs warehouses, resulting in forwarding businesses to exploit their temporary dumps Community goods, services or providing storage and distribution. Also, an important step was made with the inclusion of logistics to the provisions of the development law N.3299 / 2004 which held definition of specifications, terms and conditions for qualification of investment supply chain service projects.

Failure to develop combined transport in Greece has resulted in the movement of goods, mainly by road, but is strategic importance of logistics in the Greek economy. This is an area that has enormous growth potential, mainly due to the geographical position of the country. According to reports by the agents of the logistics industry in the context of the World Bank research, the Greek logistics shows remarkable performance and characterized as «consistent performer».

The Logistics are applicable in two main fields. The first is the enterprise, which must organize the input, internal movements and outflow so materials and products, in order to ensure maximum customer satisfaction. The second field is the supply chain companies, which are ensuring the transportation of a product from the producers to the final consumers. The essential elements that interweave the Logistics is the management and strategic planning of the operation for production, storage and distribution of goods, from raw materials to finished products. The mission of logistics is to bring the right goods or services to the right place at the right time and in the desired condition, while contributing greatly to the company. The key characteristics governing the transport environment in Greece is that the country is in Europe’s peripheral area and not maintain physical borders with the rest of the EU.

Following the opening of the EU to the East, and precisely because of Greece’s position as a hub of maritime transports in the Eastern Mediterranean, Greece has increased its international importance. The importance of Greece today in the European transport system has changed radically. Greece is located at the junction of 4 large geopolitical areas (East of the EU, south of the former Eastern Europe, west of the rapidly growing Turkey and north of the Arab world) with an increasing role and influence, and it could be considered as a host hub for goods in the wider area.

The role of Insurance and Insurance Broker

A successful and effective management of complicated risks involved in the supply chain, requires the participation of specialized Insurance Brokers with experience of the operational peculiarities of Supply Chain activities. They must have the ability to properly manage such specialized risks and have access to the specific insurance market that is writing such perils.

It should be noted that an insurance contract is based on the “Good Faith” by both parties (Utmost Good Faith). Thus, the insurance contract is a mutual property and assigned as follows: a) The conditions of coverage, which is the interest protection of the insured and in accordance with these conditions will require a compensation in case of occurrence of the insured peril and, b) The exceptions, which are the terms for the insurer. Both above cases, should be carefully and consistently analyzed by the Insurer to the Insured, in order to have a clear and comprehensive picture of the extent of the coverage offered.

Risks applicable to the Supply Chain Industry

Goods can be insured during international transits, storage and distribution with the following specialized insurance policies:

• “All Risk” or “Named Perils” open and block policies under the terms and conditions of the Institute cargo clauses for cargoes in transit.

• Property & Casualty all risks policies for cargoes in storage.

• “Stock throughput policy” which is a very extended coverage for cargoes in transit and storage.

Additionally, all parties involved in the supply chain (freight forwarders, international carriers, warehousekeepers, logisticians and inland carriers) who are acting under international conventions or international and national civil codes have a specific professional liability which can be covered with the following insurance policies.

• Freight Forwarders and/or Carriers Liability Insurance as defined by international Conventions (CMR, COTIF, Hamburg, Warsaw, etc.) and the Civil Code.

• Warehousekeepers Professional Indemnity Insurance.

Under all the above requirements, the Insurance Broker becomes a “strategic partner” for the Supply Chain Entrepreneurs. Our company Greenwoods Insurance Brokers Ltd has extensive insurance experience in all aspects of International & Domestic Cargo business, Cargo Liabilities, Marine Hull, Aviation, Commercial and Industrial, classes of business.

With modern conception, consultancy, respect and reliability, we give you the best possible solution for each peril. We create new products special for you and provide you with integrated coverage for your professional business and personal insurance needs.