Norway - Income Tax

Norway - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

30 April is the due date for tax returns.

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in Norway?

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

What are the current income tax rates for residents and non-residents in Norway?

Residents

The Norwegian tax system has two bases of income. The ordinary income base is a net base. The tax on ordinary income is 27 percent.

In addition, we have the personal income base. This is a gross base for taxation. The top tax and the social security contributions for employees are based on this.

The top tax rates are as follows for 2016:

  • from NOK 159 800: 0.44 percent
  • from NOK 224 900: 1.7 percent
  • from NOK 565 400: 10.79 percent
  • above NOK 909 500: 13.7 percent.

Employee’s social security contribution is 8.2 percent of gross income.

Please note that the Norwegian tax system is divided into different tax classes. This has an effect on the size of some deductions. Resident taxpayers are allowed a personal tax-free amount in year 2016:

  • tax-free amount class 1: NOK 51 750
  • tax-free amount class 2NOK 76 250.

The classes are defined as follows.

  • Class 0: Applies to taxpayers with limited tax liability (taxpayers who are not considered residents of Norway and who do not receive income from regular employment) and companies and other organizations that are considered entities for tax purposes. Such taxpayers are taxed on their net income taxable in Norway.
  • Class 1: Applies to unmarried residents and to married residents if separate assessment (both assessed in class 1) is beneficiary. For tax-free amount, see the following.
  • Class 2: Applies to married residents if joint assessment is beneficiary (one-income families). The class also applies to one-parent families. For tax-free amount, see the following.

The above mentioned tax rates are directly applicable for persons resident in Norway for tax purposes for a full 12-month calendar year. For individuals resident in the country for tax purposes for less than 12 months, or for persons not resident in Norway for tax purposes, the tax-free amounts and the tax rate intervals in regard to the calculation of the tax, municipal and top tax, are reduced according to how many months the person is considered to have been in Norway.

General deductions from income

A general allowance for expenditure relating to employment is allowed at 43 percent of gross earned income with a minimum of NOK 31 800 in income from employment and similar income and a maximum of NOK 91 450 for the income year 2015. Also, the general allowance is reduced according to the number of months one is resident in Norway. For pension income, maximum deduction amounts to NOK 73 600.

Persons moving to Norway are entitled to choose an expatriate deduction of 10 percent of gross income for the first two assessments. The deduction is limited to NOK 40,000 on gross income. If the taxpayer does not choose the standard deduction, he/she may claim the following deductions:

  • interest on debt
  • travel expenses to and from working place in Norway
  • extra expenses for lodging and food incurred when working away from home
  • parent deduction (expenses for childcare while the parents are working)
  • losses when selling shares or other financial instruments.

Please note that this list is not complete, but merely an overview of the most common deductions.

Non-residents

The same tax percentages for residents are applicable for non-residents.

A person moving to Norway may claim a special 10 percent standard deduction on income for the first two years’ tax assessments in Norway. The deduction is limited to NOK40,000 on gross income.

For non-residents, the two-year limitation does not apply.

Instead of claiming the 10 percent standard deduction, the employee can choose to claim deductions based upon the actual costs that where accumulated during the income year. Whether or not it is profitable to claim the 10 percent standard deduction or deductions for actual costs, must be calculated for each income year. If the employer has covered cost which is deductible, this could be regarded as tax free income, and then the employee cannot claim the 10 percent deduction in addition.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Norway?

An individual will be considered resident in Norway for tax purposes if any one of the following requirements is met.

  • The individual stays in Norway for more than 183 days in one or more periods during any 12-month period. Residency will take place from the income year for which the requirement is fulfilled.
  • The individual stays for one or more periods in Norway for more than 270 days during any 36-month period. Residency will take place from the income year for which the requirement is fulfilled.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

For establishing residency in Norway according to the Norwegian Tax Act, the above mentioned requirements apply. Every day in Norway is counted, without taking into consideration the purpose of the stay in Norway.

What if the assignee enters the country before their assignment begins?

The above mentioned rules still apply.

Termination of residence

Are there any tax compliance requirements when leaving Norway?

