Greek property taxes slowly being clarified
West Crete Journal, February 2006

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.