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Newly published Directive 09/2021 sets out the Tax Department’s process of determination of whether foreclosed property proceeds are taxed as Income or Capital Gains. Though undeniably enhancing transparency, whether it will reduce delays from non-submission of income statements by property owners is uncertain.

The disposal of mortgaged property under articles 44A to 44 IAA of the Law 9/1965 on ‘Transfer and Mortgaging of Property’ may not prima facie be characterised as commercial or concerning capital.  This is because it is not conducted in the ordinary course of business of trading and land development, but rather under foreclosure procedures contemplated under Law 9/1965. Nonetheless, the majority of foreclosures concerning property stem from commercial stock of persons who engage in real estate and development sector. Circular 9/2016 of 19 July 2016 deals with foreclosure, but practical difficulties persist, the highest being the non-submission of income statements or other satisfactory information from property owners. These would facilitate the correct taxation of the foreclosure proceeds, as the whole process is initiated by the mortgage lender, who bears no obligation to submit income statements of the mortgaged property owner, and/or often lacks other relevant information. The overall result is a delay in the process, which in turn increases the number of pending cases.

Tax Department Directive 09/2021 (‘the Directive’) sets out the template for the determination of the correct taxation of foreclosed property proceeds. These proceeds may be taxed either under the Law on ‘Taxation of Income’, or the Law on ‘Taxation of Capital Gains’, following the objective review of criteria laid out in case law, and viewed in light of the individual case facts. Under the Directive, Tax Officers are to proceed as follows:

  • Where the transaction clearly fulfils the case law criteria demonstrating a commercial character, given the foreclosed property stems from the commercial stock of persons dealing in property trading and land exploitation, the proceeds are taxed under the Law on ‘Taxation of Income’. In order to issue the certificate of discharge of the tax obligation (N.313), it is necessary to examine whether there is a gain on taxable income. Should the property owner not submit an income statement, the Tax Officer determines the tax based on the information at their disposal and on their judgment, and calls upon the mortgage lender to pay the tax.
  • Where the foreclosed property stems from persons not dealing in property trading and land exploitation, it is necessary to fill and submit a Questionnaire (Ε.Πρ. 413) of the Inland Revenue Department, the review of which shall determine whether the proceeds are taxed under the Law on ‘Taxation of Capital Gains’ or the Law on ‘Taxation of Income’. Where the outcome is uncertain, the proceeds are taxed as Capital Gains, so that the case may be reviewed later on in case of an appeal.
  • Any tax return requests are to be reviewed following submission and examination of income statements or appeals.
  • Irrespective of any practice followed to date, and on whether the proceeds are taxed as Income or Capital Gains, the Tax Department must inform in writing both the mortgage lender and the property owner on the taxation, clarifying that any tax return is conditional on written consent of both parties, which indicates who receives it. Tax return may also occur following an Order issued by the District Court. In addition, the property owner shall separately receive a letter indicating whether taxation was based on the Law on ‘Taxation of Income’, or the Law on ‘Taxation of Capital Gains’.

The Directive sets out a detailed framework to determine whether foreclosed property proceeds are to be taxed as Income or Capital Gains. It also establishes written communication of the Tax Department’s handling and decision on both the mortgage lender and property owner, which increases transparency. It does not however offer a panacea against the non-submission of income statements by the property owners, though it does make tax returns conditional on submission. Whether it results in speeding up the process remains to be seen.

For more information please visit our website microsite Banking and Finance or contact Mr. Ioannis Generalis at This email address is being protected from spambots. You need JavaScript enabled to view it.

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