Multiple changes to tax legislation
A bill for changes to the Greenland tax legislation was approved on 14 November 2023. The bill includes various amendments and changes to the Greenland tax legislation, including (but not limited to):
- The existing rule regarding taxation of employee paid travel costs (‘free travel‘), as well as the 2,000 Danish krone (DKK) threshold and base amounts, will be removed. In connection with the removal of the existing rule on travel costs paid by the employer, a new rule will be introduced, which stipulates that the value of travel costs paid by the employer for work travels is generally tax exempt for the employee. Furthermore, the value of travel costs paid by the employer for travel home (vacation) is tax exempt for the employee; however, only for one annual vacation travel.
- The existing thin capitalisation rule (interest limitation) will be changed from a 2:1 debt-to-equity ratio to a 4:1 debt-to-equity ratio. The remaining conditions and exemptions in the thin capitalisation rule will remain unchanged.
- Current Greenlandic tax rules stipulate that tax losses can be carried forward for future offsetting no more than five years (unless the tax losses derive from minerals and/or export of ice and water). According to the new rules, tax losses can be carried forward for ten years, under the condition that the taxpayer, each year before the tax return deadline, submits a specification of the tax losses and a declaration that the taxpayer will keep all accounting material relevant for the tax losses until, at least, two years after the utilisation of the tax loss.
- A new rule regarding the 25% withholding tax (WHT) on interest accrual and/or payments from Greenland resident companies (debtor) to a non-resident creditor. However, the WHT only applies if the non-resident creditor (recipient of interests from Greenland company) is sub tax with a tax rate less than 15% or if there is no double tax treaty (DTT), which reduces the interest WHT, between Greenland and the country of the creditor/interest recipient.
There are some exceptions where the interest WHT of 25% does not apply (e.g. if the recipient of interest is subject to controlling influence of a parent company resident in Denmark, Faroe Islands, or a country with which Greenland has a DTT, provided that the recipient will be subject to local controlled foreign company (CFC) taxation, should the local conditions therefore be met.
- A new chapter 3b will be included in the Greenland tax legislation. Chapter 3b is a voluntarily tax regime for Greenland resident companies with revenue no less than 90% derived from activity related to either:
- mineral resources,
- exploitation of water resources for energy production, or
- commercial exploitation of water and ice.
Group companies with activity associated with the above industries/activities can also be covered, under certain conditions.
The tax calculation under chapter 3b follows the general Greenland tax principles but with the below special differences/treatments (note that the rules below do have certain aspects and conditions):
- Dividends received from Greenland resident or non-Greenland subsidiaries is not taxable (remains taxable if chapter 3b is not chosen).
- No deduction for dividend distribution (contrary to the existing unique rule in Greenland) (remains taxable if chapter 3b is not chosen).
- Dividend WHT of 24% will apply on dividend distributions (42% to 44% if chapter 3b is not chosen). However, if the dividend recipient is also covered by chapter 3b, the WHT is zero unless the distributing Greenland company is a conduit company and the dividend comes from a foreign subsidiary.
The law changes will have effect from the 2024 income year and going forward.
New Greenlandic transfer pricing guidance
A new regulation has been issued on 17 October 2023, stating that certain companies must submit transfer pricing documentation within 60 days after the tax return deadline.
Whether the company is obligated to prepare and submit transfer pricing documentation depends on whether the controlled transactions reported in specific fields on the S40 form with the tax return exceed the threshold based on a special ’median value‘ calculation. The threshold for 2023 is DKK 500 million (DKK 250 million for 2024).
The threshold will be gradually reduced, and from 2030 all entities with controlled transactions, regardless of size, must submit transfer pricing documentation every year.
The Greenlandic transfer pricing rules also apply to transactions between Greenlandic group entities (no joint taxation in Greenland).
Change in corporate tax rate and on account tax
The corporate tax rate is 25% for both Greenlandic and foreign companies from 1 January 2020. Previously, a ‘surcharge’ of 6% of the corporate tax payable was applicable, hence the effective corporate tax rate was 26.5%. From 1 January 2022, a company is able to pay on account tax to the Greenland tax authorities. This on account tax has to be paid before the end of the year for the present tax year (the deadline is pushed in cases of income year not following calendar year). If the actual corporate tax exceeds the prepaid on account tax, there is a ‘surcharge’ of 6% of the corporate tax payable; consequently, the effective corporate tax rate is 26.5%. The tax with surcharge is due for payment on 1 November with final due date for payment 20 November. Oil and mineral licence holders are exempt from the 6% surcharge according to current practice.