Norway: Taxation in Norway - Taxation Of Individuals/ Personal Taxation

Last Updated: 10 August 1998
TAX RATES

Income Tax Rate (%)                      41.7
Capital Gains Tax Rate (%)               28.0
NetWorth rate (%)                         1.1
Inheritacne and Gift Tax Rate (%)        30.0

Individuals resident in Norway are subject to income tax on their worldwide income, except for net income derived from real or industrial property situated abroad. For tax purposes, persons staying in Norway for more than six months are considered resident in Norway.

Individuals are generally deemed to remain resident if they move abroad, unless their stay exceeds four years. However, if the stay exceeds one year and the individual establishes that he or she is considered resident for tax purposes in another country, the individual is likewise considered to be non-resident in Norway.

Non-residents are taxable only on Norwegian-source income. Non-resident individuals who, during a temporary stay in Norway, receive wages or other remuneration from sources within Norway for personal work performed in Norway are subject to Norwegian tax on such income. Wages and compensation may be Norwegian-source income even if the employer has no permanent establishment in Norway.

The Norwegian tax liability may be limited by tax treaties with other countries, and special rules may apply to individuals working on the Norwegian Continental Shelf.

TAXATION OF RESIDENTS

Taxable income generally includes any benefit earned by property, capital, personal services or business activity. These benefits are included in taxable income whether they are earned over a lengthy period of time, only occasionally or on a single occasion. Most allowances and fringe benefits such as use of a company car, company housing and paid holidays are considered taxable income. The following items are included in taxable income:

  • Compensation income;
  • Pensions;
  • Annuities;
  • Interest;
  • Dividends from foreign companies;
  • Royalties;
  • Income from real estate (including imputed income derived from living in one's own house, calculated at an annual rate of 2.5% of the taxable value of the property) and other income from capital;
  • Industrial, commercial and agricultural profits;
  • Shares of partnership net income, whether distributed or not; and
  • Gains on the sales of real estate.

Compensation income includes salary, bonuses, the value of benefits received in kind such as employer-provided housing and meals, and most expatriate allowances such as cost-of-living allowances, housing allowances, home leave and tax reimbursements. Educational allowances are not taxable to the employee if the employer directly pays an educational institution on behalf of its employee.

Gain from the disposition of real estate is generally included in ordinary income. However, gain from the sale of a personal residence is not subject to tax if the owner has lived in the residence for at least 12 months during the 24 months before disposal.

Gains from the disposition of personal assets, such as jewellery, paintings and silver, are not taxed.

Active Shareholders And Partners

For personal income tax purposes, profits from joint stock companies and transparent entities must be divided into personal income and capital income. After the total personal income is determined for the company, it is then allocated among the active owners.

The calculation of capital income of entities differs from the calculation of capital income from self-employment. The following illustrates the method used to compute capital income at the entity level.

Value of stock in trade (machinery, equipment and other tangible assets)

- Value of stock in trade that is used in the company's charitable activities

+ Goodwill and intangible rights

+ Inventory

+ Accounts receivable

- Accounts payable on interest-free purchases

- Deferred income

= Capital Base

X 11% (national bank interest + 6%)

Capital Income

To compute personal income for the company, capital income determined by this formula is subtracted from net business income excluding financial income, which is primarily interest and dividend income. Personal income is then allocated among active owners based on their ownership or dividend percentages.

Active owners are one or more shareholders (partners) that are actively engaged in managing the company and, individually or collectively, either own at least two-thirds of the company or are entitled to receive at least two-thirds of the dividends (or profits) of the company.

Deductible Expenses

Individuals are permitted to deduct certain non-business expenses in calculating the tax on ordinary income. Individuals may deduct the costs of travelling between home and work that exceed NOK 7,000, alimony paid, interest paid on all debts except for real property taxable abroad and premiums paid on private pensions and health insurance. Individuals who are temporarily working and living abroad may also deduct certain costs of visiting their permanent home in Norway. Expatriates temporarily residing in Norway may take a standard 15% deduction against their income instead of itemising non-business deductions.

Personal Deductions

For ordinary income tax purposes, the personal exemption for 1998 is NOK 25 000 for individuals without dependants. If the individual has dependants, the exemption is NOK 50 000.

For 1998 individuals are allowed a personal expense deduction against ordinary income of 20% of salary and benefits in kind, with a maximum deduction of NOK 32 600 and a minimum of NOK 3 700

Tax Rates

Tax is imposed on ordinary income, which is an individual's taxable income from all sources, and on personal income, which consists of employment income and pensions. Employment income includes compensation income, active owner income and self-employed personal income.

