The Independent Consultant's Guide to Selecting and Setting Up a Legal Entity in Greece
Please note that this information is for informational purposes only. Umbrex strongly recommends that you consult with an attorney and tax professional to select the entity type most appropriate for your situation.
Get help setting up an entity in Greece
Independent consultants in Greece have several options when it comes to structuring their business. The most common forms include Sole Proprietorship (Ατομική Επιχείρηση), Private Company (Ιδιωτική Κεφαλαιουχική Εταιρεία – IKE), and Partnerships (General Partnership – Ομόρρυθμη Εταιρεία – OE, and Limited Partnership – Ετερόρρυθμη Εταιρεία – EE). Each option comes with different legal, tax, and administrative implications, which should be considered carefully.
Sole Proprietorship (Ατομική Επιχείρηση)
Overview: A Sole Proprietorship is the simplest business structure in Greece, where the individual operates under their own name or a trade name without creating a separate legal entity.
Legal Implications: The sole proprietor has unlimited personal liability for all business debts and obligations. This means that personal and business assets are not separated, and personal assets are at risk if the business incurs debts.
Tax Implications: Sole proprietors are taxed as individuals, with progressive income tax rates ranging from 9% to 44%, depending on income. VAT registration is required if annual turnover exceeds EUR 10,000, with the standard VAT rate set at 24%. Social security contributions are mandatory through the Hellenic Unified Social Security Fund (EFKA).
Suitability: Suitable for small-scale independent consultants who want a simple structure with minimal administrative burden.
Process for Setting Up a Sole Proprietorship:
- Register with the Tax Authority (Ανεξάρτητη Αρχή Δημοσίων Εσόδων – AADE): Obtain a tax identification number (Αριθμός Φορολογικού Μητρώου – AFM) and register for tax purposes.
- Register with the EFKA: Mandatory for social security contributions.
- Register for VAT (if applicable): VAT registration is mandatory if annual turnover exceeds EUR 10,000.
- Open a business bank account: Recommended to keep personal and business finances separate, although not mandatory.
Considerations for Consultants:
- Liability Risk: The unlimited liability exposes personal assets to business debts, making this structure riskier for consultants with larger projects or potential legal risks.
- Taxation Simplicity: Sole proprietors are taxed as individuals, simplifying tax compliance, but higher-income earners may face significant tax burdens.
- Administrative Simplicity: The Sole Proprietorship structure is easy to set up and maintain, making it ideal for consultants who prioritize simplicity.
Private Company (Ιδιωτική Κεφαλαιουχική Εταιρεία - IKE)
Overview: The Private Company (IKE) is a flexible legal entity introduced to simplify business formation in Greece while offering limited liability to its shareholders. IKE is ideal for small and medium-sized enterprises, including independent consultants seeking liability protection.
Legal Implications: Shareholders’ liability is limited to their capital contributions, meaning personal assets are generally protected from business debts, except in cases of fraud or mismanagement.
Tax Implications: IKEs are subject to corporate income tax at a flat rate of 22%. Dividends distributed to shareholders are taxed at 5%. VAT registration is required if annual turnover exceeds EUR 10,000.
Suitability: Ideal for independent consultants seeking liability protection and planning to scale their business or work with multiple partners.
Process for Setting Up an IKE:
- Prepare the Articles of Association: Draft and notarize the Articles of Association, which outline the company’s structure.
- Register with the General Commercial Registry (Γενικό Εμπορικό Μητρώο – GEMI): The IKE must be registered through GEMI for legal recognition.
- Obtain a tax identification number (AFM) from the AADE: Required for tax filings and VAT registration.
- Register for VAT (if applicable): VAT registration is mandatory if annual turnover exceeds EUR 10,000.
- Open a corporate bank account: Required to manage business finances separately from personal assets.
Considerations for Consultants:
- Liability Protection: IKEs provide strong protection for personal assets, making them ideal for consultants handling larger contracts or facing higher legal risks.
