Greece's foreign investment revival

March 2017

Everyone is aware of Greece's recent economic woes: the bailouts and extraordinary budget deficits dominated the headlines. However, Greece has made progress in correcting the imbalances that led to the crisis in the first place. Suddenly Greece is looking far more attractive to foreign investors.

• Between 2009 and 2017 Greece improved its structural budget balance by 17% - more than twice that of any other nation in the EU-IMF bailout programme.
• The cost competitiveness of the Greek labour force is back in sync with its trading partners.
• The external deficit has gone, GDP has risen by 15 percentage points between 2008 and 2015.
• The Greek banks have restructured and refinanced and are now far more robust.
• Structural reform of labour and product markets, as well as the public sector has taken place.

All these improvements will contribute over time to a Greek economy with much improved growth potential. In fact, during 2016 the economy returned to positive growth showing an increase of 0.1%. Forecast growth for 2017 is 2.5%.

Foreign direct investment

Foreign direct investment (FDI) is heavily weighted towards EU member states. Germany is the largest investor by a long way, followed by France and the UK. German FDI, at €12.4 billion in the period from 2005 to 2015, exceeds that of France and the UK combined. This was largely due to Deutsche Telecom's investment in OTE, Greece's largest telecoms provider.

Foreign direct investment in recent years has focused mostly on the tertiary sector (commercial services), attracting 74% of all foreign investment. The secondary sector (manufacturing and industrial) follows some way behind with 24% of foreign investment.

This heavy leaning towards the service economy was largely due to the developing Greek financial system, a more open telecoms market, and stimulated trading. Latterly, Greece has seen increased investment in real estate and other business activities. Looking ahead, there is considerable scope for a resurgence in foreign investment activity in the tourism sector.

Investment in the secondary sector occurred mainly in manufacturing, such as chemicals, food and beverages, and machinery. The potential for further investment in this sector is great.

Incentives for foreign investors

To achieve further economic development by attracting FDI, Greece introduced a new incentives law in 2016. The main aim was to support existing businesses, create new businesses, and support the less developed areas of Greece.

To benefit from the incentives, projects must fall into at least one of these categories:

• Creating a new business
• Extending an existing business
• Diversifying into new product areas
• Fundamentally changing an existing business
• Acquiring the assets of a closed business (provided there is no connection between buyer and seller).

Satisfy one or more of these conditions and a business can benefit from these incentives:

• Exemption from tax on Greek profits
• Government grants for eligible costs and expenses
• Leasing subsidies to ease the purchase of new equipment
• Subsidies for the costs of new employment.

Law and taxation

While Greek companies pay tax on their worldwide incomes, foreign companies only pay tax on the profits they earn in Greece. Greek corporation tax currently stands at 29% while there is a 15% withholding tax on dividends.

Greek law 2190/1920 is the single most important piece of corporate legislation. Modifications in 2016 to enable the law to cope with modern business trends and globalisation have reduced the time and costs to form new companies.

In 2014 Greece introduced new Greek Accounting Standards that are closer to the International Financial Reporting Standards (IFRS).

Greek free-trade zones

Greece has three free-trade zones in the ports of Piraeus, Thessaloniki, and Heraklion. Foreign goods coming into these zones are free from custom duties and taxes provided they are subsequently re-exported.

Getting the right advice

If you are considering doing business in Greece it is essential you seek professional and expert advice. This is particularly true in the areas of financial statements and auditing, corporate taxation, and transfer pricing.

Specialist advice is also important if you are looking to take advantage of the business incentives available under the new investment law.