Greenland’s status within the Kingdom of Denmark is outlined in the Self Rule Act (SRA) of 2009, which details the Greenlandic government’s right to acquire a number of new responsibilities, including the administration of justice, business and labor, aviation, immigration and border control, as well as financial regulation and supervision. It has already acquired control over taxation, fisheries, internal labor negotiations, natural resources, and oversight of offshore labor, environment, and safety regulations. Denmark continues to have control over the Realm’s foreign affairs, security, and defense policy, in consultation with Greenland and the Faroe Islands. Denmark also retains authority over border control issues, including immigration into Greenland. Greenland is not a part of the EU or Schengen Area, and special rules apply for foreigners coming from a Schengen country.
The Greenlandic Government proposes to increase revenues by promoting greater development in fisheries, minerals, and tourism, and by trimming the public sector through privatization of enterprises currently owned by the Greenlandic government. Key initiatives include improving access to financing for new businesses and enhancing Greenland’s corporate tax competitiveness. Rising prices for fish and shellfish, the predominant Greenlandic exports, have generated good earnings for large parts of the fisheries sector, although catches of prawn, which is by far the most important single species, continue to fall. The decrease is believed to be climate-related. Catches of other traditional species have not made up for this decline, though mackerel stocks are on the rise. Efforts to develop tourism include increases in accommodation capacity, a reduction in passenger tax for cruise ships, and a focus on promoting foreign language education to create a more multilingual workforce. The Government also calls for stricter safety requirements for navigation in Greenlandic waters. In the mineral sector, two mines (ruby and anorthosite respectively) are expected to come online in 2016, while two other companies have applied for permission to extract rare earth elements in southern Greenland, in one case combined with extraction of uranium. The government endorses maintaining the previous government’s relaxation of a ban on uranium mining, and states that all IAEA and EURATOM standards must be met. However, the issue of uranium mining in Greenland is still contentious.
Greenland Economic Outlook
While Greenland escaped the worst effects of the financial crisis, experiencing GDP growth of 7.5 percent from 2008 to 2011, Greenland’s highly specialized economy – over 90 percent of exports is fisheries – is facing significant challenges. Natural resource exploration (i.e. oil and minerals), and large-scale construction activity in the capital of Nuuk and the larger cities have subsided in recent years, and Greenland’s undiversified economy is lacking in new revenue streams as a demographic burden puts greater pressure on the public budgets. Exploration for hydrocarbons off the west coast of Greenland, previously estimated to generate approximately DKK 5 billion (USD 745 million) in 2010 – 2011, has since declined. No exploration was conducted in 2012 to2014 and in spring 2016 all but one oil company handed back licenses for oil exploration off West Greenland. There is significant potential for offshore hydrocarbons and rare earth elements in Greenland, but reserves are unproven and particularly given depressed world commodity prices it is unclear when further exploration and exploitation on a commercial basis will become viable.
Economic activity contracted for three consecutive years up to and including 2014 and emigration has reduced the population. Due to an expected increase in investment in building and construction, estimates point to positive economic growth in 2015. After that, developments in the dominant fisheries sector will presumably determine whether activity rises or falls. The Greenland Economic Council – an independent advisory council – estimates that Greenland’s economy will grow in 2015 at 2.7 percent of GDP, and accelerate to 2.9% in 2017 due to a normalization of construction activity and one-time increased public investments. The Council’s 2014 report concluded, “Five years after the implementation of the Self-Rule Government, the reforms that would be necessary for the creation of a self-sustaining economy have not been put into place.” The 2015 report concludes that no significant reforms were implemented in the intervening years to avoid what has been dubbed the “jaws of death” in the Greenlandic press, i.e. rising public expenditures and falling revenues. Public expenditures are increasing as demographic shifts push larger portions of the population into retirement, while fewer Greenlanders are active in the labor market. The government expects a budget deficit in 2016 of DKK 56.8 million (USD 8.5 million), but estimates that Greenland will have a budget surplus for the 2016 – 2019 period of DKK 29.7 million (USD 4.4 million). However, the Greenland Economic Council estimates that, since much needed reforms have not been implemented, it is unlikely that the budget surpluses will materialize in that time frame.
Recent reports on Greenland’s mineral wealth affirm that mineral and oil projects cannot alone provide Greenland with a viable economic future, but must be complemented by educational and other reforms to ensure that any increased business activity invests significantly in human capital and does not rely solely on imported labor.
