Income Tax in Norway
Personal Income Tax:
The due date of return is 30th April and tax year is calendar. All individuals who are considered employees have to file a tax return by the end of April the year following the income year. A pre-filled return will be mailed to all taxpayers in the beginning of April. This return has to be checked, reviewed, and if necessary corrected by the taxpayer. The revised tax return has to be signed and returned to the tax authorities by 30 April. Where the tax return has been checked and reviewed and corrections are not necessary the tax return will be regarded as delivered and accepted even though it is not returned to the tax authorities (except for individuals taxable to the Central Office Foreign Tax Affairs - Foreign nationals working for foreign employer with income taxable to Norway who will have to send the tax return to the authorities).
It is possible to obtain an extension of the due date, normally up to one month, to file the return. The application for an extension must be sent to the tax office before the end of April. If a tax return is not submitted, the income may be arbitrarily assessed.
Norwegian tax legislation distinguishes between full tax liability for resident taxpayers and limited tax liability for non-resident taxpayers. Residents are liable to income tax on their worldwide income, whereas non-resident taxpayers are only subject to income tax on specific types of income from Norwegian sources.
Non-residents are liable to Norwegian (income) tax on:
· Income from conducting or participating in business carried out or managed in Norway, including the hiring out of labour.
· Income from movable or immovable property situated in Norway (including dividends from shares in Norwegian companies).
· Remuneration (including pensions) received as a director or member of a board of directors or the like of a Norwegian company or entity, or bonus, gratuity, or the like received in any capacity from such company or entity.
Where an individual is tax liable to Norway only a part of the income year, the income is annualised. The same applies for certain deductions.
The Norwegian income tax system for individuals is based on a dual tax base system: general income and personal income.
General income tax:
General income is taxed at a flat rate of 23%. The general income tax base comprises all categories of taxable income (i.e. income from employment, business, and capital). Tax allowances, expenses, and certain losses are deductible when computing general income. The taxes on general income are the county tax, the municipal tax (Norway is divided into 19 counties and subdivided into 426 municipalities), and the state tax.
Bracket tax on personal income:
Personal income between 169,000 Norwegian kroner (NOK) and NOK 237,900 is subject to a bracket tax of 1.4%. For personal income between NOK 237,900 and NOK 598,050 the bracket tax rate is 3.3% and for personal income between NOK 598,050 and NOK 962,050 the bracket tax rate is 12.4%. Personal income exceeding NOK 962,050 is subject to a bracket tax of 15.4%. The personal income tax base comprises income mainly from employment, including benefits in kind, and pensions.
All types of income from employment, whether in cash or in kind, are normally taxable. Remuneration in kind includes items such as free housing, free car, and free travel. The taxable value of a company car and most other allowances are subject to withholding tax (WHT) along with the cash salary. The taxable values of these benefits are fixed annually by the tax authorities.
If the employee receives cash remuneration to cover housing costs, the gross income will be taxable. Married assignees with family abroad may claim a tax deduction for housing costs in Norway. In these cases only, the net profit will be taxable if the payment is split between deductible costs and profit. Personnel staying in hotels, guest houses, or barracks are subject to tax only on net profit on cash housing remuneration.
Pensions with source in Norway:
A tax of 15% is levied on all pensions with source in Norway. Exemptions may apply under tax treaties and for residents within the European Economic Area (provided certain conditions are met).
A benefit derived upon the exercise or sale of an option to acquire or sell shares or primary capital certificates related to employment is subject to tax on employment income. The benefit is calculated at the time of exercise.
For call options, such benefit is calculated as the difference between the market value of the shares upon exercise and the exercise price (less a possible premium paid).
For put options, the benefit is calculated as the difference between the exercise price and the market value of the shares (less a possible premium paid).
If the option itself is sold, a benefit is calculated as the difference between the sales price of the option and the acquisition cost (premium paid). The taxable benefit of the option is spread over the years during which it has been accumulated.
Social security contributions and income tax are computed as if the benefit of the option had been derived during the period the taxpayer held the option with the same amount for each year.
