During 2019 we have seen that Norway and Denmark continue to be attractive work locations for UK companies. UK companies who are working in Norway and Denmark continue to specialise in the traditional sectors of oil and gas but we have also seen an upsurge in other sectors such as renewables, aquaculture and agriculture. It is important to emphasise that UK companies who are working in Norway and Denmark and any other overseas territory must remain compliant with the local tax laws. With the increase of foreign companies working in these territories, the Norwegian and Danish authorities are actively seeking to ensure that these companies are compliant by paying the required taxes due and filing the correct returns.
When your company is working in Norway, Denmark, or any other overseas territory, advanced planning is essential to ensure that your company understands the foreign taxes that it might be liable to and the impact these taxes will have on the profits the business hopes to generate by the work performed overseas. Failure 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. In addition to this, where companies are non-compliant with the local rules, foreign tax offices levy substantial penalties and interest on companies who fail to comply.
It is important that companies are aware 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. In addition to this consideration should be given as to 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, in addition to this there is likely to be employment tax and VAT obligations.
An illustration of the differing rules that apply between various countries is an example of one instance that creates a PE in the DTT’s 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.
If you are a UK company and are liable to CT in a foreign country, you should be able to get Double Taxation Relief (“DTR”) for the overseas taxes suffered, as these profits will also be subject to UK CT. However, the DTR is restricted to the lower of the foreign tax suffered and the UK tax on the foreign profits. Therefore, in higher CIT jurisdictions like Norway and Denmark who have a standard CT 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.
If your company has undertaken work in Norway and/or Denmark during 2019 it is worth noting that the CT filing deadline is 31 May and 30 June respectively. In addition to this if your company is planning on working in Norway and Demark during 2020 or in the future it is advisable that you are aware of the foreign tax exposure your business may have.
By Helen Brown, International Tax Director at Anderson Anderson & Brown LLP
For more information on Helen and the International Tax team, click here.