email: [email protected] | Τηλέφωνο:+30 2310234946
Sole Proprietorship • IKE • Law 4935/2022 • Tax Transition
Conversion of a Sole Proprietorship into a Private Company (IKE)
Specialized tax and accounting support for professionals who are considering the transition from a sole proprietorship to a Greek Private Company (IKE). This service includes assessment of the potential tax advantage, preliminary review of the existing business activity, planning of the new corporate structure and proper organization of the next steps.
Preliminary review before the transition
The case is reviewed before any decision is made, in order to avoid an incorrect or rushed corporate choice.
Assessment under Law 4935/2022
We examine whether the conditions for applying the tax incentive can be met.
Accounting continuity
Fixed assets, inventory, receivables, liabilities, VAT, myDATA and pending matters are reviewed.
Organization of the new IKE
The new company requires proper activity codes, VAT treatment, myDATA setup, invoicing and monthly accounting structure.
Service fee:
subject to case assessment. The transition from a sole proprietorship to an IKE does not have a single fixed price,
because it depends on the existing activity, accounting books, fixed assets, inventory, liabilities, personnel,
pending matters, the possibility of using a tax incentive and the procedure to be selected.
What the transition from a sole proprietorship to an IKE means in practice
In everyday language, the phrase “conversion of a sole proprietorship into an IKE” is often used. In practice, however, a sole proprietorship is not a company that simply changes its legal form. A tax, accounting and corporate preliminary review is required before the appropriate route is selected.
Formation of a new IKE
In many cases, the formation of a new IKE and the organized continuation of the business activity through the new corporate form may be examined.
Contribution of the sole proprietorship
Where the conditions are met, the contribution of the sole proprietorship into a company may be examined, together with the possible use of a tax incentive.
Tax treatment
Before any action is taken, fixed assets, inventory, liabilities, VAT, myDATA, payroll and pending matters must be reviewed.
Tax advantage under Law 4935/2022
Law 4935/2022 provides, under conditions, a tax incentive for transformations and for the contribution of a sole proprietorship into a company. The use of the incentive is not automatic and requires prior assessment of the actual position of the business.
Exemption on part of the profits
The incentive concerns a tax exemption for a percentage of the realized pre-tax profits of the new company, provided that the legal requirements are met.
Application requirements
The history of the sole proprietorship, the contribution procedure, the new corporate structure and the continuation of the business activity must be examined.
Need for documentation
The application of the incentive must be based on real data, proper accounting records, correct procedure and complete tax documentation.
Important:
the mere formation of an IKE does not automatically mean that the tax incentive applies. Before any action is taken,
it must be examined whether the specific case can fall under the relevant provisions and whether the transition
is overall beneficial.
When it makes sense to consider an IKE
The transition to an IKE may be worth considering when the sole proprietorship has increased profitability, higher business risk, need for a stronger corporate profile, partnerships, personnel, contracts or growth prospects.
Increased profitability
When profits increase, it should be examined whether a corporate form creates a better overall tax and business position.
Business risk
An IKE provides separate legal personality and an organized corporate structure, elements that may be important in contracts, partnerships and projects.
Growth organization
A corporate form may support hirings, new partners, participations, investments and a clearer business operation.
Indicative tax comparison example
The following example presents two different scenarios in a simple way: remaining as a sole proprietorship and operating through an IKE. The figures are indicative and do not constitute a complete tax study.
Example assumptions:
sole proprietorship with profits of €70,000.00. In the IKE scenario, we assume a manager’s remuneration of €25,000.00
and the application, subject to conditions, of a tax incentive providing a 30% exemption on the company’s pre-tax profits.
Scenario A: Remaining as a sole proprietorship
The profits of €70,000.00 are taxed under the personal income tax scale. As income increases, the marginal tax rate also increases.
| Sole proprietorship profits | €70,000.00 |
| Taxation method | Personal income tax scale |
| Indicative tax | €21,100.00 |
€21,100.00
Total indicative tax for the sole proprietorship
Scenario B: Operation through an IKE
In the IKE scenario, a manager’s remuneration of €25,000.00 is deducted. The remaining company profits are examined under the tax incentive and taxed at the corporate tax rate.
