Table 3: Sources and Destination of FDI

Source: IMF: http://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5&sId=1482186404325.
Host country statistical source: Statistics Denmark: http://www.dst.dk/en/Statistik/emner/nationalregnskab-og-offentlige-finanser/aarligt-nationalregnskab (or www.statbank.dk).

The total stock of FDI inbound to Denmark in 2016 corresponded to 44.5 percent of GDP (current prices, exclusive of pass-through investments). Danish outbound direct investment corresponded to 71.5 percent of GDP in 2016. The largest foreign investor in Denmark in 2016 was Sweden, followed by Luxembourg, UK, Norway and the Netherlands. U.S. investment accounted for 6.7 percent of the total 2016 FDI stock in Denmark, the seventh largest source of FDI.

Major U.S. direct investment in Denmark is in telecommunications, energy utility, information technology, biotechnology, data centers, oil exploration, financial services and facility services. During recent years, several U.S.-based private equity funds have invested in Danish firms, such as DONG (now Ørsted), ISS, the Legoland Parks, and TDC. Apple and Facebook are currently constructing data centers in Viborg and Odense, respectively, estimated to cost in the hundreds of millions of dollars. Google has invested in land in southern Denmark giving it the option of building a data center as well. Over 400 U.S. companies have subsidiaries in Denmark, of which several are regional headquarters.

The main destinations for Danish FDI are Sweden (13 percent), United Kingdom (11 percent), Switzerland (11 percent), the United States (9 percent), and Germany (7 percent). EU countries held 60 percent of the FDI stock in Denmark in 2016.
 

Table 4: Sources of Portfolio Investment

Source, IMF: http://data.imf.org/regular.aspx?key=60587804.

Other Areas in the Kingdom of Denmark

GREENLAND

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 assume a number of responsibilities from the Danish government, including the administration of justice, business and labor, aviation, immigration and border control, as well as financial regulation and supervision. Greenland 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 arriving from a Schengen country. Denmark provides Greenland with an annual block grant of DKK 3.9 billion — roughly $600 million — that accounts for a quarter of Greenland’s GDP and more than half of the public budget.

The Greenlandic government seeks to increase revenues by promoting greater development of fisheries, extractive resources, and tourism, and by trimming the public sector through privatization of enterprises currently owned by the 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 strong earnings for large parts of the fisheries sector. Catches of prawn, by far the most important single species, have increased recently following years of declines. Catches of mackerel are also increasing.

Capital city Nuuk has seen extensive construction activity in recent years and a planned expansion of the airport will lead to further growth and facilitate expansion of tourism. Other efforts to develop tourism include increases in accommodation (hotel rooms), a reduction in passenger tax for cruise ships, and a focus on promoting foreign language education to create a more multilingual workforce. The government is calling for stricter safety requirements for navigation in Greenlandic waters.

In the mineral extractives sector, two smaller mines (ruby and anorthosite) have begun producing in 2017, while two other companies have applied for permission to extract rare earth elements in southern Greenland, in one case combined with the extraction of uranium, which is estimated could one day become the world's fifth-largest uranium mine and second-biggest rare earths operation. The government endorses maintaining the previous government’s relaxation on a ban on uranium mining, and states that all IAEA and EURATOM standards must be met. However, the issue of uranium mining in Greenland remains sensitive.

Greenlandic Economic Outlook

Greenland is currently enjoying an economic upswing, though its highly specialized economy – over 90 percent of exports is fisheries – faces significant challenges. The economy contracted between 2012 and 2014, grew by 1.7 percent in 2015 and by 7.7 percent in 2016 to $2.765 billion. The Danish Central Bank estimates nominal GDP growth of 3-4 percent in 2017, and in 2018 economic growth is expected to be 2 percent. The 2016 upswing was driven by an increase in the prawn quota off West Greenland, increasing municipal construction budgets, the expansion of the port in Nuuk, and the government-financed construction of a prison in Nuuk, along with the construction of court buildings in several coastal towns. There are also indications that private consumption contributed positively to GDP growth in 2016 and will, together with increasing mineral exports, continue to do so in 2017 and 2018, but the data is not yet available. Increased public spending at government and local levels has had an expansionary effect in 2016 and 2017. The Greenlandic economy is characterized by the unusual condition of having higher public than private consumption. Consequently, government consumption is of proportionally greater importance to the economic trend.

