Navigating the tax landscape in Greenland requires a clear understanding of both employer obligations and employee responsibilities. The tax system is primarily administered by the Greenlandic tax authorities (Skatteforvaltningen), with income tax being a significant component for individuals. Employers play a crucial role in the collection process through payroll withholding, ensuring compliance with local regulations.
The system combines a central government tax with municipal taxes, which can vary depending on the employee's place of residence. This structure necessitates careful attention to detail when calculating payroll and managing tax contributions and deductions for employees working in Greenland.
Employer Social Security and Payroll Tax Obligations
Employers in Greenland are responsible for several contributions related to their employees' compensation. The primary obligations include contributions to social security schemes and potentially other specific funds depending on industry or collective agreements.
Key employer contributions typically include:
- ATP (Arbejdsmarkedets Tillægspension): A supplementary pension scheme. Contributions are fixed amounts, shared between the employer and employee. The employer pays the larger portion.
- Sygdagpenge (Sickness Benefit Fund): Contributions to cover employee sickness benefits. The rate is often a percentage of the employee's salary up to a certain threshold.
- Other potential contributions: Depending on collective bargaining agreements or specific industry regulations, employers might be required to contribute to other funds, such as holiday funds or specific training funds.
Specific rates and thresholds for these contributions are determined annually. Employers are required to register with the relevant authorities and make timely payments of these contributions.
Income Tax Withholding Requirements
Employers are mandated to withhold income tax from employee salaries and wages on behalf of the tax authorities. This Pay As You Earn (PAYE) system ensures that tax is collected throughout the year. The amount of tax to be withheld is calculated based on the employee's tax card (skattekort), which is issued by the tax authorities.
The tax card specifies the employee's tax rate and any allowances or deductions they are entitled to. The income tax calculation considers:
- Gross Salary: The total amount earned before any deductions.
- Allowances/Deductions: Specific amounts or percentages that reduce the taxable income, as indicated on the tax card.
- Tax Rate: The combined central government and municipal tax rate applicable to the employee. Municipal tax rates vary by municipality.
Employers must use the information on the tax card accurately to calculate the correct withholding amount for each pay period. The withheld tax must then be remitted to the tax authorities by specified deadlines.
Employee Tax Deductions and Allowances
Employees in Greenland may be eligible for various tax deductions and allowances that can reduce their taxable income. These are typically reflected on the employee's tax card, which is based on information provided by the employee to the tax authorities.
Common deductions and allowances may include:
- Personal Allowance: A basic amount of income that is tax-free for all residents.
- Travel Expenses: Deductions for documented work-related travel expenses, often subject to specific rules and limits.
- Pension Contributions: Contributions made by the employee to approved pension schemes may be deductible.
- Interest Expenses: Interest paid on certain types of loans may be deductible.
- Specific Allowances: Depending on individual circumstances, other allowances might be granted, such as for dependents or specific living costs in certain remote areas.
The availability and amount of these deductions and allowances are subject to tax legislation and individual assessment by the tax authorities. Employees are responsible for providing accurate information to ensure their tax card reflects their entitlements.
Tax Compliance and Reporting Deadlines
Employers in Greenland have strict reporting and payment obligations to ensure tax compliance. Key deadlines and requirements include:
- Monthly Reporting: Employers must typically report withheld taxes and social contributions on a monthly basis. This reporting includes details of employee salaries, withheld tax, and contributions.
- Payment Deadlines: Payment of withheld taxes and contributions is usually due shortly after the end of the reporting period (e.g., the middle of the following month).
- Annual Reporting: Employers must provide annual summaries of employee earnings, withheld taxes, and contributions to both the tax authorities and the employees (e.g., in the form of an annual statement).
- Registration: New employers must register with the tax authorities before hiring employees.
- Tax Card Management: Employers are responsible for obtaining and correctly applying the tax card information for each employee.
Failure to meet these deadlines or incorrect reporting can result in penalties, interest, and other legal consequences.
Special Tax Considerations for Foreign Workers and Companies
Foreign workers and companies operating in Greenland face specific tax considerations:
- Tax Residency: The tax treatment of foreign workers depends on their residency status in Greenland. Individuals considered tax resident are taxed on their worldwide income, while non-residents are generally taxed only on income sourced in Greenland. Rules for determining residency are based on factors like physical presence and ties to Greenland.
- Withholding Tax for Non-Residents: Employers hiring non-resident foreign workers must apply the correct withholding tax rules, which may differ from those for residents. Specific flat rates might apply to certain types of income for non-residents.
- Permanent Establishment (PE): Foreign companies operating in Greenland may become subject to Greenlandic corporate tax if they establish a permanent establishment in the territory. The definition of PE generally follows international tax principles.
- Double Taxation Treaties: Greenland is part of the Danish tax territory, and Denmark has double taxation treaties with numerous countries. These treaties can impact the tax obligations of foreign workers and companies by providing relief from double taxation.
- Registration Requirements: Foreign companies employing staff in Greenland, even without a PE, may still have employer obligations related to payroll withholding and social contributions. Registration with Greenlandic authorities is typically required.
Understanding these special rules is crucial for foreign entities and individuals to ensure compliance with Greenlandic tax law.