Greenland exported DKK 2.656 billion (USD 395 million) in 2015, a 12.3 percent decrease from 2014. 89 percent of Greenlandic exports were fish products, with the remainder being raw materials and machinery. Exports went primarily to Denmark (81 percent), followed by Portugal (7.2 percent), and Iceland (2.9 percent). Greenland imported goods worth DKK 3.942 billion (USD 586 million) in 2015, primarily machinery (24.1 percent), foods (21.7 percent), intermediate products (12 percent) and fuels (9.1 percent). Imports came from Denmark (73.2 percent), Sweden (9 percent), and China (2.7 percent) among others. Imports from the United States represented 1.1 percent of total imports. Foreign Direct Investment into Greenland from Denmark totaled DKK 1.7 billion (USD 253 million) in 2014. Due to its vast geographic expanse, Greenland’s physical and telecommunications infrastructure is less interconnected and developed than in other parts of the Kingdom of Denmark. The labor force was comprised of 26,764 people in 2014, and the average unemployment rate was 10.3 percent. The Greenlandic government is actively trying to attract investments to Greenland to diversify the economy and integrate the Greenlandic economy into the world economy as part of a path toward independence from Denmark.
Greenland has double taxation treaties with the following countries: Denmark, Faroe Islands, Iceland, and Norway. Greenland is working with the United States to sign a Foreign Accounts Tax Compliance Act (FATCA) agreement and has reached an agreement in substance.
The corporate income tax rate is 30 percent. An additional surcharge of six percent of the tax payable is charged, bringing the total corporate tax rate to 31.8 percent. Companies which are operating under the Mineral Resources Act can apply for an exemption of the surcharge, thereby lowering the tax rate to 30 percent.
Taxation of royalty payments is 30 percent. Greenland has no value added tax (VAT) system, sales tax or similar taxes. There are, however, some payable duties, such as taxes for cruise liners, ports duties, etc. There are four types of depreciation in the Greenlandic tax law. Buildings can be depreciated five percent annually. Ships, planes, and hydrocarbon prospecting can be depreciated 10 percent annually. Mineral licenses can be depreciated 25 percent annually, and operating equipment can be depreciated at a rate of 30 percent annually. Assets with a cost of less than DKK 100,000 (USD 14,900) may be depreciated in the year of acquisition.
Establishing a Company in Greenland
An established company doing or planning to do business in Greenland must attain a GER (Greenland’s Company Register) registration number. This also applies to subsidiaries. A registration number can be acquired from the Greenlandic Tax Authorities.
A foreign company can establish a commercial enterprise in Greenland in one of the following ways: through a subsidiary, a registered affiliate, a representative office or a taxable entity. A subsidiary is only liable for its own assets. The capital requirement for establishing a corporation (A/S) is DKK 500,000 (approx. USD 74,400) and for establishing a private limited liability company (ApS) is DKK 125,000 (approx. USD 18,600). At least one of the founders of an A/S must be a resident of Greenland. The Danish Ministry for Business and Growth can, however, grant exemptions to this requirement.
A registered affiliate does not have capital requirements, but only a company with a legally registered office in the EU, USA, Canada or the Nordic countries can open an affiliate. It is legally not treated as an independent company, but rather as an extension of the main company. This means that the head office is liable for all the affiliate’s assets.
A representative office is not regulated or defined; however, a representative office may not enter contracts or deliver services. It is meant to be a marketing office, or an office to establish contacts with the goal of eventually entering the market.
An exploration license is viewed as a taxable entity. There is more lenient regulation in the extraction industry regarding company composition: if a foreign company is granted an exploration license, it is not required to register as an affiliate, but the license is taxable, and therefore the firm must submit tax information like a regular company. However, a loss can be carried forward and written off against future profits. A GER registration is required.
A foreign company can do business in Greenland in a consecutive or non-consecutive 90 day period over 12 months without being required to register as a business.
The Greenlandic labor force was 26,764 persons in 2014. Average unemployment for 2014 was 10.3 percent – higher than the OECD average of 7.4 percent, and an increase from 10.1 percent in 2013. Based on 2012 figures, 34.7 percent of the Greenlandic population has an education beyond primary school, and 42.8 percent of those have a vocational education, with nurses and teachers making up the two largest groups at 12.1 percent of the educated population.
