Greek taxes: What does the dividend tax increase mean?

In the run-up to the polls on June 25, taxes have set the political scene on fire, sparking a fierce battle between ND, SYRIZA and PASOK.

At the center of the pre-election controversy has been the taxation of dividends, with the blue faction hurling barbs mainly at PASOK, speaking of “dangerous tax” plans that will brake “the record increase in private investment that has occurred in recent years” and is a major development issue to cover the long-term investment gap in the Greek economy and to create new jobs, to support the unemployed, the vulnerable, the young”.

The SYRIZA program includes an increase in the tax rate on dividends above 50,000 euros, but after the noise that broke out, party oficials state that it is not a priority as it will not bring significant revenue to the budget.

PASOK insists on increasing the dividend tax, and specifically from the current 5% it proposes to increase it to 10% for dividends between 50,000 and 100,000 euros and to 15% for dividends over 100,000 euros.

With PASOK’s proposal, if a company shareholder receives an annual dividend of 70,000 euros, then the tax from the current 3,500 euros (70,000 x 5%) will rise to 4,500 euros (50,000 x 5% + 20,000 x 10%) ).

The charge

According to analysts, the increase in dividend taxation will reduce the country’s competitiveness as the total burden on businesses will exceed 33% since the increase in dividend taxation will be added to the corporate income tax rate of 22%.

“Those who believe that dividend taxation is low now, deliberately or out of ignorance, do not take into account that scientifically the relevant taxation is added together with the taxation of the companies to arrive at the final burden of the investor”, notes the former Deputy Minister of Finance Giorgos Mavraganis, explaining that ” out of 100 units of profit, 22 is corporate tax and 11.7 (100-22 x 15%) will be dividend tax, i.e. a total burden of 33.7 for the investor, which will seriously reduce our investment competitiveness.”

With the aim of attracting investments, the government of New Democracy with Law 4646/2019 reduced the tax on dividends from 10% to 5% and indeed Greece currently has one of the lowest tax rates on dividends in the European Union. However, in addition to the 5% tax, Greece taxes corporate profits at 22%. Therefore, the tax for the same profits reaches 27%.

In any case, businesses can choose:

• to retain the profits for reserve or for the development of the company or
• to distribute all profits to shareholders or
• to make a combination.