Ordinary income is taxed at a combined rate of 28%, which consists of a 21% municipal tax and a 7% tax paid to the Tax Equalisation Fund.

Personal income tax is also referred to as top tax. No deductions are allowed against personal income. Personal income is subject to tax at graduated rates. The maximum personal income tax rate is 13,7%. Because personal income is included in ordinary income, an employee's personal income is subject to a maximum income tax rate of 41,7%. Social security contributions are computed on personal income.

Credits

Credit for foreign taxes paid may be available.

Individuals receive a tax credit of NOK 1,820 for each child resident in Norway under the age of 16 and a credit of NOK 2,540 for each child resident in Norway who is over 15 but under 18.

TAXATION OF EXPATRIATES

Expatriates expected to reside in Norway for four years or less may be allowed a 15% standard deduction from their gross income instead of itemised personal deductions. If the expatriates are tax-protected or tax-equalised, their income is grossed up to include the amount of the tax reimbursement from their employer.

TAXATION OF NON-RESIDENTS

Non-residents are subject to tax for income derived from Norwegian sources. A 25% withholding tax is generally imposed on dividends paid to non-residents, but a tax treaty may provide for a lower rate of withholding. Norwegian-source income includes the following:

  • Income from capital invested in activities carried on or managed in Norway or the Norwegian Continental Shelf;
  • Income earned for work carried out in Norway;
  • Income from providing employees for principals who are carrying out activities in Norway;
  • Income from, and capital in, real property and moveable property located in Norway;
  • Wages earned by foreign seamen on ships registered in Norway; and
  • Fees to foreign entertainers and artists for performances in Norway.

A non-resident may also be subject to Norwegian tax because he or she participates as a partner in a business carried out in Norway. A leasing business is taxable even if the activity is not carried out through a fixed place of business in Norway.

Individuals Moving Into or Out of Norwegian Tax Jurisdiction Individuals immigrating to Norway are taxed in the year of immigration on any , prepayments they have received as remuneration for personal services to be rendered while they are resident in Norway. However, because of administrative problems, prepayments from non-Norwegian sources are not taxed on immigration. The same rule applies to individuals temporarily residing in Norway who receive such prepayments from Norwegian sources.

When emigrating from or terminating temporary residence in Norway, individuals are subject to tax on compensation and other benefits earned, but not recognised, before departure and related to their personal employment, such as sales commissions, directors' fees, bonuses and termination fees. Unpaid deductible expenses connected to income from employment may be deducted at the time the individual leaves Norway.

Withholding Taxes

Norway imposes a 25% withholding tax on dividends paid to non-resident shareholders.

Norway also requires employers to withhold taxes from employee salaries as advance payment for ordinary income, social security and personal income taxes.

Norway does not impose any other withholding taxes.

INHERITANCE AND GIFT TAX

Inheritance and gift tax is paid on inheritances and gifts received from a deceased person or donor resident in Norway. Real estate and related assets in Norway are subject to this tax regardless of the donor's residence or citizenship. Inheritance and gifts received from one's spouse are not subject to the inheritance and gift tax. Inheritance is not subject to income tax, nor are gifts, with a few exceptions.

Inheritance and gift tax is calculated on a progressive scale separately for inheritance and gifts received from each donor. The first NOK 100,000 received from each donor is tax-free. Gifts given over several years and an inheritance are accumulated at the time of each transfer to determine the tax-free portion and the applicable tax rate.

NET WEALTH TAX

Resident individuals pay net capital wealth tax on their worldwide assets. Non-residents pay net capital wealth tax on their fixed assets located in Norway. Under most tax treaties, real estate situated abroad is exempt from this tax in Norway. The net capital wealth tax base equals total assets less total liabilities, except those liabilities related to real estate situated abroad.

The net capital wealth tax applies to individuals and to businesses in which the company assets are owned by the participants. These businesses include co-operatives and consumer organisations.

For net capital wealth tax purposes, the value of shares not on a stock exchange is deemed to be 65% of the proportional value of a company's total net taxable value on 31 December. Shares listed on any stock exchange are valued at 100% of their closing quoted market price on 31 December.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Unni Bjelland, Ernst & Young, Tel: +472 203 6000 or Fax: +472 203 6370.

Visit the Ernst & Young Norway website at Click Contact Link

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