In practice, the requirement to prepay a large share of future tax liabilities can push the effective rate significantly higher, depending on fluctuations in profitability. The issue has regained prominence as the Greek government considers reforms to the advance tax regime, with a stated aim of easing liquidity pressures, particularly for small and medium-sized enterprises.
Under the current framework, companies are required to pay an advance tax of up to 80% of the income tax calculated on the previous year’s profits, with the payment due at the same time as the main tax liability. While advance tax payments exist in many jurisdictions, Greece’s approach stands out in Europe for relying solely on past financial performance, without taking into account a company’s current economic conditions.
This means that a business enjoying strong profits in one year may be forced to prepay taxes for the following year even if its revenues subsequently decline or it slips into losses. As a result, the advance tax functions less as a neutral accounting mechanism and more as a source of acute cash-flow strain, limiting liquidity, complicating financial planning and weighing on investment decisions.
The Greek system contrasts sharply with those in countries such as Germany and France, where advance payments are made in installments and can be adjusted when economic conditions change, as well as with Spain and Italy, which allow greater flexibility in both the calculation and timing of payments. In Greece, by comparison, the advance tax effectively operates as a heavy upfront charge, increasing the real tax burden and adding to business uncertainty.
Discussions now focus on the possibility of reducing the advance tax rate, at least for small and medium-sized companies. Advance payments currently generate around €3.6 billion annually for the state budget, but any reduction would create a fiscal shortfall only in the first year, as these revenues are offset against future tax liabilities. Market participants argue that such a move could provide an immediate liquidity boost without permanently weakening public finances.
Still, many stress that simply lowering the percentage would not resolve the structural issue. A more substantive reform would involve redesigning the calculation and operation of advance tax payments, linking them more closely to current financial performance, allowing adjustments when profits fall, and spreading payments over a greater number of installments. Authorities are also examining a more flexible framework for new and smaller businesses, in an effort to curb the indirect increase in effective taxation caused by the existing system.
The debate is gaining urgency at a time when liquidity has become a decisive factor for business survival and growth. The current regime also weighs on Greece’s appeal to foreign investors, who often struggle to understand or accept a system that pushes the effective tax burden well beyond the headline rate. For many observers, reforming the advance tax framework is therefore seen as a critical step toward creating a more predictable, competitive and investment-friendly tax environment in Greece.
