Greenland Taxes for Individuals and Corporations

Greenland, a self-governing territory within the Kingdom of Denmark, operates an independent tax system. This autonomy allows Greenland to tailor its tax laws to its economic and social circumstances. The Greenlandic tax framework is established through legislation passed by its parliament, the Inatsisartut. These laws govern the taxation of income for individuals and corporations and are designed to apply broadly to various types of income sources.

Determining Tax Residency in Greenland

Establishing tax residency in Greenland determines tax obligations. For individuals, full tax liability is triggered by physical presence; staying in Greenland for a continuous period of more than six months establishes tax residency. An individual can also be deemed a tax resident if they establish their permanent home in Greenland, which is considered the “center of vital interests.” This concept considers where an individual has their strongest personal and economic ties.

For corporations, tax residency is determined by different criteria. A company is a resident of Greenland if it is incorporated and registered there through the Danish Business Register. A company may also be considered a resident if its effective management and commercial decisions are made within the territory.

Taxation of Individuals

Individuals who are tax residents in Greenland are subject to taxation on their worldwide income. This means all earnings, from both Greenlandic and foreign sources, are aggregated into the taxable income base.

The personal income tax is composed of a national tax and a municipal tax, with the combined rate reaching up to 44% depending on the municipality. While there are no social security contributions for individuals, contributions to a mandatory pension scheme are required.

Several deductions are available to reduce taxable income. A standard personal allowance of DKK 48,000 is granted to taxpayers with employment-related income. Other deductions can include certain work-related expenses and contributions to approved pension schemes. The tax system also provides relief for potential double taxation, allowing a resident to receive a credit for foreign taxes paid on income sourced outside of Greenland.

Taxation of Corporations

Corporations resident in Greenland are subject to a corporate income tax on their profits at a standard rate of 25%. This flat rate applies to the company’s taxable profit, which is calculated from its net income.

A surcharge of 6% is applied to the corporate tax payable, bringing the effective corporate tax rate to 26.5%. Companies can avoid this surcharge by using a voluntary on-account system to pay an estimated amount of their final tax liability during the income year. If the final assessed tax exceeds the on-account payments, the 6% surcharge is applied only to the difference.

Depreciation of assets is a significant deduction. Operating assets can be depreciated at 30% per year on a declining-balance basis, while buildings are depreciated at 5% annually on a straight-line basis. Greenland has a special tax regime for companies involved in the extraction of hydrocarbons and mineral resources, as this sector is a part of the Greenlandic economy.

Key Indirect and Withholding Taxes

A feature of Greenland’s tax system is the absence of a Value Added Tax (VAT). Instead, the government levies import duties on a wide range of goods brought into the country. The lack of VAT means that consumers and businesses purchasing goods from outside Greenland can often obtain a refund of the VAT paid in the country of purchase when goods are directly exported to Greenland.

Greenland applies withholding taxes on certain payments made from a Greenlandic entity to a non-resident. For dividends paid to foreign recipients, the withholding tax rate ranges from 36% to 44%, depending on the municipality. A unique aspect of the Greenlandic system is that dividends paid are deductible for corporate tax purposes, meaning corporate tax is not paid on profits that are distributed as dividends.

For other types of payments, the rules differ. Royalties paid to non-residents are subject to a 30% withholding tax, and withholding tax may apply to interest payments. The specific rates can be influenced by double taxation treaties that Greenland has entered into with other countries.

Tax System Administration

The administration of the tax system in Greenland is managed by the Greenlandic Tax Agency, known as Akitsuuserivik. This agency is responsible for assessing and collecting taxes from both individuals and corporations.

The standard tax year for all taxpayers is the calendar year, running from January 1st to December 31st. For individuals, the primary method of tax collection is a pay-as-you-earn (PAYE) system, where employers are required to withhold the estimated income tax directly from an employee’s salary each pay period.

Corporations may be granted permission to use a different fiscal year, provided it is a 12-month period that begins on the first day of a month. Both individuals and corporations are required to file an annual tax return after the end of the tax year.