Sale of Partnership Interests – General Partnership
Subject: Tax Treatment of Capital Gains
Tax Treatment of the Sale of Partnership Interests by Individuals
Pursuant to Articles 42 and 43 of Law 4172/2013 (Income Tax Code), capital gains arising from the transfer of partnership interests by individuals are subject to separate taxation at a flat rate of 15%.
Key characteristics of this taxation regime include:
- it applies regardless of the holding period,
- it is not subject to a business purpose or substance review, and
- it constitutes a final and definitive taxation of the transaction.
This represents a clear, stable, and legally secure tax framework.
Tax Treatment of the Sale of Partnership Interests by Legal Entities
(Conditions for the application of Article 48A of the Income Tax Code)
Legal entities holding partnership interests for a period exceeding two (2) years may, under certain circumstances, qualify for exemption from capital gains tax upon disposal, pursuant to Article 48A of the Income Tax Code.
Article 48A provides for such exemption only under strict and cumulative conditions, including, indicatively, the following:
- the seller must be a legal entity,
- the participation must be at least 10% and held for a minimum period of 24 months,
- the entity must demonstrate genuine economic and business substance, and
- the structure must not constitute an abusive tax arrangement (Article 38 of the Tax Procedure Code).
It is particularly noted that:
- Article 48A does not apply to individuals,
- the subsequent incorporation of a new company and the transfer of interests shortly before their sale does not secure the exemption,
- on the contrary, such structuring entails a high tax risk of rejection on grounds of tax abuse.
Consequences of Non-Application of Article 48A
In the event that the application of Article 48A is rejected:
- the capital gain is taxed as corporate income at a rate of 22%,
- an additional 5% dividend withholding tax applies upon distribution, and
- interest and penalties may also be imposed.
Overall, the combined tax burden may prove less favorable than the direct application of the 15% flat tax applicable to individuals.