Whether capital gains are taxable depends on the type of asset and the period of ownership. Losses will be tax deductible, provided that gain from the sale is taxable. Net positive capital income is subject to 23% income tax.
Gains on shares and dividends:
Gains on shares and dividends are adjusted by 1.33 before being taxed at the rate of 23% income tax. The effective tax rate on gains on shares and dividends is therefore 30.59%.
Exit tax rules apply to total latent/contingent gains on shares and options exceeding NOK 500,000. The calculation of the taxable benefit is based on the value of the shares/options the last day before the day the individual is regarded as non-resident according to domestic rules or the individual is regarded as tax resident in another country according to tax treaty. If the shares/options are sold/exercised later than five years after the time the employee is regarded as non-resident, the tax liability lapses.
Income on bank deposits, bonds, securities, or other outstanding amounts is taxable. The amounts are usually taxable in the income year in which they accrue.
· Moving expense.
· Business expenses.
· Special regulations apply for commuters within the European Economic Area (EEA).
Deductions from Income:
Personal deduction (personfradrag):
Individuals are entitled to a personal deduction for municipal taxation purposes. The allowance amounts to NOK 54,750. As of 2018, no special deduction is granted to spouses who are assessed jointly on their total income and capital.
Minimum deduction (minstefradrag):
As an alternative to deduction for actual expenses, the taxpayer may claim a standard deduction, called the minimum deduction. The minimum deduction is intended to cover expenses normally connected with employment. The taxpayer may, however, choose to claim a deduction for actual expenses if these are higher. On the other hand, the minimum deduction may be claimed even if the taxpayer has not incurred any of the expenses the deduction is supposed to cover.
The deduction is 45% of the basis, the maximum being NOK 97,610 and the minimum NOK 4,000. The minimum deduction covers all expenses normally connected with employment, except additional expenses incurred through living away from home, interest payments, travelling expenses necessary for work, and union dues. Pension contributions, alimony, etc. are also not covered by the minimum deduction. Thus, such expenses may be deducted in addition to the minimum deduction.
Foreigners who becomes tax residents are entitled to a standard deduction of 10% of taxable salary, limited to NOK 40,000 for the first two tax assessments. In general, this standard deduction replaces all other deductions except the personal deduction and the minimum deduction.
Non-residents are granted the standard deduction for an unlimited period of time. As an alternative to the 10% standard deduction on total gross income, deductions equal to those of residents are available.
As a general rule, interest expenses are deductible irrespective of whether the debt has any connection with the earning of income or not. Interest expenses are deductible irrespective of what the loan has been contracted for and irrespective of whether the loan is secured by mortgage or not.
If the taxpayer owns immovable property situated abroad or performs or participates in a business abroad and income from such property or business is exempt from tax in Norway under a tax treaty, only a proportional part of the business expenses is deductible, corresponding to the relationship between the value of the immovable property or assets abroad and the value of the total assets. Note that this is not applicable if immovable property is located in the EEA area.
In general, alimony is not deductible (and not taxable for the recipient).
Deductions may be claimed for contributions to certain non-profit organisations. The total deduction per year may not exceed NOK 25,000.
Contingent liabilities/pension schemes:
Union dues are deductible (capped at NOK 3,850).
Both employers' and employees' contributions to various pension schemes may be deductible when certain conditions exist. The rules are of a very technical and extensive character.
Fines and penalties:
Fines and penalties are normally not deductible, including interest on tax due.
Business versus non-business expenses:
Expenses related to taxable income will normally be deductible (however, the minimum deduction will comprise expenses normally connected with employment). Private expenses not related to taxable income are not deductible.
A loss or deficit incurred in business is normally deductible from other income in the year in which it occurs.
A capital loss is deductible to the extent a gain under similar conditions would have been taxable as general income.
As a general rule, a loss or deficit may be carried forward against a later year's income for an infinite period. The loss must be deducted the first year a profit arises.
A loss may only be carried forward in case of the taxpayer's bankruptcy to the extent that outstanding debts after the bankruptcy have been paid to the creditors.