The Greenland Parliament (called “Inatsisartut”) and the Government of Greenland (Naalakkersuisut) adopted a Budget Act for 2018 with an estimated balanced annual budget in the period 2018-2021. The most recent budget showed a deficit of DKK 145 million ($21.5 million) for the same period. The municipalities and government have no net debt, but including government-owned enterprises, the net debt totaled DKK 1.9 billion ($280 million) in 2015, which corresponds to approximately 13 percent of GDP.

The Greenland Economic Council (GEC) - an independent advisory council - concluded in the Council’s 2017 report that, “Projections for the public finances shows a major sustainability problem.” The Council warns of the effects of increasing public expenditures as larger portions of the population age into retirement, resulting in fewer wage earners in the labor market. The GEC reported that the Greenlandic Government’s 2017 Growth and Sustainability Plan was an ambitious but realistic plan to close the gap between expected expenditures and revenues, although it would require the Government to cut social spending. The GEC has advised that development of a more self-sufficient economy requires further development of the extractive and tourism sectors. Natural resource exploration has declined in recent years in line with lower worldwide mineral prices. However two mines began production in 2017, generating some optimism that more small scale mining operations could follow.

Greenland exported DKK 2.702 billion ($410 million) in the first nine months of 2017, a two percent decrease from the same period in 2016, mainly attributable to a decrease in export value of machines and transport equipment. Some 96 percent of Greenlandic exports, measured in local currency, were fish products, with the remainder being raw materials and machinery. Exports went primarily to Denmark (87 percent), followed by Portugal, and Iceland. Greenland imported goods worth DKK 2.972 billion ($451 million) in the first nine months of 2017, primarily machinery (27 percent), foods (20 percent), intermediate products (17.6 percent), and fuels (12.5 percent). Imports came from Denmark (79 percent), Sweden, and China among others. Imports from the United States represented 0.9 percent of total imports. 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 26,844 people in 2015, and the average unemployment rate was 9.1 percent, though that in the capital was significantly lower. The Greenlandic government is actively trying to attract investments to Greenland to diversify the economy and integrate it into the world economy as part of a long-term path toward eventual independence from Denmark.

Establishing a Company in Greenland

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. $75,900) and for establishing a private limited liability company (ApS) is DKK 125,000 (approx. $18,970).

An established company planning to do business in Greenland must obtain 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 registered affiliate has no capital requirements, but only a company with a legally registered office in the EU, USA, Canada or the Nordic countries can open an affiliate, which is not treated as an independent company, but rather as an extension of the main company for legal purposes. 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, rather, intended 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.

Greenland Tax

Greenland has double taxation agreements with Denmark, the Faroe Islands, Iceland, and Norway. Greenland has signed a Foreign Accounts Tax Compliance Act (FATCA) agreement with the United States.

The corporate income tax rate is 30 percent; an additional surcharge of six percent of the tax payable brings 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 ($15,170) may be depreciated in the year of acquisition.

Greenland Labor

The Greenlandic labor force was 26,844 persons in 2015 (most recent figure). Average unemployment for 2015 was 9.1 percent – higher than the OECD average of 6.78 percent, and a decrease from 10.3 percent in 2014. Anecdotally, unemployment has decreased significantly since, especially in Nuuk. According to Statistics Greenland, 39 percent of the Greenlandic population in 2015 have an education beyond primary school. Of those, 56.4 percent have a vocational education.

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 ($759 million) and workforce requirements exceed the local labor supply. The Act is intended for potential mining or infrastructure projects in Greenland. 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 $13.85 per hour minimum wage and retention of the right to strike, but employers may deduct up to $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 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 a harsh climate and ice coverage in Greenland, satellite images record a significant disappearance of surface ice from the island. As the trend continues, mining industry experts anticipate the retreating ice will make the island’s rich stores of raw materials more easily accessible, though still faced with the challenges of remote location and lack of infrastructure.

