Greek businesses seek greener pastures in Cyprus, Bulgaria

For that small group of courageous young Greek entrepreneurs who have decided to start working for themselves, the big question is no longer the “how” but the “where,” given the hostile environment for business in Greece, not to mention ever-increasing taxes. In the last two years alone, 800 new Greek companies have set up shop in neighboring Bulgaria, while another 1,500 have picked up and left Greece to set up their headquarters in Cyprus. More determined entrepreneurs have migrated as far as Great Britain and even the United States, while a handful of savvy professionals have opted for tax havens like Panama and the Cayman Islands in order to avoid having to do business in Greece. According to a recent study published by the Greek Chamber of Industry and Commerce, 80 percent of Greeks see the lack of stability in the tax system and in labor and social security laws as the main obstacle to the development of entrepreneurship. Another 62 percent see high taxes as a major factor against doing business in Greece, as in contrast to the domestic 20 percent business tax, in Bulgaria and Cyprus it does not exceed 10 percent, in Ireland and Portugal it stands at 12.5 percent and even in Germany it is 15 percent. “People are constantly asking questions about where it is most beneficial to start a business,” Sotiris Vasilopoulos, a lawyer, told Kathimerini. “It is not just high taxation that is preventing them from starting up here.

It is also the fact that the taxation system is so vague that it does not inspire any trust. They can’t plan how to run their businesses in such an environment.” Cyprus is attractive not just because of low taxes, but also due to the anonymity afforded by the English legal system adopted there. “Many civil servants or businessmen who have filed for bankruptcy in Greece consider opening something up in Cyprus, where they can remain anonymous,” explained Vasilopoulos, adding that a recent law stating that pensioners who are in business will have to forfeit a part of their pension has led to a spike in the numbers of businessmen looking abroad. Bulgaria is also proving a very popular destination, not just because of the lower taxes, but also because of the efforts being made there to promote the country as having a business-friendly environment, which is visible in the increasing number of firms advertising that they can help foreign companies set up shop in Bulgaria in just a couple of weeks.

According to Vasilopoulos, though, red tape and corruption are still significant forces that need to be reckoned with in the neighboring country, while he also says that both in Bulgaria and in Cyprus, running a business can be significantly more expensive than in Greece.

Tax havens such as Panama and the Cayman Islands also offer complete anonymity, as well as a complete absence of controls, but Vasilopoulos warns that companies based there will inevitably suffer a loss of reputation as these destinations are notorious for shady businesses, such as online gambling firms. What it comes down to is that the flight of businesses from Greece is gaining momentum, dealing a serious blow to state coffers in the process.

Leading industry officials and politicians, worried by developments, have begun to stress the need for a reduction in taxes in order to reduce the comparative disadvantages of doing business here rather than elsewhere in the region.

According to another study conducted jointly by the Chamber of Industry and Commerce and the University of Athens, a reduction in the main business tax to 15 percent for a period of five years would provide a significant boost to entrepreneurship. Moreover, experts say that increasingly difficult access to credit as banks become more and more reluctant to issue loans is another important factor stunting growth.

According to the study, a poll found that 49 percent of respondents see the restricted access to loans as a major factor against doing business in Greece, while 55 percent consider the state’s failure to clamp down on tax evasion one of the reasons why businesses are reluctant to work here. It’s not just the standard tax rates charged to companies; the World Bank found in its annual Doing Business report that the total percentage of levies as a percentage of turnover for businesses in Greece comes to an unbelievable 47.2 percent.

Apart from the standard tax, the average firm also needs to pay social security contributions, as well as a municipal tax, advertising taxes and other fees and levies. Because of the fickleness of the taxation system and the high contributions businesses are expected to make, the World Bank ranked Greece in 109th palce out of 183 countries in terms of its business environment. The problems in Greece are best illustrated by the fact that European states with much higher taxes (such as Sweden, France and Spain) rank above this country because their taxation system is a lot simpler and there is much less red tape.  

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