Norway and Denmark continued to be attractive work locations for UK companies in 2019. Many of those companies are specialists in the traditional sectors of oil and gas but there has been an upsurge in other sectors such as renewables, aquaculture and agriculture.
UK companies working in overseas territories must comply with the local tax laws and with the rise of foreign companies working in Norway and Denmark, authorities there are seeking to ensure firms are compliant by paying the required taxes due and filing the correct returns.
When working in Norway, Denmark or any other overseas territory, advanced planning is essential to ensure that your company understands the foreign taxes it might be liable for and the impact they will have on the profits the business hopes to generate by the work performed overseas.
Failing to understand the associated cost of these taxes can result in a reduction in the profit made on the assignment or, worse, turn the work into a loss-making project.
Also, foreign tax offices may levy substantial penalties and interest on companies who fail to comply with the local rules.
It is important to be aware that there is no “one rule fits all” when a taxable presence (Permanent Establishment (PE)) is created in an overseas country. Every country has different domestic rules for when an overseas company is liable to their local tax rules.
Consider too whether there is a Double Tax Treaty (DTT) in place between the UK and the relevant country. The creation of a PE means the company is required to submit a Corporate Income Tax (CIT) Return. There are also likely to be employment tax and VAT obligations.
An illustration of the differing rules that apply between various countries is creating a PE in the DTTs that the UK has with Norway and Denmark. Under the DTT between the UK and Norway, when a UK company undertakes work offshore in Norway for a period exceeding 30 days in any 12-month period, a PE is created and hence a corporate tax filing obligation.
However, under the terms of the DTT between the UK and Denmark, a PE is created on day one of any offshore work taking place in Denmark. The employment tax and VAT obligations vary from this too, depending on the DTT.
UK companies liable for corporate tax in a foreign country should be able to get Double Taxation Relief (DTR) for the overseas taxes suffered as these profits will also be subject to UK corporate tax. But companies need to be aware that the DTR is restricted to the lower of the foreign taxes suffered and the UK tax on the foreign profits. So, in higher CIT jurisdictions like Norway and Denmark, which have a standard corporate tax rate of 22%, this will create an additional tax cost which cannot be recovered. If possible, these costs should be addressed in the tender phase, along with any compliance costs that are likely to arise as a result of the work that has taken place.
Companies that undertook work in Norway and/or Denmark during 2019 should note that the corporate tax filing deadlines are May 31 and June 30 respectively.
If your company is planning on working in Norway or Denmark during 2020, or in the future, it is advisable to talk to experts to make sure you are aware of your business’s foreign tax exposure.
Helen Brown is international tax director at Anderson Anderson & Brown
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