Greenland’s policy framework is relatively attractive for most mining activities. 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 rights to its mineral and hydrocarbon resources, and it 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 ($11.38 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 ($546 million). Once the full value of the block grant is reached, any additional revenue will be subject to negotiations between the Danish and Greenlandic governments. The Greenlandic Government welcomes this lucrative scenario, but remains aware of the potential adverse impacts that a rapid influx of wealth from these activities could have on Greenlandic society.

Most of Greenland’s identified rare earth deposits are licensed by the Mineral License and Safety Authority and some have reached advanced stages of exploration. In 2017, Greenland advanced to a position as 34^th out of 91 in the annual mining survey from Canadian Fraser Institute. Greenland had been ranked 55^th out of 104 mining jurisdictions surveyed in terms of investment attractiveness. In December 2013 Greenland was deemed the “best country to do mining in,” together with Mongolia, Azerbaijan, and Australia, at Europe’s Mines & Money conference.

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. Information from the Greenlandic Government on natural resource exploration and extraction can be found at: http://www.govmin.gl.

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.

In Greenland it is not possible to acquire private ownership of land, but a right of use may be sold for an area, e.g. if you buy property, you own the house, not the land on which it sits.

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 a 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.

While Greenland’s democratic institutions and legal framework in general are strong, there have been some concerns about legislation being passed by parliament without significant hearing processes and public input.

THE FAROE ISLANDS

The Faroe Islands have an open economy and multiple trade agreements with other countries. For more than two centuries the Faroese economy has relied on fisheries and related industries. Fisheries account for close to one-sixth of the total gross value added in the Faroe Islands and about 95 percent of goods exports, excluding ships and aircraft. Salmon alone accounts for 45 percent of exports. Increased catches of mackerel and herring, as well as higher prices for salmon globally, have contributed significantly to recent economic growth. As a non-EU member, the Faroe Islands continue to have open access to the Russian market despite Russia's retaliatory trade embargo on certain food imports from the EU. This has allowed the Faroese to sell increased quantities of salmon to the Russian market at higher than normal prices, even while prices have dropped significantly in the European market.

The Islands exported approximately DKK 8.622 billion ($1.308 billion) worth of goods in 2017, 97.4 percent of which were fish products, with the remainder being marine vessels and aircraft. In recent years, construction, transportation, banking, and other financial services sectors have grown, and offshore oil and gas exploration is developing, though commercially viable finds have not been made. In 2017, the majority of exports went to Russia (28.2 percent), the United States (9 percent), followed by the UK (8.9 percent), Germany (8.8 percent), and Denmark (6.3 percent). Goods imports totaled DKK 7.238 billion ($1.098 billion) in 2017. The vast majority of imports came from Europe in 2017; 1.9 percent originated in the United States. Denmark provided 37.1 percent of imports, Germany 10 percent, Norway 9.7 percent, China 5.6 percent, and Sweden 4 percent. Imports consist of items for household consumption (21.5 percent), e.g. food, tobacco and beverages; input to industry (21.7 percent) machinery (11.4 percent) and fuels (13.1 percent).

The Faroe Islands’ small, open, but non-diversified economy makes it highly vulnerable to changes in international markets. The Faroe Islands have full autonomy to set tax rates and fees, and to set levels of spending on the services they provide. Denmark upholds an annual block grant of DKK 642 million - roughly $97 million.

In 2013, the Faroese economy began a strong recovery, after several years of stagnation. The Economic Council for the Faroe Islands estimates that nominal GDP rose 5.8 in 2014 followed by estimated growth of 6.2 percent in 2015, 6.8 percent in 2016, and 6 percent in 2017. Growth in nominal GDP in 2014 was mainly export driven while growth in 2015 and 2016 was primarily driven by domestic demand. GDP growth for 2018 is expected to slow, however, due to high demand for labor that is close to full employment. Unemployment was historically low at 2.2 percent in December 2017, down from 8 percent in 2011.

