Studies continue to identify Northern Norway and the Arctic as a growth area for the Norwegian oil and gas industry. Significant investment and development, including around key towns Hammerfest and Kirkenes, and the Arctic Barents Sea as a whole, should lead to future growth. This is most recently evidenced by the 2019 Norway licencing round, which offered 90 new blocks – 48 of which are in the Arctic Barents Sea, with the balance in the Norwegian Sea (37) and the North Sea (5). This licencing round differed from earlier years in that it specifically issued blocks in unexplored, frontier regions, leading to new developments.
Approximately 10% of the Norwegian population live in the Arctic area and with the existing experience in the oil and gas industry, this provides opportunities for companies. Some of these challenges come from working in harsh remote environments in deep water, high pressure offshore. Companies involved in developing innovative solutions to address these challenges will be highly sought after. Taking expertise gained in both the Norwegian Sea and North Sea will stand companies in good stead to support this growth opportunity.
This should provide additional appeal for UK companies looking to expand into the Norwegian sector to take full advantage of these opportunities. Though this is undoubtedly great news, there are matters from a tax perspective which will arise when expanding into Norway.
When tendering for work in Norway businesses need to be aware of the local legal, accounting and tax requirements to avoid any unexpected liabilities. Early planning is key to delivering a successful project and reduces the risk of any nasty surprises during or after the work.
Many UK businesses are unaware of the Norwegian employee reporting obligations, and potential tax liabilities can exist from the first day of working in Norway. UK companies failing to report contracts performed in Norway, or employees/subcontractors working in Norway, risk exposure to penalties and interest, thus eroding profits.
If both Norwegian and UK PAYE are applicable on employee wages it is worth considering seeking authority from HMRC to operate a ‘Net of tax credit scheme’ in the UK. Otherwise, both Norway and UK income will have to be deducted from the employment income in the payroll.
There has also been recent changes in PAYE for foreign workers and the impact of Brexit on social security should be considered. Currently the UK benefits from European Directives and Social Security Agreements with many EU countries. However, post Brexit these may be withdrawn resulting in additional costs for companies and employees. This means that getting that early support from an advisor who understands the interaction of UK and Norwegian taxes combined with potential changes that could stem from Brexit, is of even greater importance.
Additionally, any UK company performing ‘offshore activities’ (broadly, any activities connected with the oil & gas industry) on the Norwegian Continental Shelf, in excess of 30-days, is at risk of being deemed to be carrying on business in Norway through a ‘Permanent Establishment’ (PE).
Such companies must submit Norwegian CT returns, declaring the profits earned in Norway, and pay Norwegian CT due. Similar obligations can arise where work is performed onshore in Norway, depending on the nature and duration of the work.
There is also a requirement to prepare Norwegian accounts of the PE, and have these audited by a Norwegian auditor, usually when the Norway turnover exceeds NOK5m.
Companies should start planning at the tender phase to ensure the legal, accounting and tax obligations of growing and operating internationally are understood and managed properly.
Helen Brown is director with AAB specialising in supporting companies operating overseas, assisting with planning at the tender phase through to reporting of overseas accounting and tax obligations.
For more information please contact Helen Brown (firstname.lastname@example.org) or usual AAB contact.
To find out more about Helen and the International Tax team click here.