Four-tier VAT status for islands

Four-tier VAT status for islands

Tourists and foreign tour operators could be forgiven for being confused about the value-added taxes applying on Greece’s islands after the new tax measures are voted into law on Wednesday night by Parliament. This issue forms part of the sweeping tax reforms that constitute prior actions for Greece to start discussing its third bailout package with the country’s creditors.

The bill, submitted on Tuesday, includes measures worth 3.175 billion euros, most of which concern the VAT system (2.39 billion euros). The VAT changes are expected to bring revenues of 795 million into the state coffers in 2015.

The draft law splits the Greek islands into four categories as far as VAT is concerned: The first includes the Ionian Islands and several others, including Crete, Aegina and Hydra, that already have the full VAT rates, and will continue to do so. The second category concerns the most popular islands for holidaymakers in the Aegean, such as Santorini and Myconos, which will see their current 30 percent discount on all VAT rates come to an end on October 1, 2015. The less developed Aegean islands will continue to enjoy the discount up to June 1, 2016, while the remotest islands will be allowed to retain the 30 percent discount on VAT rates indefinitely.

Hotel accommodation (as well as organized campsite services) moves from the existing 6.5 percent bracket to 13 percent as of October, while food service jumps immediately from 13 percent to 23 percent. Goods such as coffee, tea, flowers and others also move up from 13 to 23 percent. Drugs, books, newspapers, magazines and theater tickets will see their VAT rate drop from 6.5 to 6 percent.

The new measures further include an increase in the luxury tax and a hike in the solidarity levy for those with an annual income of more than 30,000 euros. Corporate tax climbs to 29 percent from the current 26 percent and enterprises must prepay 100 percent of their tax, compared with the current 80 percent for large firms and 75 percent for small ones.

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