New Tax Framework for Business Transformations: What You Need to Know

The new tax bill introduces extensive changes to business transformations, covering areas such as tax treatment, merger processes, and cross-border transformations. The main reforms include updating and consolidating the provisions governing business transformations to reduce legal complexity and ensure greater legal certainty.

Consolidation of Transformation Provisions

All transformation processes (mergers, splits, spin-offs) are now unified under a single framework. This eliminates legal complexity and facilitates compliance.

For instance, a Limited Liability Company (LLC) merging with a Corporation (S.A.) will now follow a unified process instead of separate approaches governed by different laws (e.g., Law 4601/2019 and Law 4072/2012).

Tax Neutrality in Mergers

When assets are transferred during transformations, capital gains taxation is deferred. The assets retain their tax basis.

For example, if a company spins off its production division and transfers it to a new company, it will not be taxed on the capital gains of its machinery and facilities. The new company will continue to depreciate the assets based on the same tax basis.

Tax Neutrality for Sole Proprietor Contributions

Sole proprietors transferring assets to new legal entities are shielded from capital gains taxation.

For example, a self-employed professional transferring their business to a Private Company (P.C.) will not be taxed on the capital gains of their assets during the transfer. This lowers barriers for small businesses to grow by establishing legal entities.

Tax Incentives for Smaller Corporate Capital

The minimum corporate capital requirement to qualify for tax incentives is reduced from €125,000 to €100,000, encouraging the establishment of new businesses.

For instance, a new LLC with a capital of €100,000 formed through a merger can benefit from income tax exemptions.

Promotion of Cross-Border Transformations

The provisions align with Directive 2009/133/EC regarding the transfer of corporate seats within the EU and cross-border mergers. Tax neutrality applies even to assets located in different member states.

For example, a Greek company transferring its corporate seat to Germany will not be taxed on capital gains, while assets remaining in Greece retain their existing tax basis.

Loss Carryforward

Tax losses of companies participating in a transformation can be carried forward to the receiving entity, subject to conditions.

Mandatory Asset Insurance

The obligation to insure assets is extended to businesses with annual revenues of €500,000 or more.

Extension of Rules for Seat Transfers

Measures prevent capital gains taxation during the transfer of a registered seat within the EU.

For example, a company transferring its registered seat from Greece to France will not be taxed on profits or gains related to assets retained in Greece.

Special Treatment for Spin-Offs

Companies spinning off specific divisions can transfer reserves, depreciation, and losses to the new entity.

For instance, a manufacturing company spinning off its packaging division into a new entity can transfer reserves and provisions for past losses without tax burdens.

Provisions for Mergers Between Different Legal Forms

Transformations between companies of different legal forms are facilitated with unified criteria.

For example, an LLC merging with a Private Company (P.C.) will receive the same incentives as mergers between Corporations (S.A.).

Favorable Taxation for Innovation Income

Profits from patents and technologies developed during a transformation are taxed at reduced rates.

For example, a company developing software that transforms into a Corporation (S.A.) benefits from reduced taxes on profits related to the software.

For business transformations that are underway at the time of the new bill's enactment, transitional provisions ensure a smooth transition to the new framework. Specifically, it is provided that procedures initiated under the previous legal framework may be completed in accordance with the regulations in force at that time, unless the involved companies choose to opt into the new framework. This allows entrepreneurs to select the most favorable tax and administrative regime while ensuring legal and tax certainty for processes already at an advanced stage.