Greenlandic companies are taxable to Greenland on their worldwide income, except for income from real estate outside of Greenland, which is exempt. Non-resident companies are liable to tax in Greenland on business profits derived through a permanent establishment (PE) in Greenland. Further, non-resident companies are tax liable in Greenland for business profits derived in relation to the exploration for or exploitation of oil, gas, and minerals, regardless of the existence of a PE. Very few double tax treaties (DTTs) offer relief since Greenland only has full-fledged DTTs covering corporate tax with Denmark, the Faroe Islands, Iceland, and Norway.
The corporate tax rate is 25% for both Greenlandic and foreign companies from 1 January 2020. On top of the corporate tax, there is a ‘surcharge’ of 6% of the corporate tax payable; consequently, the effective corporate tax rate is 26.5%. Oil and mineral licence holders are exempt from the 6% surcharge according to current practice.
There are no industry-specific or special-tax regimes in Greenland. However, it is determined in all oil exploration licences that oil licensees pay a so-called ‘surplus royalty’ on top of the corporate tax.
All companies with mineral exploration licences (current and future) are required to pay a government royalty as a condition for grant of a production licence. The royalty terms form part of the licence conditions and vary with the age of the licence.
On licences issued prior to 2014, oil companies pay a ‘surplus royalty’ of 7.5%, 17.5%, and 30%, which should be paid when the internal rate of return exceeds, respectively, 21.75%, 29.25%, and 36.75% plus the official Danish discount rate, and pay (‘carry’) the state-owned oil company’s 12.5% share of the costs (8% for licences in the ‘open door area’). Newer licences apply a gross royalty of 2.5% and a surplus royalty of 7.5%, 17.5%, and 30%, which should be paid when the accumulated turnover exceeds 35%, 45%, and 55%, respectively. Further, the state participation is reduced to 6.25% (carried).
Nonetheless, the model licence terms for upcoming rounds in Baffin Bay contain surplus royalty levels of 7.5%, 10%, and 12.5% at 35%, 45%, and 55% internal rates of return, respectively. In other words, royalty levels are likely to differ between licences and should therefore be scrutinised.
The standard licence terms for mining licences also include provisions on royalties. The standard term gross royalties are 5.5% on gemstones, 5% on uranium and Rare Earth Elements (REE), and 2.5% on all other minerals (excluding oil & gas). Paid or due corporate taxes and dividend withholding taxes (WHTs) may generally be deducted in the calculation of royalties due, except for uranium licences and gemstone licences. For gemstone licences, there is an additional ‘surplus royalty’ imputed on gross profits exceeding 40%. Detailed provisions apply.
The concrete licence terms should always be consulted rather than the standard licence terms.
Tax exemption for specific licensed purposes
Companies with a public licence to explore and utilise specific types of feedstock or natural resources (e.g. water or ice) or to produce hydroelectric energy may be tax exempt to the extent this follows from the relevant licence. The purpose of this is to allow for replacement of corporate taxes with other payments stipulated by a licence grant, such as turnover based royalties or other forms of payment. This system duplicates the system already in place for licences under, for example, the Natural Resources Act (råstofloven), which comprises the exploitation of oil, gas, and minerals.
Local income taxes
There are no municipal or local corporate income taxes or similar charges in Greenland; however, WHT rates differ by municipality (see the Withholding taxes section).