Termination of residence in Norway for persons with a total stay in Norway not exceeding 10 years happens when the following requirements are fulfilled:

  • permanent stay in a foreign country
  • stay in Norway must not exceed 61 days within a 12-month period
  • do not have the disposal of a permanent home in Norway.

If all three requirements are fulfilled within the same calendar year, the termination of residency will be the latter of the dates when the person either takes a permanent stay in a foreign country, or gives up the disposal of a permanent home in Norway. If the fulfillment of the requirements is spread over two different income years, the termination of residence will occur either 1 January the latter income year or the latter date when the person gives up the disposal of a permanent home in Norway or establishes a permanent stay in a foreign country.

The same conditions apply for persons with a total stay in Norway exceeding 10 years. However, the above mentioned conditions must be fulfilled for three consecutive years following the year of moving. Furthermore, the taxpayer also has a duty to file a Norwegian tax return for the moving year and the following three years.

In addition the individual has a mandatory obligation to inform the Norwegian Registration Office of any change of address.

What if the assignee comes back for a trip after residency has terminated?

The above mentioned rules still apply.

Communication between immigration and taxation authorities

Do the immigration authorities in Norway provide information to the local taxation authorities regarding when a person enters or leaves Norway?

No. However, there is an obligation for the foreign employer to register as employer in Norway and to register the employee for tax purposes. By this arrangement, the tax authorities will be made aware of the assignment to Norway.

Please note that in addition the individual has a mandatory obligation to inform the Norwegian Registration Office when entering Norway.

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

There is a filing requirement in Norway as long as the assignee is regarded as resident in Norway according to the Norwegian Tax Act, or as long as the assignee receives salary and benefits related to work performed in Norway. 

Economic employer approach

Do the taxation authorities in Norway adopt the economic employer approach2 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Norway considering the adoption of this interpretation of economic employer in the future?

Yes and no. Norway uses a hire of labour clause with a wide definition, and thereby the employee becomes taxable to Norway from the first day of work if the salary and costs are borne by the Norwegian company. It is sufficient to conclude that hire of labour has taken place when the employee has been put to disposal by a person (hirer), to another person (user) to carry out work for the latter in the course of an activity the user carries on in the state where the work is performed, and where the hirer does not bear the responsibility and risk for the results produced by the employee’s work.

De minimus number of days

Are there a de minimus number of days3 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

This will apply from the first day of work.

Types of taxable compensation

What categories are subject to income tax in general situations?

In principle, all types of remuneration and benefits received by an employee for services rendered in Norway constitute taxable income, regardless of where paid. Typical items of an expatriate compensation package are fully taxable unless otherwise indicated, as follows:

  • base salary
  • reimbursements of foreign and/or home country taxes
  • cost-of-living allowances are normally taxable
    1. If the employee is considered a commuter (such as has a spouse and children living abroad), and the employee desists from claiming 10 percent standard deduction (expatriate concessions), cost-of-living allowances up to a fixed amount are normally not considered taxable.
  • housing allowances and the imputed value of housing provided directly by the employer are normally fully taxable
    1. However, housing allowances and the imputed value of housing provided directly by the employer may not be taxable if the individual’s spouse and children live abroad and the employee desists from claiming 10 percent standard deduction (expatriate concessions).
  • benefits-in-kind generally form part of taxable compensation
    1. Where a company car is provided, it will involve a deemed compensation for the private use of the car.
  • home leave reimbursements to the employee are normally taxable
    1. If the employee receives payment to visit spouse and children living abroad, the remuneration may not be taxable if the employee desists from claiming 10 percent standard deduction (expatriate concessions).

Tax-exempt income

Are there any areas of income that are exempt from taxation in Norway? If so, please provide a general definition of these areas.

  • Moving expense.
  • Business expenses.
  • Special regulations apply for commuters within the European Economic Area (EEA).

Expatriate concession

Are there any concessions made for expatriates in Norway?

A person moving to Norway may claim a special 10 percent standard deduction on income for the first two years’ tax assessments in Norway. The deduction is limited to NOK40,000 on gross income.

For non-residents, the two-year limitation does not apply.