A loss may normally not be carried back. However, when a business is terminated, a loss incurred in the year of termination or the previous year, which has not been set off, may be carried back for two years or one year, as the case may be.
Corporate Income Tax:
Corporate income tax:
In general, resident companies are subject to corporate income tax on worldwide income. However, profits and losses on upstream petroleum activities in other jurisdictions are exempt from Norwegian taxation. Nonresident companies are subject to corporate income tax on income attributable to Norwegian business operations.
A company is tax resident in Norway if it is legally incorporated in Norway or if its central management and control are effectively exercised in Norway.
Rates of corporate tax:
For 2017, the corporate tax rate is 24%.
In addition to the general income tax of 24%, a special petroleum tax of 54% applies to income from oil and gas production and from pipeline transportation. A special power production tax of 34.4% applies on top of the general income tax of 24% for the generation of hydroelectric power.
Qualifying shipping companies may elect a special shipping tax regime instead of the ordinary tax regime. Under the shipping tax regime, profits derived from shipping activities are exempt from income tax. However, companies electing the shipping tax regime must pay an insignificant tonnage excise tax. Financial income derived by shipping companies is taxed at a rate of 24%.
For companies in the financial sector, a 25% rate applies if they are within the scope of the new financial tax rules.
A new financial tax for companies in the financial sector is effective from 1 January 2017. One of the main purposes of the financial tax is that it serves as a form of substitute tax for financial businesses that are value-added tax (VAT)-exempt (that is, they benefit from the Norwegian VAT exemption for the sale and mediation of financial services). The financial tax consists of the following two elements:
· The application of a 25% rate on the income of companies covered by the financial tax, instead of the 24% rate, which applies to companies in all other sectors, effective from 2017
· A new 5% tax on wage costs
The main rule is that all companies that conduct activities that are covered by Group K “Financial and insurance activities” (Codes 64-66) in SN2007 (the European system NACE rev. 2) are subject to the new financial tax. These types of activities are referred to as financial activities. The financial tax applies only to companies with employees.
The following businesses are typically subject to the financial tax:
· Businesses engaged in banking
· Businesses engaged in insurance (both life and general insurance)
· Securities funds
· Investment companies
· Holding companies
· Pension funds
· Businesses performing services related to finance business, including administration of financial markets and mediation of securities
The 5% tax on wage cost is calculated based on the yearly payments to all of the company’s employees who perform financial activities as defined in Group K in SN2007. The same base applicable to the calculation of the employer’s social insurance contribution is used for the calculation of the 5% tax on wage costs.
The following exemptions apply:
· An entity that has less than 30% of its total payroll cost relating to financial activities is exempt from the 5% part of the financial tax.
· An entity that has more than 70% of its total payroll cost relating to VAT-liable financial activities is exempt from the 5% part of the financial tax.
All companies covered by the financial tax can deduct the 5% financial tax on wage cost in calculating their taxable income for corporate income tax purposes.
In general, capital gains derived from the disposal of business assets and shares are subject to normal corporate taxes. However, for corporate shareholders, capital gains derived from the sale of shares in limited liability companies, partnerships and certain other enterprises that are qualifying companies under the tax exemption system are exempt from tax. This tax exemption applies regardless of whether the exempted capital gain is derived from a Norwegian or a qualifying non-Norwegian company. In general, life insurance companies and pension funds are not covered by the tax exemption regime.
For companies resident in another EEA member state (the EEA includes the EU, Iceland, Liechtenstein and Norway), the exemption applies regardless of the ownership participation or holding period. However, if the EEA country is regarded as a low-tax jurisdiction (as defined in the Norwegian tax law regarding controlled foreign companies [CFCs]; see Section E), a condition for the exemption is that the EEA resident company be actually established and carrying out genuine economic activities in its home country.
