This article examines the tax implications of mergers and spin-offs of business units for real estate companies in Greece, based on a recent presentation by AFS (#mazimegalonoume). The analysis highlights the advantages and disadvantages of each strategy, helping real estate businesses make informed decisions aligned with their strategic goals.
Mergers: A detailed look
The merger of companies in Greece offers many tax benefits under Laws 4601/2019 and 5162/2024. Key advantages include:
Capital gains tax exemption: The acquiring company is exempt from capital gains tax on profits from the merger.
Preservation of tax depreciation: Depreciation of assets continues at the previous rates for the acquiring company.
Carry-forward of tax losses: The tax losses of the absorbed companies may be transferred to the acquiring company under certain conditions.
Exemption from capital concentration and real estate transfer taxes: The merger is exempt from these taxes if all legal conditions are met.
Additional tax incentives: New companies resulting from mergers are entitled to a 30% reduction in income tax for up to nine years, provided that they meet specific criteria (minimum turnover, number of employees, etc.). The maximum tax benefit is €500,000 over nine years.
However, mergers also present potential disadvantages:
Shareholding retention requirements: Shareholders must retain their shares for at least two years in order to preserve the tax benefits.
Operational incompatibilities: If the merging companies have significantly different operations, incompatibilities may arise in VAT and ENFIA (property tax) calculations.
Spin-offs of business units: A comprehensive analysis
Spin-offs of business units, that is, the separation of a business unit of a company into a new entity, offer the following tax benefits:
Capital gains tax exemption: Profits from capital gains are generally exempt from tax.
Recognition of the market value of shares: The shares of the new company are recognised at their market value, improving the financial picture.
Specialisation in business activity: Spin-offs allow the creation of specialised companies (e.g. one for commercial property, one for residential), improving management.
Preservation of tax losses: Tax losses are transferred to the new company.
Exemption from capital concentration and real estate transfer taxes: Similar to mergers, spin-offs may be exempt from these taxes if the legal conditions are met.
Despite these advantages, spin-offs also have potential disadvantages:
Retention of holdings: Shareholders must retain their holdings in the new company for at least two years in order not to lose the tax benefits.
Complexity and cost: Spin-offs involve complex legal and administrative procedures.
VAT and ENFIA differences: If the activities of the separated unit differ significantly, variations may arise in the application of VAT and ENFIA.
Definition of “Business Unit”
The definition of “business unit” in the context of spin-offs is crucial. Greek Law 4601/2019 aligns with Directive 2009/133/EC, defining a business unit as a self-sufficient operational unit comprising assets and liabilities capable of independent operation.
Conclusion:
Both mergers and branch demergers offer tax advantages, but require careful consideration of the legal framework, compliance aspects and possible drawbacks. The optimal choice depends exclusively on the specific strategic objectives of the company concerned. Obtaining professional advice from tax and legal advisers is essential in order to make informed decisions and ensure compliance with all regulations.