The 10 percent standard deduction is meant to be an overall deduction, including any type of extra expenses incurred due to the assignment in Norway. Normally, the standard deduction will exceed otherwise deductible actual expenses. In addition to the 10 percent standard deduction, a foreigner may claim deductions for membership expenses in the Norwegian Trade Union and in private Norwegian pension schemes.

However, instead of claiming the standard deduction, the person can choose to claim deduction for actual expenses. This can especially prove useful if the person is a commuter, and thereby has the right of tax-free home leave reimbursement and free housing.

Salary earned from working abroad

Is salary earned from working abroad taxed in Norway? If so, how?

Salary earned by a Norwegian resident from working abroad is subject to income tax in Norway. Standard rates apply. A credit is given in the Norwegian national and municipal income tax for any foreign income tax paid.

Residents working abroad for a continuous 12-month period may apply for a deduction in the assessed Norwegian income tax, equaling the part of the tax that falls on the remuneration earned abroad. The tax deduction cannot exceed the tax calculated in Norway on the same type of income which is taxed abroad. Please note that there are detailed requirements which need to be fulfilled to obtain the deduction.

Taxation of investment income and capital gains

Are investment income and capital gains5 taxed in Norway? If so, how?

For resident individuals, all worldwide income derived from investments and capital gains are treated as ordinary income with a tax rate of 25 percent for 2016. This applies to interest, dividends, and capital gains from sale of shares. When capital gains are taxable, corresponding losses may also be deducted from ordinary income.

Dividends, interest, and rental income

Rental income

The principal rule is that income derived from renting out a private house is taxable. Exemption is made when more than half of the house, based on the imputed rent value, is disposable to the owner. Likewise the income is not taxable if it is a semi-detached house/duplex and more than half of one of the two sections is at the disposal of the owner. If the whole house or main parts of the house is rented out, the rental income is taxable if gross income from the rental exceeds NOK20,000. If the rental income is considered taxable, operating expenses are deductible.

Rental income derived from renting out an apartment in Norway is taxable with a tax rate of 25 percent. Deductions can be made for costs related to the letting out, such as insurance costs, heating, and so on.

Please see the following for dividends and interest.

 

Gains from stock option exercises

Gains from stock options due to conditions from employment are taxable as salary at the time of exercise.

 

In addition, there is exit taxation on latent capital gains from stock options in Norwegian and foreign companies at the date the individual is regarded as emigrated from Norway and thereby is no longer considered as a tax resident of Norway either by a double taxation agreement or by the Norwegian Tax Act. If the stock options are not exercised within five years after the break of residency, there will be no exit tax levied on the capital gain.

 

Residency status Taxable at:
  Grant Vest Exercise
Resident N N Y
Non-resident N N Y
Other (if applicable) N/A N/A N/A

 

Resident shareholders are taxed on dividends as ordinary income –25 percent. There has been a change in the legislation from 1 January 2006. Tax on dividends for individual shareholders is subject to a basic tax-free allowance. The tax-free allowance will be equal to a risk-free interest on the shareholder’s tax base cost of the shares. The risk-free interest for the income year 2015 is 0.6 percent. There will be a separate determination of the allowance for all shares of a company on shareholder level. Any unused allowance may be carried forward and set off against future distributions or against a gain on the sales of the shares. It may not be set off against income from other sources. Please note that the risk-free interest for 2016 is set in January 2017.

Dividends6

 

Example

  NOK
Company Profit 100.00
Company tax 25.00
Dividend 75.00
Tax free allowance  
Tax base cost (NOK1,000*0.6 percent) 6.00
Taxable income 694.00
Tax 27 percent 17.258
Net income 51.75


Note: Based on the presumption that the individual paid NOK1,000 for the shares.

 

Shareholders in other EEA Member States may be allowed the same basic tax-free allowance on dividend payments. Shareholders resident outside the EEA-area do not receive the basic tax-free allowance. The tax rate / withholding tax are either 25 percent or a lower rate according to an applicable tax treaty.

 

Interest and royalty

Residents are taxed on interest as ordinary income. Non-residents are not subject to any Norwegian taxation on interest as long as the interest is not related to business income (PE) in Norway.

