Income Tax in Norway
Personal Income Tax:
Tax Return:
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.
Tax Rates:
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.
Taxable Income:
Employment income:
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).
Equity compensation:
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.
Capital gains:
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:
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.
Interest income:
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.
Exempt Income:
· 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.
Standard 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.
Interest expenses:
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.
Alimony:
In general, alimony is
not deductible (and not taxable for the recipient).
Charitable contributions:
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.
Losses:
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.
Financial tax:
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.
Capital gains:
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.
Administration:
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.
Dividends:
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.
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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.
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