Why do governments create tax breaks?

Tax breaks: Greece woos wealthy foreigners

Athens. Cologne: three to eight degrees, rain showers. Crete: 25 degrees, slightly cloudy. Where you would rather be at the moment is actually not a question. The Greek government now wants to encourage retirees from northern latitudes to spend more than a few weeks in Hellas. Pensioners who move their permanent residence and thus their tax domicile to Greece will be exempt from income tax for the next ten years.

This includes a plan that Prime Minister Kyriakos Mitsotakis has now discussed with his Finance Minister Christos Staikouras and experts from the Athens Ministry of Finance. The temptation for retirees: not only their pensions remain tax-free, but also all other income and capital gains. The only condition: you have to spend at least 183 days a year in Greece.

The Greek finance minister believes the offer is worth it for him despite the tax waiver. The retirees then spend their earnings in Greece, rent a holiday apartment, maybe buy a house, or buy a car. This could revive the local economy on many vacation islands, which so far have gone into hibernation after the end of the summer season.

Reform package with tax breaks

The new conservative government does not only want to attract pensioners to Hellas. It also woos wealthy foreigners with tax breaks: Anyone who moves their tax residence to Greece, spends more than six months a year there and invests at least 500,000 euros in real estate or bonds over the next three years only pays a flat rate tax of 100,000 euros a year - no matter how much he earns.

The more you invest, the greater the tax savings: if you invest 1.5 million, you only pay 50,000 euros in taxes on your global income. With 3 million it is only 25,000 euros. A so-called "grandfather clause" is intended to offer investors legal security. The tax benefits cannot be revoked or restricted during the 15-year term of the program.

The benefits are part of a reform package that the government will submit to parliament for approval in November. Among other things, it provides for a reduction in corporate taxes from 28 to 24 percent. The tax rate on dividends will be halved from 10 to 5 percent. There are also reliefs in income tax: The first 10,000 euros will only be taxed at a rate of 9 percent from next year, compared to 22 percent previously.

An estimated 400,000 Greeks left their homeland during the crisis years

Greece currently needs nothing more urgently than investment. During the financial crisis that broke out at the end of 2009, the country lost a quarter of its economic power. Before the crisis, gross fixed capital formation in Greece accounted for 20.6 percent of gross domestic product. That corresponded roughly to the level in Germany. However, the rate is currently only around 12 percent. Because most Greek companies are still struggling with the consequences of the crisis and the local banks are hardly granting new loans because of the large number of bad loans, new investments can only come from abroad.

The tax breaks are intended to attract EU citizens as well as wealthy investors from third countries to Greece, for example from China. At the same time, the program aims to repatriate Greeks abroad. Almost eleven million people live in Greece, and another four million abroad. Many have achieved considerable wealth there. Many extremely wealthy Greek shipowners traditionally have their tax domicile in London.