 

Capital gains on real estate

Capital gains on real estate located in Norway are, in general, taxable as ordinary income whether or not the owner is resident in Norway for tax purposes. A gain from the disposal of a private residence is not taxable if it has been owned by the resident for at least one year prior to the date of sale and has been used by the owner as private residence, for at least one year, within the last two years prior to the date of sale.

 

Capital gains on shares

Residents are taxed on capital gains on shares as ordinary income. In addition, there is exit taxation on latent capital gains from shares in Norwegian and foreign companies at the date the individual is regarded as emigrated from Norway, and thereby is no longer considered as a tax resident of Norway either by a double taxation agreement or by the Norwegian Tax Act. If the shares are not sold within five years after the break of residency, there will be no tax levied on the capital gain.

 

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Norway? If so, please discuss?

As mentioned above, there is exit taxation on latent capital gains from shares or parts in limited or general partnerships in Norwegian and foreign companies at the date the individual is regarded as emigrated from Norway, and thereby is no longer considered as a tax resident of Norway in regard to national law or tax treaty. If the shares or parts are not sold within five years after the break of residency, there will be no tax levied on the capital gain.

 

Are there capital gains tax exceptions in Norway? If so, please discuss? 

Pre-CGT assets

Not applicable.

Deemed disposal and acquisition

Not applicable.

General deductions from income

What are the general deductions from income7 allowed in Norway?

A general allowance for expenditure relating to employment is allowed at 43 percent of gross earned income with a minimum of NOK31,800 in income from employment and similar income and a maximum of NOK 89,050 for the income year 2015. Also, the general allowance is reduced according to the number of months one is resident in Norway. For pension income, maximum deduction amounts to NOK 72,200

Persons moving to Norway are entitled to choose an expatriate deduction of 10 percent of gross income for the first two assessments. The deduction is limited to NOK 40,000 on gross income. If the taxpayer does not choose the standard deduction, he/she may claim the following deductions:

  • interest on debt
  • travel expenses to and from working place in Norway
  • extra expenses incurred for lodging and food when working away from home
  • parent deduction (expenses for childcare while the parents are working)
  • losses when selling shares or other financial instruments.

Please note that this list is not complete, but merely an overview of the most common deductions. 

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Norway?

Normally, a Norwegian employer who has an assignee abroad will tax equalize according to a hypothetical tax. Some employers use the tax protection method.

The following is the normal method of recognizing tax reimbursements paid by the employer:

  • current year gross-up
  • current year reimbursement.

Calculation of estimates/ prepayments/ withholding

How are estimates/prepayments/withholding of tax handled in Norway? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

Please see below.

Withholding taxes

Norway has a withholding tax system. The employer is obliged to withhold taxes in connection with payment of salary to the employee. The amount withheld is based on a tax card obtained by the employee from the local tax office. Withheld taxes have to be submitted to the tax collector on a bi-monthly basis. In June - October of the year following the income year, the individual will get his/her tax assessment. If the withheld amount is in excess of the tax assessed, the difference will be paid back to the individual, correspondingly if the assessed tax is in excess of the withheld amount, the balance has to be paid by the employee. Interest will be charged.

Pay-as-you-go (PAYG) withholding

Please see the above.

PAYG installments

Please see the above.

As mentioned above, the employer submits the taxes withheld on a bi-monthly basis to the Tax Collector's Office.

Payment dates are:

Salary

Taxes to be paid

January - February

15 March

March - April

15 May

May - June

15 July

July - August

15 September

September - October

15 November

November - December

15 January, the following year

 

When are estimates/prepayments/withholding of tax due in Norway? For example: monthly, annually, both, and so on.

Please see the above.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Norway? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

Norway uses the credit system as the main rule to avoid the double taxation of persons being liable to taxation on the same income and wealth in more than one country. A tax treaty with other provisions, however, takes priority.

