The finance ministry’s multi-bill that tears up the old rules and provides for separate taxation of 25%, brings twists to the taxation system of dividends up to 45%, which was imposed by former finance minister Giorgos Papaconstantinou.
The economic team decided to eliminate the heavy taxes on those who gain any income from dividends, in view of the investment apnea and as yields of business investment have fallen very low.
This provision aided this fall, as many companies stopped distributing dividends, and used the process of returning capital to shareholders, which is tax free.
More specifically, the multi-bill retroactively repeals the tax on distributed dividends or profits for the year 2011 (business year 2010) onwards.
Until today tax withholding is at 25% on income from securities, profits distributed by cooperatives or domestic companies of limited liability, in physical or legal persons, associations or groups of assets. This withholding is imposed on profits distributed by the domestic companies of limited liability:
- in the form of dividends or pre-dividends to physical or legal persons, associations or groups of assets, regardless whether they are paid for in cash or shares
- in the form of fees and rates to board members and directors and remuneration to manpower, apart from their salary
Beyond that, and with the current system of Papakonstantinou, the holder’s tax liability to these dividends for the above income is not exhausted by withholding the 25%. They are aggregated with all the rest and if the beneficiary is a physical person and the tax rate gets higher than 25% then they are taxed at the relevant rate of up to 45%.
However, if the rate is lower than that of the general provisions, then the resulting credit of tax is refunded to them.