For non-EEA resident companies, the exemption does not apply to capital gains on the alienation of shares in the following companies:
· Companies resident in low-tax jurisdictions, as defined in the Norwegian tax law regarding CFCs; see Section E)
· Companies of which the corporate shareholder has not held at least 10% of the capital and the votes in the company for more than two years preceding the alienation
The right of companies to deduct capital losses on shares is basically eliminated to the same extent that a gain would be exempt from tax.
The exit from Norwegian tax jurisdiction of goods, merchandise, intellectual property, business assets and other items triggers capital gains taxation as if such items were sold at the fair market price on the day before the day of exit. The payment of the exit tax on business assets, financial assets (shares) and liabilities may be deferred if the taxpayer remains tax resident within the EEA. However, the deferred tax must be paid in equal installments over a period of seven years, calculated from the year of exit. Interest is calculated on the deferred tax amount. If a genuine risk of non-payment of the deferred tax exists, the taxpayer must furnish security or a guarantee for the outstanding tax payable. No deferral of the tax is available for intangible assets and inventory.
The annual tax return is due on 31 May for accounting years ending in the preceding calendar year and must be submitted electronically. Assessments are made in the year in which the return is submitted (not later than 1 December). Tax is paid in three installments. The first two are paid on 15 February and 15 April, respectively, each based on ½ of the tax due from the previous assessment. The last installment represents the difference between the tax paid and the tax due, and is payable three weeks after the issuance of the assessment. Interest is charged on residual tax.
An exemption regime with respect to dividends on shares is available to companies if the distribution is not deductible for tax purposes at the level of the distributing entity. However, the 100% tax exemption is limited to 97% if the recipient of the dividends does not hold more than 90% of the shares in the distributing company and a corresponding part of the votes that may be given at the general meeting (that is, the companies do not constitute a tax group of companies). In such cases, the remaining 3% of the dividends is subject to 24% taxation, which results in an effective tax rate of 0.72%.
The tax exemption applies regardless of the ownership participation or holding period if the payer of the dividends is a resident in an EEA member state. However, if the EEA country is regarded as a low-tax jurisdiction, conditions for the exemption are that the EEA resident company be actually established and carrying out genuine economic activities in its home country and that Norway and the EEA country have a treaty containing exchange-of-information provisions. As of 2017, all of Norway’s treaties with EEA countries have such provisions.
For non-EEA resident companies, the exemption does not apply to dividends paid by the following companies:
· Companies resident in low-tax jurisdictions as defined in the Norwegian tax law regarding CFCs (see Section E)
· Other companies of which the recipient of the dividends has not held at least 10% of the capital and the votes of the payer for a period of more than two years that includes the distribution date
Dividends paid to nonresident shareholders are subject to a 25% withholding tax. The withholding tax rate may be reduced by tax treaties. Dividends distributed by Norwegian companies to corporate shareholders resident in EEA member states are exempt from withholding tax. This exemption applies regardless of the ownership participation or holding period. However, a condition for the exemption is that the EEA resident company be actually established and carrying out genuine economic activities in its home country.
Foreign tax relief:
A tax credit is allowed for foreign tax paid by Norwegian companies, but it is limited to the proportion of the Norwegian tax that is levied on foreign-source income. Separate limitations must be calculated according to the Norwegian tax treatment of the following two different categories of foreign-source income:
· Income derived from low-tax jurisdictions and income taxable under the CFC rules
· Other foreign-source income
For dividend income taxable in Norway, Norwegian companies holding at least 10% of the share capital and the voting rights of a foreign company for a period of more than two years that includes the distribution date may also claim a tax credit for the underlying foreign corporate tax paid by the foreign company, provided the Norwegian company includes an amount equal to the tax credit in taxable income. In addition, the credit is also available for tax paid by a second-tier subsidiary, provided that the Norwegian parent indirectly holds at least 25% of the second-tier subsidiary and that the second-tier subsidiary is a resident of the same country as the first-tier subsidiary. The regime also applies to dividends paid out of profits that have been retained by the first- or second-tier subsidiary for up to four years after the year the profits were earned. The tax credit applies only to tax paid to the country where the first- and second-tier subsidiaries are resident.
Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.