The new Greek government headed by Prime Minister Kyriakos Mitsotakis wishes to reach 2.8% economic growth next year. Part of the plan to achieve this goal includes a tax reform which introduces a curious new concept of Greek flat tax residency for wealthy foreign investors. Let’s discuss this interesting idea in more detail.
Greek Flat Tax Residency: Basic Description
The government envisions that the flat tax residency scheme will function in the following way: a foreign individual who makes qualified investments into the Greek economy will be allowed to shift his tax residency to Greece and pay a certain flat tax rate on his entire taxable income. In order to counter the other EU members’ potential objections, these new Greek tax residents will need to be physically present in Greece for at least 183 days per year.
Greek Flat Tax Residency: Required Investments
In order to become a qualified individual, the investor will need to invest at least 500,000 euros into the Greek economy during the first three years of his tax residency.
Greek Flat Tax Residency: Flat Tax Rates
The exact flat tax rate depends on the amount of investments into the Greek economy. If an investor invests only the minimum required 500,000 euros, then his flat tax will be 100,000 euros plus 20,000 euros for each family member.
If, however, this investor invests 1.5 million euros into Greek assets, then the flat tax will be only 50,000 euros. An investor who invests 3 million euros into the Greek economy will see this flat tax halved again to a mere 25,000 euros.
Given the unstable nature of Greek politics, the government intends to insert a grandfather clause which will protect investors against any tax reforms by future governments.
Greek Flat Tax Residency: Term of the Program
The flat tax residency program will be in place for at least fifteen years, unless renewed by future governments.
Greek Flat Tax Residency: Bill Voting
At this point, the flat tax residency scheme is merely a bill, not a reality. The government expects that the Hellenic parliament will vote on the draft bill by the end of November of 2019.
Greek Flat Tax Residency: Impact on US Citizens
The proposed flat tax residency would be a great tax planning tool for the high-net worth citizens of the great majority of countries in the world, because the majority of the world follows either the territorial model of taxation or residency-based model of taxation. This is not the case with respect to the United States.
The United States follows a citizenship-based worldwide income model of taxation. US citizens are considered to be US tax residents irrespective of where they reside and whether they acquire tax residency in another country. This is almost unique in the world.
This means that the proposed Greek flat tax residency would be of limited value to US citizens. Despite the fact that they would acquire Greek tax residency, they would still be considered US tax residents and will have to pay US taxes on their worldwide income. Most likely, they will be able to get a Foreign Earned Income Exclusion for any active income (i.e. salary, self-employment income and similar earnings) up to the annual exclusion amount and some tax treaty benefits, but no other direct benefits.
Greek flat tax residency may still, however, offer more indirect benefits in the context of more sophisticated tax planning. For example, foreign corporations owned by US citizens who are also Greek tax residents may be able to obtain better tax treaty benefits.
Contact Sherayzen Law Office for Professional Help With Your US International Tax Compliance
If you are a US citizen who acquires Greek tax residency, you should be concerned about your US tax compliance. US international tax law is extremely complex and it is very easy to run afoul of its provisions, Noncompliance penalties in these cases may be extremely high. This is why it is important to have a trustworthy knowledgeable US international tax attorney by your side.
Sherayzen Law Office has successfully helped hundreds of US taxpayers with their US international tax compliance, including those who are tax residents of other countries. We Can Help You!