- Corporate Taxation: The 22% corporate tax rate is competitive, but dividend payments are subject to an additional 5% withholding tax, which should be factored into profit distribution.
- Administrative Complexity: Setting up and maintaining an IKE involves more documentation, reporting, and compliance compared to a Sole Proprietorship, but it offers better long-term security for growing businesses.
General Partnership (Ομόρρυθμη Εταιρεία - OE) and Limited Partnership (Ετερόρρυθμη Εταιρεία - EE)
Overview: Partnerships allow two or more individuals to operate a business together. In Greece, there are two types of partnerships: General Partnership (OE), where all partners share unlimited liability, and Limited Partnership (EE), where at least one partner has unlimited liability while others have limited liability based on their capital contributions.
Legal Implications: In a General Partnership, all partners are personally liable for the business’s debts. In a Limited Partnership, general partners face unlimited liability, while limited partners are only liable up to their capital contribution.
Tax Implications: Partnerships are taxed as legal entities, subject to a 22% corporate income tax. VAT registration is required if annual turnover exceeds EUR 10,000. Partners are also subject to personal income tax on their share of profits, and dividend payments are taxed at 5%.
Suitability: Suitable for consultants working closely with partners, especially those willing to share responsibility and liability in a General Partnership or limit liability through a Limited Partnership.
Process for Setting Up a Partnership:
- Draft a Partnership Agreement: Clearly define the roles, responsibilities, and profit-sharing arrangements between the partners.
- Register with GEMI: The partnership must be registered with the General Commercial Registry.
- Obtain a tax identification number (AFM) from the AADE: Required for tax filings.
- Register for VAT (if applicable): VAT registration is mandatory if turnover exceeds EUR 10,000.
- Open a partnership bank account: It is recommended to keep business finances separate from personal finances.
Considerations for Consultants:
- Liability Exposure: General Partnerships expose all partners to unlimited liability, increasing personal risk. Limited Partnerships offer protection to limited partners while maintaining risk for general partners.
- Tax Efficiency: Partnerships allow profits to pass through to partners, who are taxed individually, providing flexibility in managing tax liabilities.
- Clear Agreements: A well-drafted Partnership Agreement is essential to avoid disputes and ensure smooth business operations.
Special Considerations for Foreign Consultants in Greece
- Foreign Ownership Rules:
- Foreign consultants can fully own Private Companies (IKE) or Limited Partnerships (EE) in most sectors, but specific industries, such as defense or telecommunications, may have restrictions on foreign ownership or require government approval.
- Visa and Work Permit Requirements:
- Non-EU/EEA consultants must obtain a Residence Permit for Independent Economic Activity or a Business Visa to operate a business in Greece. EU/EEA citizens can work in Greece without a visa but must register with local authorities for long-term stays.
- Banking and Currency Controls:
- Foreign consultants are required to open a business bank account in Greece for local operations. Greece uses the Euro (EUR), and consultants working internationally should be aware of exchange rates and potential regulations around transferring funds abroad.
- Double Taxation Agreements:
- Greece has signed double taxation treaties with numerous countries, allowing foreign consultants to avoid paying taxes on the same income in both Greece and their home country.
- Social Security Contributions:
- All consultants operating in Greece must contribute to the Hellenic Unified Social Security Fund (EFKA), which covers pensions, healthcare, and unemployment benefits.
Considerations for Independent Consultants in Greece
- Liability: Independent consultants must carefully consider their liability exposure. Sole Proprietorships and General Partnerships carry unlimited liability, while IKEs and Limited Partnerships offer personal asset protection.
- Tax Efficiency: Consultants must weigh the benefits of personal income tax for Sole Proprietorships versus corporate tax for IKEs. VAT registration is required for businesses with an annual turnover exceeding EUR 10,000.
- Administrative Complexity: Sole Proprietorships and partnerships have fewer administrative requirements, while IKEs involve more compliance and annual reporting, making them suitable for consultants with long-term growth plans.