PETRITSI, Bulgaria (Reuters) - Greek businessman Prokopis Makris believes moving to Bulgaria three years ago was the best decision he ever made.
The accountant shut his failing furniture company in Greece and opened a business helping other entrepreneurs move to Bulgaria to escape a 29 percent tax rate, which has jumped since Athens adopted austerity as part of an international bailout.
“We are bombarded with taxes in Greece, businesses are being annihilated,” he says in his plush office overlooking the town square of Petritsi, a Bulgarian town about 12 km (seven miles) north of the border with Greece.
The debt crises faced by Greece and several other European countries led to drastic spending cuts and tax increases to improve government finances. But the higher taxes punished businesses forcing many to shut or move to lower tax jurisdictions such as Bulgaria or Cyprus, helping those economies but undermining the recovery needed to balance the books at home.
The number of Greek owned businesses based in Bulgaria, where the corporate tax rate is only 10 percent, has risen to 17,000 from 2,000 in 2010, when Greece had its first bailout, according to Bulgarian authorities.
The Greek government is concerned. It plans a series of tax audits in cooperation with Bulgaria to determine if these business defections are merely changes of address designed to avoid tax rather than a physical relocation of operations.
“Many Greek businesses in neighboring countries may actually be most economically active in Greece,” said George Pitsillis, head of Greece’s Public Revenues Agency, adding that he suspected many firms were using Bulgarian shell companies.
“They may soon be in the unpleasant position of paying tax in both countries, plus fines.”
Businesses relocated from Greece generate about 5 billion euros ($5.3 billion) annually and employ an estimated 53,000 people, according to 2014 data from Greece’s embassy in Sofia. Numbers are rising fast: 3,642 Greek businesses have been registered in Bulgaria so far this year, up from 3,262 for all of 2015, according to the Bulgarian Registry Agency.
Bulgaria says it will share tax details with Greece to help the audits. A bilateral tax treaty says a company cannot be taxed in both countries and the tax domicile is determined by wherever its principal activity is located.
“If needed, we will cooperate with the Greek tax authorities under the mechanisms for exchange of tax information between EU member states,” Rosen Bachvarov, spokesman for Bulgaria’s national revenue agency, said when asked about the audits.
Six hundred kilometers (372 miles) north of Athens, the Greek-Bulgarian border is teeming with traffic. A ravine through mountains on the Greek side gives way to a sweeping valley where agriculture and vineyards are the mainstay of the local economy.
At two small industrial parks 5 km inside Bulgaria, Greek signs are everywhere, advertising storage and office space.
“There are dozens of Greek businesses just in this area alone, from transport companies to textile businesses and construction materials,” said Yiorgos Kalaitzoglou who runs a logistics business out of one of the industrial parks where a sign reads, “Land of Opportunities”.
Three years ago, his business was stuttering in Greece. He moved to Bulgaria, leaving his wife and family in Thessaloniki, Greece’s second largest city an hour’s drive away.
“The taxman in Greece takes 70 to 90 percent of earnings, Greece simply doesn’t let you live,” the 50-year-old said as he walked through a warehouse stacked with ladders and paint tubs.
It took him a few days to register his company in Bulgaria. Eighty percent of the goods he handles is imported from other European states and then exported to his customers in Greece.
A sole trader, Kalaitzoglou now nets about 50,000 euros a year after paying the 10 percent corporate tax, a 5 percent tax on dividends and about 100 euros a month in pension contributions.
Serres, a town of just under 100,000 people on the frontier, has been hit by business flight.
Membership of the Serres Chamber of Commerce and Industry has fallen to 10,000 from 17,000 pre-crisis as businesses have closed. Of the 7,000 that shut, 1000 went to Bulgaria, the chamber’s president Christos Meglas said.
The departures have contributed to a rise in unemployment to 29.1 percent in 2015 from 13.8 percent five years earlier. Per capita GDP has fallen 15 percent to 9,676 euros for the region, the second-lowest in Greece. It was 11,421 euros in 2008.
“Serres is a living example of how the rich became poor ... we were one of the richest prefectures, now we are among the poorest,” said Meglas.
Textile industries have shut, and in recent years three of four major tomato processing plants have suspended activities.
Vassilis Kampanis, president of the Greek Federation of Tax Advisers, says his office has been inundated by queries from Greeks seeking to change their tax domicile to Bulgaria.
Tax cuts and a simpler system for establishing companies in Greece are the only way to lure businesses back, he said.
Tax reductions appear unlikely. This year Greece approved only a raft of new tax and pension reforms under terms of its third bailout, worth up to 86 billion euros.
In Petritsi, a pretty town of 31,000 residents, Greeks mingle at the Akropolis coffee shop which has two Greek flags hanging from a balcony.
Vaggelis, the owner of the coffee shop who declined to give his last name, moved to Bulgaria after Greek authorities fined him 3,000 euros for being late in registering a worker.
“In Greece its just take, take, take.”
But his face crumples when asked if he misses Greece.
“I feel awful for living here. But I have children to support. Greece gave me no choice.”
Writing By Michele Kambas; Editing by Mark Bendeich and Anna Willard