In December 2012, Greenland passed legislation known as the “Large Scale Act,” which allows companies to use foreign labor during the construction phase of development when project costs exceed DKK 5 billion (USD 745 million) and workforce requirements exceed the local labor supply. The Act is intended for potential mining or infrastructure projects in Greenland. The Act allows workers from outside Greenland to operate under a foreign labor accord, but these agreements cannot violate Greenland’s laws or Denmark’s international obligations.
The Act lays out the framework for politically-negotiated Impact Benefit Agreements (IBA) for the Government of Greenland and the employer to agree on the exact conditions of employment for foreign labor. The scale of Greenlandic labor utilized will be negotiated for each project and will vary depending on local capacity and the negotiated agreement for each project.
Foreign workers will enjoy the same legal protections as Greenlandic workers, in theory, including the same USD 13.85 per hour minimum wage and retention of the right to strike, but employers may deduct up to USD 180 from their pay each week to cover the cost of company-provided lodging, food, and clothing.
Investment in Natural Resources
Greenland possesses significant mineral deposits, including the rare earth elements, zinc, lead, molybdenum, uranium, gold, platinum, ruby and pink sapphires, and other critical minerals. Greenland is also believed to have large quantities of iron ore and copper, although there has been limited exploration to date. Despite harsh climate and ice coverage in Greenland, satellite images taken over the past several decades record a continuing significant disappearance of surface ice from the island. If the trend continues as expected, mining industry experts anticipate the retreating ice will make the island’s rich stores of raw materials more easily accessible.
Greenland’s policy framework is relatively attractive for most mining activities (with the exception of mining radioactive minerals). In October 2013, the Greenlandic Parliament abolished the country’s 25-year “zero-tolerance” policy towards uranium and other radioactive minerals, lifting the ban on mining where uranium is present. This decision will facilitate the exploitation of rare earth mineral deposits, which are often found co-mingled with radioactive minerals in Greenland.
With the 2009 SRA, Greenland gained the rights to its mineral and hydrocarbon resources, and acquired the regulatory authority over these on January 1, 2010. The SRA also created a revenue mechanism: if exploitation of Greenland’s natural resources becomes commercially viable, Greenland will keep the first DKK 75 million (USD 11.2 million) in annual revenues derived from these resources, with further revenues split equally between the Danish and Greenlandic Governments. Denmark’s share will be transferred by deducting the equivalent amount from the annual block grant to Greenland of DKK 3.6 billion (USD 535 million). Once the value of the block grant has been reached, any additional revenue will be subject to negotiations between the Danish and Greenlandic governments. The Greenlandic Government welcomes this lucrative eventuality, but remains aware of the potential impact that an influx of wealth from these activities could have on Greenlandic society.
Greenland is endowed with several rare earth element deposits (at least two are deemed world-class). All the well-known deposits are licensed by the Bureau of Minerals and Petroleum and some have reached advanced stages of exploration. Greenland was granted the award for “best country to do mining in 2013-2014,” together with Mongolia, Azerbaijan, and Australia, at the Mines & Money conference in December 2013. However, in 2014, Greenland’s ranking slid from the top-ten in the annual mining survey from Canadian Fraser Institute, to 26th out of 109 mining jurisdictions surveyed, in terms of investment attractiveness.
Greenland General Business Information
OPIC programs are not applicable to U.S. investments in Greenland. Information about the Greenlandic Government can be found at: http://naalakkersuisut.gl/en.
Statistics on Greenland can be found at: http://www.stat.gl/default.asp?lang=en
By law, private property can only be expropriated for public purposes in areas where the Greenlandic Self-government has the competencies, in a non-discriminatory manner, and with reasonable compensation. There have been no recent expropriations of significance in Greenland and there is no reason to expect significant expropriations in the near future.
There have been no major disputes over foreign investment in Greenland in recent years. While it is common that disputes are settled in Greenlandic courts, the Danish Supreme Court remains the highest appeals court for disputes in Greenland. If the dispute is very specialized and within the purview of the Danish Administration of Justice Act, the parties involved can choose the Danish Maritime and Commercial Court as a court of first instance. Potential investors should be cognizant of the need to manage expectations in Greenland with regard to understanding corporate responsibility and financial obligations.
While democratic institutions and the legal framework in general are strong, there have been some concerns about legislation being passed through parliament without significant hearing processes and public input.