Funding start-ups by individuals (so-called angel investors) is not only a growth tool for start-ups. In Greece, it is also linked to a tax incentive for individuals, subject to specific conditions and strict implementation requirements. The framework is set out in Ministerial Decision (MD) No. 39937/2021 (Government Gazette, Series B, No. 1415/9.4.2021), which specifies Article 70A of the Greek Income Tax Code (ITC).
1) Who is considered an “angel investor” and which business is considered a “start-up”
An angel investor is an individual (a Greek or foreign tax resident) holding a Greek Tax Identification Number (AFM), who contributes cash capital to start-ups for the purpose of investing in them and supporting their growth.
For the purposes of the incentive, a start-up is a Société Anonyme (Α.Ε.) / Limited Liability Company (EPE) / Private Company (IKE) with its registered seat in Greece, which is registered in the National Register of Start ups (Elevate Greece) at the time the contribution is made. This is critical: if the company is not registered in the Register at the time of the investment, the individual’s tax relief cannot be granted. For more details on registration in the National Register of Start-ups, you may read our article: https://ratiolegal.services/registration-in-the-national-registry-of-startups-elevate-greece/?lang=en
2) How the contribution must be made
The contribution must be made in cash and exclusively via a bank deposit/transfer. Moreover, this is not a simple funding arrangement: the contribution must be made through an increase of the start up’s share capital / company capital, with the issuance of new shares or corporate units (depending on the legal form).
Simply put: for the investment to be considered “eligible”, the corporate procedure for the capital increase, the relevant corporate documentation, and the registrations with the General Commercial Registry (GEMI) must be in place, not merely the bank transaction.
3) How much an angel investor may invest
The incentive applies to capital contributions up to:
- €300,000 in total per tax year,
- in up to 3 different start-ups per year, and
- up to €100,000 per start-up.
4) What the tax incentive is
The angel investor is entitled to deduct from taxable income an amount equal to 50% of the capital contribution, in the tax year linked to the investment, in accordance with the rules of the ministerial decision and the technical instructions of the Independent Authority for Public Revenue (AADE) on how the deduction is declared.
When is the deduction applied?
The deduction is claimed through the income tax return for the year in which the contribution was paid, provided that the contribution has been completed by the filing deadline of the return. If it is completed later, the deduction is carried forward to the year of completion.
The incentive applies to amounts paid from 29.7.2020 onwards.
5) Start-up obligations: declaration to Elevate Greece and deadlines
The start-up must declare the contribution on the Elevate Greece platform, submitting information evidencing that the investment has been made. The declaration must be filed by the end of the following month after the registration in GEMI of the certification of payment of the capital increase, and it includes key details (company name/AFM, angel investor details/AFM, amount and payment date).
6) Return of capital or abuse of the incentive
If there is a full or partial return of capital that was not used for the development of the business and in respect of which the tax advantage was granted, the angel investor must file an amended tax return, removing the deduction proportionally. There is also a provision that if the amended return is filed before an audit order is notified, the relevant fine is not imposed.
At the same time, Independent Authority for Public Revenue (AADE) may carry out audits to determine whether the contribution was genuinely made for the start up’s development or merely to obtain a tax advantage. If an abusive purpose is proven, a fine is provided for, equal to the amount of the benefit the investor sought to obtain.
In conclusion, funding start-ups by individuals can be a strong growth lever and a valuable tax incentive, provided it is completed through the correct procedure and with timely legal preparation.