Only persons considered resident in Norway have the right to claim tax credit in Norway. The tax credit may never exceed the actual tax paid abroad. However and furthermore, the tax deduction cannot exceed the tax calculated in Norway on the same type of income and wealth which is taxed abroad. The tax credit cannot be carried forward if there is no tax to pay in Norway for that year or in the following five years. The claim for tax credit must be put forward, at the latest, at the same time as the individual submits the tax return for the income year in which the foreign income is liable to Norwegian taxation. If the foreign tax cannot be substantiated in that time, the tax credit claim must be presented at the latest six months after the tax is finally assessed abroad. Instead of claiming a tax credit, the foreign tax may be deducted from the taxable income.

Before choosing the credit system as the main rule to avoid double taxation, Norway entered into several treaties using the exemption method.

General tax credits

What are the general tax credits that may be claimed in Norway? Please list below.

Please see the section discussing general deductions from income.

Sample tax calculation

This calculation assumes a married taxpayer resident in Norway whose three-year assignment begins 1 January 2014 and ends 31 December 2016. The taxpayer’s base salary is USD100,000 and the calculation covers two years.

  2015
USD
2016
USD
Salary 100,000 100,000
Bonus 20,000 20,000
Cost-of-living allowance 10,000 10,000
Housing allowance 12,000 12,000
Company car 15,000 15,000
Moving expense reimbursement 20,000 0
Home leave 5,000 5,000
Education allowance 3,000 3,000
Interest income from non-local sources 6,000 6,000

Exchange rate used for calculation: USD1.00 = NOK5.40.

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is not remitted to Norway.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Calculation of taxable income

Year-ended 2015
NOK
2016
NOK
Days in Norway during year 365 365
Earned income subject to income tax    
Salary 540,000 540,000
Bonus 108,000 108,000
Cost-of-living allowance 54,000 54,000
Net housing allowance 64,800 64,800
Company car 81,000 81,000
Moving expense reimbursement 0 0
Home leave 27,000 27,000
Education allowance 16,200 16,200
Total earned income 891,000 891,000
Deductions 89,050 91,450
Total taxable net income 801,950 799,550

 

Capital income

  2015
NOK
2016
NOK
Interest income 32,400 32,400
Norwegian tax (27%) 8,748 8,100

 

Calculation of tax liability

  2015
NOK
2016
NOK
Taxable salary income as above 801,950 799,550
Norwegian tax thereon 306,783 300,926
Interest income taxes 8,748 8,100
Total Norwegian tax 315,530 309,026

The calculation is based on the following assumptions.

  • The taxpayer is considered resident in Norway for tax purposes since his/her stay in Norway exceeds 183 days each income year. He/She will therefore be taxable for all his/her income, both in Norway and abroad. Reference is made to the fact that tax treaties are ignored for the purpose of this calculation.
  • As a resident in Norway the taxpayer will be a member of the National Social Insurance Scheme and will pay employee’s contribution, which is 7.8 percent of gross income.
  • The taxpayer will be taxed in Tax Class 2 since we assume that he/she is supporting his/her spouse.
  • A foreigner who has a temporary stay in Norway can claim a standard deduction in his/her gross salary. The deduction is made in accordance with national rates. The standard deduction is 10 percent on gross income limited to a maximum of NOK 40,000 per income year. The standard deduction only applies for the first two years when the foreigner is establishing tax residence in Norway. As mentioned above, the foreign employee can choose between the standard deduction and deduction for actual costs.
  • The calculations is without the standard deduction and not taking into consideration the moving expenses reimbursement since this is tax-free according to Norwegian rules.

Footnotes

1Income Tax Act of 26 Mars 1999 § 2-1 (2).

2Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.

3For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

4Income Tax Act of 26 March 1999 § 6-70.

5Parliament tax decision of 26 November 2003 nr 1437 and 1438.

6Parliament tax decision of 26 November 2003 nr 1437.

7Income Tax Act of 26 March 1999 § 6-32 and 6-70; Parliament tax decision of 26 November 2003 nr 1437.

8Sample calculation generated by KPMG Law Advokatfirma AS, the Norwegian member firm of KPMG International, based on the Norwegian Income Tax Rates Act.

© 2016 KPMG Law Advokatfirma DA, a Norwegian member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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