Corporate Transformations

What are the forms of business transformations covered by Law 4935/2022?

The law covers all forms of transformations provided for in paragraph 1 of article 1 of Law 4601/2019, such as merger, split, conversion, branch contribution, share exchange and transfer of headquarters. It also covers other forms of transformations provided for by other laws, such as the contribution of a sole proprietorship to a capital company.

What is the main incentive that the law provides to new or benefiting companies resulting from transformations?

The main incentive is the exemption from the payment of income tax on realized pre-tax profits, which arise, based on tax legislation, at a rate of thirty percent (30%). This exemption is valid for the first five years of operation of the new or beneficiary company, under certain conditions mentioned in article 3 of the law.

What are the cases excluded from the income tax exemption of the new or beneficiary company?

The income tax exemption does not apply in the case of company conversion, as there are no two sides to compare the turnover, which is one of the conditions for the exemption. Also, the exemption does not apply in the event of a company split, unless the new or beneficiary company absorbs two or more branches. In any case, the exemption depends on the total average turnover of the transforming enterprises, which must be at least equal to 150% of the turnover of the enterprise with the highest average turnover of the last three years3.

How is the taxation of capital gains arising from business transformation regulated?

The capital gain resulting from the transformation of businesses is exempt from income tax, according to article 9 of the law4. This exemption applies to the income tax of the capital gain arising from the transformation of businesses on the condition that the capital gain is not distributed to the shareholders or partners of the transforming company, but is transferred to the new or beneficiary company and forms part of its capital. Also, the exemption applies only to the capital gain corresponding to the percentage of the shares or corporate shares acquired by the new or beneficiary company, and not to the capital gain corresponding to the percentage of the shares or corporate shares remaining in the possession of the shareholders or of the partners of the transforming business.

Corporate transformations are defined as the processes by which the status of a corporate entity is changed, without usually resolving and liquidating or transferring its assets under the rules of succession.

There are three (3) basic categories of corporate transformations:

1. Merger (two or more companies merge into one, while the mergers are liquidated without liquidation),
2. Split (the act of universal succession transfer of the property of a company dissolved without liquidation to at least two companies)
3. Conversion (the act of changing the corporate form of a company without preceding its dissolution and without any succession to its assets).

According to the new Greek Law 4601/2019, the general rule is that everyone can be merged with everyone, everyone can absorb everyone, everyone can be divided into everyone and everyone can be transformed into everyone.

The exceptions are: corporate forms that lack legal personality, maritime-shipping companies and agricultural cooperatives.

Corporate transformations give growth opportunities to businesses who choose to do so. The reasons vary and depend on the category of transformation that will take place. The main benefits are business reorganization, economies of scale and tax advantages.