Duties, royalties and taxesDuties, royalties and taxes payable by private parties
What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit-based?
The right to perform mining activities is based on an exploitation licence issued by Greenland’s autonomous government. Unless otherwise stated in the exploration licence preceding the exploitation licence, the economic terms of an exploitation licence will be as follows:
- taxation according to Greenlandic legislation shall be in force at any time;
- payment of a fee of 100,000 Danish kroner to the MLSA at the granting of an exploitation licence; and
- reimbursement of the MLSA’s expenses regarding regulation of the licensee’s activities.
In March 2013, a new Greenlandic government was elected and the ruling parties’ coalition agreement stated that royalty payments would be introduced to the mining industry. In January 2014, the government presented a proposal for an oil and mineral strategy for 2014-18, which contains a recommendation to introduce a royalty model based on a combination of revenue and profit depending on the specific type of mineral and with a possibility of deducting corporate and dividend tax within the calculated royalty.
As a result, the Greenlandic government has, as per 1 July 2014, adopted an addendum to The Standard Terms for Exploration Licences for Minerals (excluding hydrocarbons) in the country regarding terms on the licensee’s payment of royalty when the licensee is granted an exploitation licence.
The royalty elements are differentiated for the various types of minerals, and the main terms on royalty are as follows:
- a licensee exploiting minerals, other than rare earth elements, uranium and gemstones, shall pay a sales royalty of 2.5 per cent of the value of minerals (the licensee may on certain terms offset an amount equal to paid corporate income tax and corporate dividend tax against sales royalties to be paid);
- a licensee exploiting rare earth elements shall pay a sales royalty of 5 per cent of the value of the elements (the licensee may on certain terms offset an amount equal to paid corporate income tax and corporate dividend tax against sales royalties to be paid);
- a licensee exploiting uranium shall pay a sales royalty of 5 per cent of the value of the uranium (the licensee may not offset any amount related to paid corporate income tax or corporate dividend tax against sales royalties to be paid); and
- a licensee exploiting gemstones shall pay a sales royalty of 5.5 per cent of the value of the gemstones and a surplus royalty of 15 per cent based on gross profit exceeding 40 per cent (the licensee may not offset any amount related to paid corporate income tax or corporate dividend tax against sales royalties or surplus royalties to be paid).
The more specific terms on royalty for different types of minerals are stated in appendices 1-4 to the addendum to the Standard Terms.
The addendum came into force on 1 July 2014, and it applies to the following licences:
- a licence for exploration for minerals (excluding hydrocarbons) in Greenland if the licence is granted on 1 July 2014 or later;
- a licence for exploration for minerals (excluding hydrocarbons) in Greenland if the licence is granted earlier than 1 July 2014 and it follows from the licence, including any addendum or any other amendment to the licence, that the Greenlandic government may set terms on the licensee’s payment of royalties or consideration, including royalties in an exploitation licence granted on the basis of the exploration licence; and
- a licence for exploration for minerals (excluding hydrocarbons) in Greenland if the licence is granted earlier than 1 July 2014 and the Greenlandic government and the licensee agree that this addendum shall apply to the licence.
This means that the Greenlandic government cannot lay down terms on royalties when granting an exploitation licence on the basis of an exploration licence granted earlier than 1 July 2014, provided that the original exploration licence has not been amended or does not include any addenda or other terms on royalties in the second point above. However, the last two exploitation licences that were granted in October 2013 and March 2014 include an agreement between the government and the licensees on the payment of royalties.Tax advantages and incentives
What tax advantages and incentives are available to private parties carrying on mining activities?
For companies carrying on mining activities, corporate taxation amounts to 30 per cent whereas the corporate taxation of other companies is 31.8 per cent. The tax on dividends for companies carrying out mining activity is 36 per cent regardless of the municipality in which the company is situated, as opposed to other companies that pay a tax on dividends of 42 per cent to 44 per cent, depending on their home municipality. Finally, companies carrying on mining activities can bring deficits forward without time limits where other companies have a time limit of five years.Tax stablisation
Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force?
Is the government entitled to a carried interest, or a free carried interest in mining projects?
As a rule, the government is not entitled to a free carried interest in mining projects. However, according to section 17(2) of the Mineral Resources Act, a licence may prescribe that a company controlled by the Greenlandic autonomous government will be entitled on specified terms to join as a participant in the activities covered by the licence.Transfer taxes and capital gains
Are there any transfer taxes or capital gains imposed regarding the transfer of licences?
Capital gains on the transfer of licences are included in the calculation of the corporate taxable income.Distinction between domestic parties and foreign parties
Is there any distinction between the duties, royalties and taxes payable by domestic parties and those payable by foreign parties?
There is no distinction between the duties, royalties and taxes payable by domestic licence holders and those payable by foreign parties. However, there is an obligation to withhold tax related to royalties paid by a domestic company to a foreign beneficiary.