By Christos ILIOPOULOS*- Each sovereign country enacts laws with regard to income, capital, inheritance / estate taxes etc. Such taxes are imposed not only on its citizens, but also on residents of that country, who may not be citizens. If a person lives and works
in or is connected in any other way with more than one country, that person may face the reality of having to pay taxes in more than one country. To avoid paying double tax in two different countries for the same income or asset, bilateral double taxation treaties are signed and enforced between contracting states. Such treaties usually cover the avoidance of double taxation in the area of income tax, while inheritance taxes are not covered to a large degree.
Greece imposes inheritance tax only with regard to all types of assets located in Greece (movable and immovable property of any kind), while with regard to property located outside of Greece, it imposes inheritance tax under certain circumstances and only on movable assets (money, balance in bank accounts, cars and other movables). The bottom line of this is that under the basic rules of estate taxes in Greece, the Greek tax authority will tax any inherited asset which is located inside Greece, while real estate or immovable assets belonging to an estate/inheritance located outside of Greece are not subject to inheritance tax by the Greek state, irrespective of the value of these real estate assets. In other words, any person living in Greece, either a Greek citizen or simply a tax resident of Greece, who files an inheritance tax declaration to the Greek tax authority declaring that he/she has inherited property, does not have to declare any real estate asset which is located outside of Greece, no matter how valuable it is. So, anyone having to file an inheritance declaration in Greece, does not have to pay any inheritance tax in Greece for real estate assets located outside of the country.
Many countries have similar legislation, which essentially results in the avoidance of imposing inheritance tax on citizens of other countries for inherited real estate located outside these countries. For example the Netherlands may not impose inheritance tax on a Greek citizen, who inherited immovable property in Greece, provided the heir is not living in the Netherlands or is not a tax resident of the Netherlands, in the case of a deceased who was a Dutch citizen or resident.
There are, however, some countries which may impose inheritance tax to foreign nationals, even for immovable assets located outside those countries, simply because the deceased lived in those countries. Consider the example case of a person who lived and died in Belgium. One of his heirs is his Greek brother, living in Greece, who never lived in Belgium and never had any connection to that country. The Greek brother inherits real estate in Greece, which belonged to his brother who lived in Belgium. The Belgian tax authority will impose inheritance tax to the Greek citizen for the real estate property located in Greece and not in Belgium. Such outcome appears greatly unusual and possibly unfair. Why would a Greek citizen, who never lived or worked in Belgium, have to pay inheritance tax to the Belgian state, for real estate property located in Greece? This could be considered a breach of the Greek public order and possibly of even the Greek sovereignty. When a foreign public authority, like the Belgian state, imposes inheritance tax to a Greek citizen for immovable property in Greece, it may be contrary to the core of the basic public order rules of the Hellenic Republic (Greece).
The outcome in our example becomes even more unfair, when we consider the fact that the Belgian tax authority imposes inheritance tax at a rate of 30% from the first euro on the Greek citizen for real estate property located in Greece valued at 70,000 euros, while the Greek tax authority would impose inheritance tax for the same property of only about 2,000 euros. Imagine the feelings of the Greek heir, who never lived or worked in Belgium, when he finds out that in order to inherit the real estate property located in Greece, which belonged to his brother (who died in Belgium, all right), he must pay 21,000 euros on inheritance taxes and not to the Greek, but to the Belgian state. For what? For real estate situated in Greece? And him, (the heir), never having lived or worked in Belgium? This certainly can’t be the case, the Greek heir will think.
For the same real estate property located in Greece, if taxed by the Greek state, which appears to be the reasonable scenario, the inheritance tax would be about 2,000 euros, while if taxed by the Belgian state, the inheritance tax is around 21,000 euros!
In this case, significant issues of breach of the national sovereignty of Greece arise, due to specific legislation enacted in Belgium, which appears to be contrary to the Greek public order, because it results in inheritance tax being imposed by the Belgian state on a Greek citizen, who never lived or worked in Belgium, for real estate property located in Greece.
In any case, if someone lives outside of Greece, in another European Union member state and wishes to draft a Will and Last Testament with regards to assets located in Greece, it is perhaps advisable that he or she drafts a Will expressly stating that the testator wishes that Greek law is applicable on his estate. However, for a testator living in Australia, or the United States, or Canada or in any other country in the world, who owns property in both countries (the country of his residence and Greece), the option may be to draft two different Wills. In that case, the testator may draft a separate Greek Will, under the advice of a Greek lawyer or jurist, which will be applied under Greek law, by the courts, the notaries and the tax authority in Greece, and will cover all assets located in Greece, so that the foreign state is not involved with assets located in Greece. That way, we avoid the somehow unfair outcome that the foreign state will impose inheritance tax on a Greek citizen for real estate assets located in Greece.
6 March 2019
*Christos ILIOPOULOS, attorney at the Supreme Court of Greece , LL.M.