Although due to take effect from January 1 2006, the new property tax legislation
is complicated and unclear. What we know so far is this:
1. The objective tax value for land plots or resale properties in the Chania
prefecture has been uprated by an average of about 20%, depending on area. Therefore
we advise clients to allow around 12% for purchase costs, instead of around
10% previously.
2. Full details of how the VAT system on new buildings are to be implemented
are not yet available, but 19% VAT will be charged on all new buildings which
did not have permits issued before 1 January 2006. However, this replaces the purchase tax in (1) on new buildings. The worked examples we have seen,
show that the end-cost of new buildings to clients will be around the same
as before and not an additional 19% as previously feared.
3. A transaction tax (i.e. stamp duty) of 1% will be payable on most if not
all transactions. This is supposed to replace the purchase tax in (1) eventually,
but details of the transition period have not been announced yet. It is not
clear yet whether this will be due on new buildings.
4. A tapering Capital Gains Tax has been introduced, which means that clients
who sell their properties within a certain period will have to pay tax on the
profit made. This is 20% if sold within the first five years after purchase;
10% if sold after 5-15 years; 5% if sold after 15-25 years, and zero thereafter.
Our opinion
There is a saying here: mono stin Ellada which means “it could only
happen in Greece”!
Although the financial effects of the objective tax value uprating and VAT on
new buildings thankfully appear to be trivial, at present the methods and formulae
used are tortuous and unnecessarily complicated. One example gives no less than six differing values for the same house during calculations for the new
VAT imposition, while another asks us to multiply a value first by 80% then
by 70%, instead of just saying 56% in the first place!
We have copies of the relevant government papers and circulars, and it is clear
that the law passed by parliament in December was painted with a very broad
brush. Further fine-tuning is needed, in order to simplify and clarify the intention
and wording of the law (which is directly contradictory in places), together
with instructions on its practical implementation. Different tax offices are
currently interpreting the new law in different ways, and we have been advised
that because of the complicated formulae used, at the moment each case needs
separate consideration.
Having consulted with lawyers, tax offices, Notary Publics and professional
associations, we are receiving the same opinion: no-one knows exactly what to
do yet! All involved with the property market expect that the law will be clarified
by a series of government circulars during this spring.
- West Crete Journal, February 2006 |
