Limited tax liability is introduced on offshore activities

According to the current Danish tax rules, foreign companies are subject to limited tax liability to Denmark if they carry out business from a permanent establishment in Denmark. Similarly, foreign, natural persons who are not fully liable to tax in Denmark are typically liable to income tax in Denmark if they perform work in Denmark for more than 183 days within a 12-month period or for a permanent establishment in Denmark or if the remuneration is paid by an employer or for an employer resident in Denmark. As a general rule, Danish taxation competence can only be exercised within the 12-nautical-mile limit counted from the Danish coast – unless special rules apply, for example for hydrocarbon taxation.

If the draft legislation is adopted, Danish taxation competence will also cover offshore activities outside the 12-nautical-mile limit, but within Denmark's economic zone. The limited tax liability will apply to both foreign companies and individuals.

The draft legislation covers activities in the form of:

• Establishment, operation and use of artificial islands,
• installations, and
• facilities.

According to the preparatory work, the rules must be interpreted broadly and cover all types of work that are directly related to artificial islands, installations and facilities in Denmark's economic zone.

According to the draft, the rules would not apply to activities related to:

• Establishment, operation and use of under-sea cables and pipelines used solely for transit through Denmark's exclusive economic zone.

The draft legislation also contains rules aimed at clarifying the tax consequences of installations built for hydrocarbon activities being used for CO2 storage activities.

The draft legislation does not contain a regulation of VAT, duties or other areas of law – but we are following the development closely.

Although the draft legislation has not yet been adopted, tax considerations should already be considered in the planning of new offshore projects in Denmark – just as it is important to be aware that the draft legislation will also have effect on already existing projects. The legislation is proposed to enter into force on 1 July 2023. The draft legislation in its entirety can be found here.

At Deloitte, we have a special focus on offshore activities, and we are happy to help with advice and sparring in relation to your activities.

Dansk version her.