Central and local government and publicly owned companies are planning massive investments in infrastructure and hospitals. However, expansionary fiscal policy might put severe pressure on the job market which can lead to a labor shortage. Investment in 2016-2018 is expected to total $1.7 billion ($258 million) or 10.2 per cent of GDP, which is 34 percent higher than in 2014. Construction of the Eysturoy and Sundoy tunnels, with an expected cost of approximately DKK 2.64 billion ($400 million) or 16 percent of GDP are planned for the period 2016-21. Salmon producer Bakkafrost, the Faroe Islands’ largest company, has made public its plans to invest approximately DKK 2 billion ($303 million) on processing plants in 2016-2020.

Announcement of these enormous investments resulted in the Danish Systemic Risk Council issuing an unprecedented official warning of the increase of systemic risk on the Faroe Islands in the fall of 2016. By April 2018, the Council recommended increasing the banking sectors’ countercyclical capital buffer from 1 percent to 3 percent by 2020. Seven in ten construction firms say that shortage of labor is an impediment to growth, and the magnitude of the public investments could further push the economy beyond its labor capacity limit. The Economic Council for the Faroe Islands estimates that a permanent fiscal improvement of 5 percent of GDP will be required to stabilize government debt, which is currently at a low level. As of April 2018, credit agency Moody’s maintain the Faroe Islands’ Aa3 rating of high quality and very low credit risk, with a stable outlook, reflecting its fiscal autonomy and revenue and expense flexibility with a track record of prudent budgeting. The stable and historical relationship with Denmark is deemed an additional strength.

The Faroe Islands opened their own securities exchange in 2000; active trading of shares followed in 2005. The exchange is collaboration with the VMF Icelandic exchange on the Nasdaq OMX Nordic Exchange Iceland.

The most recent figures available show Foreign Direct Investment into the Faroe Islands totaled DKK 1.6 billion ($243 million) in 2012, about half of which originated from Denmark. The Faroese government has indicated interest in attracting further foreign investment. “Invest in the Faroes” is the Faroese government unit promoting Faroese trade. The website is http://www.government.fo/.

According to the Danish Central Bank, the biannual confidence indicators show that Faroese firms and consumers are generally not as optimistic about the economy as they have been in previous years. In particular, consumers take a less positive view of their own finances and the Faroese economic outlook in the near term. Looking further ahead, the Faroe Islands face a demographic challenge. Currently there are 4.5 people in the working age group “16 to 66”, for every person aged 67 or older. By 2050, that number is projected to be less than half; an estimated 2.1 persons for every dependent retiree.

The Faroe Islands have in recent years engaged in several disputes with the EU over fishing quotas. The disagreements escalated in September 2012 when the EU adopted measures which allowed it to impose sanctions on the Faroe Islands. In March 2013, the Faroe Islands unilaterally increased their quota for herring and mackerel. EU member states responded by voting in favor of imposing sanctions which went into force in August 2013. Sanctions were lifted a year later after a political understanding between the two parties was reached on herring catches. Subsequently a five year agreement with the other coastal states in the North Atlantic was signed on mackerel quotas, reducing uncertainty for fisheries and improving profitability, since the agreement allows for more sustainable harvesting.

The Faroe Islands retain control over most internal affairs, including the conservation and management of living marine resources within the 200 nautical mile fisheries zone, natural resources, financial regulation and supervision and transport. Denmark continues to exercise control over foreign affairs, security, and defense, in consultation with the Faroese Government.

The labor force comprised about 26,358 people in November 2017. In many areas, the Faroese labor market model resembles that of the other Nordic countries, with high standards of living, well-established welfare schemes and independent labor unions. A majority of people in the Faroe Islands are bilingual or multilingual, with Danish and English being most widely spoken after Faroese. The Islands boast well-developed physical and telecommunications infrastructure and have well-established political, legal, and social structures. The standard of living for the total population (which exceeded 50,000 for the first time in the spring of 2017) is high by world standards, and Gross National Disposable Income per capita eclipsed that of Denmark in 2014.