The so-called “Law 89 regime,” among the least known investment incentive pieces of legislation available in Greece, is there to promote the establishment of shared services centers in Greece, i.e. Greek entities providing specific back-office services to other, usually foreign, entities of the same group.
Since 2005—when the Greek government successfully transformed regimes such as the Law 89 regime (also called “commercial Law 89 regime” so as to be distinguished from the “maritime Law 89” one) to meet EU standards against tax avoidance—entities providing specific back-office services to other entities of the same group may exclusively provide one or more of the following services: consulting services, accounting support, quality review on production of products and services, drafting studies, designs and contracts, advertising and marketing services, data processing, receipt and provision of information, and research and development services. Very recently (March 2019), the permitted types of services were expanded so as to include software development, computer programming, IT systems support, information filing, storage and management, supply chain management, as well as HR- and call center-related activities. The scope of permitted services may now foster the establishment of a full-fledged, grand-scale shared services center that may serve most of the support functions needed in a multinational group. A special application should be filed per se with the Ministry of Economy, accompanied by a benchmarking study further to the OECD transfer pricing guidelines. Once approved, said entity should employ at least four people and have at least €100,000 of annual expenses.
The scope of permitted services may now foster the establishment of a full-fledged, grand-scale shared services center
Two basic tax features make this regime really attractive. The one is the absolute certainty of its corporate tax base, as its taxable profits are determined by applying a specific markup (no less than 5%) on its total expenses. Thus, any expense which is properly recorded in the Greek books should be treated as tax deductible. The other relates to individual income taxation, since all its non-Greek employees are taxable in Greece on their Greek-source income only, leaving any other source of income (i.e. foreign capital gains, fees for services rendered abroad, etc.) practically tax-free. It should be also noted that foreign employees of a Law 89 company may get a five-year visa to work and travel easily, a very useful tool for third country (e.g. USA, China, Latin America) executives traveling within the EU.
New legislation explicitly mentions that provision of services through the Law 89 offices is excluded from the application of the effective management criterion attracting the tax residence of foreign legal entities in Greece. Different kinds of subsidies have also been made available to Law 89 companies, provided new jobs are created.
All that by itself may not sound too innovative; however, as a senior executive of a multinational client once told me, he could not imagine someone opting to live in a cold, northern European country (e.g. Switzerland, where many of the multinationals’ regional headquarters are based) instead of Greece. The Law 89 regime does provide an alternative to the “Swiss sandwich” structure and other modernized equivalents to the same end.