| Initial profits before manager’s remuneration | €70,000.00 |
| Manager’s remuneration | €25,000.00 |
| IKE tax after the incentive | €6,930.00 |
| Tax on manager’s remuneration | €3,683.00 |
| Total indicative tax | €10,613.00 |
€10,613.00
Total indicative tax under the IKE scenario
Scenario A
€21,100.00
Indicative tax if the business remains a sole proprietorship
Scenario B
€10,613.00
Indicative IKE tax and tax on manager’s remuneration
Indicative difference
€10,487.00
Potential tax benefit in this specific example
View the detailed tax calculation for the sole proprietorship
| Income bracket | Tax |
|---|---|
| €0 – €10,000 at 9% | €900.00 |
| €10,000.01 – €20,000 at 20% | €2,000.00 |
| €20,000.01 – €30,000 at 26% | €2,600.00 |
| €30,000.01 – €40,000 at 34% | €3,400.00 |
| €40,000.01 – €60,000 at 39% | €7,800.00 |
| €60,000.01 – €70,000 at 44% | €4,400.00 |
| Total tax for the sole proprietorship | €21,100.00 |
View the detailed IKE tax calculation
| IKE calculation | Amount |
|---|---|
| Profits before manager’s remuneration | €70,000.00 |
| Manager’s remuneration | €25,000.00 |
| IKE profits after manager’s remuneration | €45,000.00 |
| Exempt amount of 30% under the incentive | €13,500.00 |
| Taxable IKE profits | €31,500.00 |
| IKE tax at 22% | €6,930.00 |
View the detailed tax calculation for the manager’s remuneration
| Manager’s remuneration calculation | Amount |
|---|---|
| Manager’s remuneration | €25,000.00 |
| Tax from €0 – €10,000 at 9% | €900.00 |
| Tax from €10,000.01 – €20,000 at 20% | €2,000.00 |
| Tax from €20,000.01 – €25,000 at 26% | €1,300.00 |
| Initial tax based on the scale | €4,200.00 |
| Employee tax reduction without children | -€517.00 |
| Final tax on manager’s remuneration | €3,683.00 |
Attention:
this example is indicative and does not constitute a complete tax study. In order to determine whether the transition
from a sole proprietorship to an IKE is truly beneficial, social security contributions, advance tax payment,
dividend tax, IKE operating costs, accounting fees, fixed assets, inventory, receivables, liabilities,
VAT, myDATA, any pending matters of the sole proprietorship and the tax scale applicable for the relevant tax year
must also be taken into account.
What the service includes
This service concerns the initial tax and accounting assessment of the transition from a sole proprietorship to an IKE and the organization of the steps that must precede any decision.
Tax preliminary review
- Review of the existing sole proprietorship.
- Assessment of the possibility of applying the tax incentive.
- Review of profits, turnover, history and basic requirements.
Accounting position
- Review of fixed assets, inventory, receivables and liabilities.
- Analysis of VAT, myDATA and pending tax filings.
- Indicative tax calculation and alternative scenarios.
Organization of the new IKE
- Guidance on IKE formation and initial accounting organization.
- Review of activity codes, VAT, myDATA and operational continuity.
- Coordination with a lawyer or statutory auditor, where required.
Information required for assessment
In order to carry out a meaningful assessment, a complete picture of the sole proprietorship and of the way the activity will continue through the IKE is required.
Main business activity
- Start-up details of the sole proprietorship and activity codes.
- Financial data of previous years.
- Profits, turnover and basic tax position.
Assets and liabilities
- Fixed assets, inventory, receivables and liabilities.
- Pending VAT, myDATA or tax filing matters.
- Personnel and payroll details, where applicable.
Special information
- Contracts, loans, subsidies or investment plans.
- Purpose of the transition to an IKE.
- Future business plan.
How the process is organized
The transition to an IKE must be organized in stages, so that there is a clear picture before every decision.
1. Initial mapping
The existing sole proprietorship, the business activity, the financial data and the reason for the transition to an IKE are recorded.
2. Tax preliminary review
Profits, VAT, myDATA, fixed assets, inventory, receivables, liabilities and possible pending matters are reviewed.
3. Selection of the appropriate route
We propose whether the case should proceed through the formation of a new IKE, contribution of activity, transfer of activity or another procedure.
Legal and audit support where required
In certain cases, the transition to an IKE may require a specific corporate act, valuation, contribution, review by a statutory auditor or legal processing of documents.
In such cases, the tax advisory work may be coordinated with a lawyer or statutory auditor, so that the procedure is handled comprehensively: from a tax, accounting, corporate and practical perspective.
Frequently Asked Questions
Brief answers regarding the transition from a sole proprietorship to an IKE, the tax incentive, the manager’s remuneration and the preliminary review process.
Can a sole proprietorship be converted directly into an IKE?
The wording requires care. A sole proprietorship is not a company that simply changes its legal form. Usually, the formation of a new IKE, contribution or transfer of activity and special handling of the sole proprietorship’s assets and data are examined.
Does the tax incentive always apply?
No. The incentive applies only if the legal requirements are met. For this reason, a tax and accounting review of the case must precede any action.
What does the 30% exemption mean?
It means that, under conditions, part of the realized pre-tax profits of the new company may be exempt from income tax. It does not mean that the total tax is reduced by 30% in every case.
Does the manager’s remuneration reduce the IKE’s profits?
The manager’s remuneration must be real, approved and properly documented for tax purposes. In the example, it is presented as an assumption in order to show the logic of the calculation, but each real case requires separate review.
When should the transition not be rushed?
When there are old pending matters, accounting errors, myDATA inconsistencies, inventory, multiple fixed assets, employees, subsidies, loans or contracts that must be reviewed before any action is taken.
Do you have a sole proprietorship with increased profits and are considering an IKE?
Send us the basic details of your business, so that we can assess whether the transition to an IKE may be beneficial from a tax and business perspective, and whether a relevant tax incentive may be utilized.