Transferring Shares in a Greek Private Company (IKE): Process, Taxation and What to Watch Out For

What the Transfer of Company Shares Is

The transfer of company shares is the sale of a partner's participation percentage to another person, natural or legal. The company itself does not change: it keeps its tax number, books, contracts and obligations. Only the composition of the partners changes. A transfer differs from a share capital increase, where the new partner enters with new shares issued by the company itself and the money goes to the company, not to the seller. The choice of the business's legal form also determines the rules that apply to such transfers.

The Process Step by Step

1. Check the articles of association: an IKE's articles may provide for restrictions on transfers, pre-emption rights of the remaining partners or a need for consent, and these must be observed before any agreement.
2. Review of the company by the buyer (due diligence): financial data, debts, pending tax audits, contracts and any accumulated losses.
3. Drafting and signing the transfer agreement, with price, method of payment and the parties' responsibilities.
4. Calculation of the capital gain and the tax attributable to the seller.
5. Notification of the GEMI (General Commercial Registry) about the new composition of the partners.
6. Notification of the beneficial owners register, the AADE and the company's banks, where needed, with the new partners' details.

Is a Notary Needed?

In an IKE, the lifetime transfer of shares is as a rule done in writing, with a simple private agreement between seller and buyer, without requiring a notarial deed. This is a key difference from an EPE, where a notarial deed is required for the transfer of company shares. There are, however, special cases, such as when real estate has been contributed to the company, where extra care is needed regarding the form of the transaction, so a review before signing is worthwhile.

How the Capital Gain Is Taxed

The seller's profit from the transfer of company shares, the so-called capital gain, is taxed as follows:

• If the seller is a natural person, tax resident in Greece, and the sale does not constitute their business activity, the gain is taxed at a rate of 15%, on a self-contained basis, exhausting the tax liability
• If the seller is a legal entity, the gain is added to its profits and taxed at the corporate rate of 22%

The capital gain is the difference between the acquisition price and the sale price. Expenses directly connected with the purchase or sale are taken into account in the acquisition price and sale price respectively. According to the AADE's guidance on the current Income Tax Code, no separate return needs to be filed at the time of the transfer, as the income is included in the seller's annual income tax return.

The “Higher Price” Rule in Taxation

This is where the most common surprise lies. For tax purposes, the sale price is taken as the higher of the accounting value of the shares, as derived from the company's equity at the time of the transfer, and the price stated in the agreement. Correspondingly, the acquisition price is taken as the lower of the value derived from the equity at the time of acquisition and the consideration stated in the acquisition agreement. If the company's equity is negative, the tax is calculated on the basis of the agreement price. In practice, this means you cannot reduce the tax by declaring a lower price than the accounting value of the shares.

A Calculation Example

Suppose an IKE with two partners each holding 50%. Partner A bought his share at incorporation for €10,000 and is now selling it to a new partner.

• IKE's equity at the time of transfer: €100,000
• Accounting value of A's share (50%): €50,000
• Price agreed in the agreement: €45,000
• Sale price for tax purposes: the higher of €50,000 and €45,000, i.e. €50,000
• Acquisition price: €10,000
• Capital gain: €50,000 − €10,000 = €40,000
• Tax at 15%: €40,000 × 15% = €6,000

If the tax were calculated on the agreement price (€45,000), the gain would be €35,000 and the tax €5,250. The €750 difference shows why the calculation must be done before negotiating the price, not after. The seller receives €45,000 and is called upon to pay €6,000 in tax, so the net amount is €39,000. The example is indicative.

What to Check Before You Sign

1. The company's articles of association, for restrictions, pre-emption rights and required consents.
2. The financial data and equity, because they determine both the value of the shares and the tax.
3. The company's debts to the tax authority, e-EFKA and banks, as well as any pending tax audits.
4. The accumulated tax losses: if the change in participation exceeds 33% within one tax year, the carryforward of losses may be restricted.
5. The update of the beneficial owners register, if the beneficial owner changes.
6. What will happen to the company's profits before the sale, such as dividends that may be distributed before the transfer.

Transfer by Gift or Parental Grant: A Different Regime

All of the above concerns the sale of shares, i.e. a transfer for consideration. When shares are transferred by gift, parental grant or inheritance, a different tax regime applies, which is not covered in this article and requires a separate assessment.

The Most Common Mistakes

1. Agreeing a price without first calculating the capital gains tax
2. Declaring a lower price in the agreement, without considering that the tax is calculated on the higher of the accounting value and the consideration
3. Failing to check the articles of association for restrictions or pre-emption rights
4. Failing to notify the GEMI and the beneficial owners register after the transfer
5. No review of the company's debts and pending matters before the purchase
6. Ignoring the impact of the ownership change on the company's tax losses

5 Practical Tips

1. Ask your accountant for a calculation of the capital gain and tax before you close the price, not after.
2. As a buyer, carry out a review of the company (due diligence) before signing, especially for debts and pending audits.
3. Make sure there is a clear, written agreement with the price, method of payment, responsibilities and representations of the parties.
4. Complete the updates with the GEMI, the beneficial owners register and the AADE immediately after signing.
5. If the company has losses, check before the transaction whether the ability to carry them forward will be affected.