DIRECT AND INDIRECT TAXES ARE LEVIED BY PARLIAMENT.
The principal direct taxes in Norway are the corporate income tax, the dividend withholding tax, and the individual income and wealth taxes.
Norway distinguishes between two types of income: ordinary income and personal income.
Ordinary income equals net income and is computed for all taxpayers-individuals and companies. Ordinary income consists of all taxable income from personal services, business and capital. In determining ordinary income, Norway allows deductions for certain expenses and payments, including full deductions for interest expenses. Ordinary income is taxed at a flat rate of 28%, which consists of a 21% municipal tax and a 7% county tax allocated to the Tax Equalisation Fund. Consequently, deductions such as the interest deduction provide an equal tax savings to all taxpayers.
Personal income is income from personal services, pensions, active shareholder income and self-employment income. This is a gross tax base; no deductions are allowed. Also, employee social security contributions are computed based on personal income.
Recognition Of Income And Deductions
For non-business taxpayers and business taxpayers that are not required to present accounts, income and expense recognition occurs in the year the taxable income or deductible expense is realised. Taxpayers realise income or expense when they have an unconditional right to payment of income or an unconditional duty to pay an expense.
For businesses required to submit financial statements to the Company Register in Bronnoysund, income and deductions are generally recognised in accordance with generally accepted accounting principles (GAAP), unless otherwise required by tax laws. Differences in computing financial statement income and taxable income include depreciation methods; recognition of losses on inventory, accounts receivable and anticipated expenses; and recognition of foreign currency gains and losses.
Active Shareholders And Partners
Special rules apply to allocate both personal income and capital income to active shareholders of joint stock companies and to partners of transparent entities.
The principal indirect taxes imposed by Norway are the value-added tax, the investment tax, the estate and gift taxes, and the stamp duty imposed on the transfer of real estate.
SOURCES OF TAX LAW
The Tax Act of 1911, governing taxation of capital and income, contains the principal legislation on direct taxation in Norway. Its provisions affect both individual and corporate taxpayers and contain detailed rules covering personal tax liabilities.
The 1991 Act of Special Taxation of Companies and Company Participants (the Company Taxation Act) pertains to joint stock companies and similar entities. It concerns shareholders, holders of capital-fund bonds and other participants in joint stock companies or similar entities.
The Tax Payment Act of 1952 addresses the collection and payment of taxes and contains details on the remittance of direct taxes, including contributions to the social security system.
The Assessment Act of 1980 details the assessment of income tax, corporate tax, capital gains tax and social security premiums. This act also describes matters such as the organisational structure of assessment authorities, obligations to provide information and time limitations for appeals.
The Petroleum Tax Act of 1975 addresses taxes on the exploration and development of submarine petroleum resources. The act also applies to the taxation of related activities including pipeline transport of petroleum produced on the Norwegian Continental Shelf.
Other sources of tax law include the codified tax law, interpretations of high court decisions, regulations and guidelines issued by the tax authorities, and administrative practices of the assessment offices.
FILING AND PAYMENT
Companies. The corporate tax return must be submitted by 28 February of the year after the income year (the calendar year). If the authorities have permitted a fiscal year other than the calendar year, the fiscal year ending within the income year should be used for tax purposes. Taxpayers may apply for a one-month extension.
Corporate taxes are payable in instalments due on 15 February, 15 April, 15 September and 15 November of the year following the tax year in which the income was earned. No advance payments are required.
The tax authorities estimate the amounts of the first two instalments based on the previous year's income. The amounts of the last two instalments are based on the actual tax liability according to the taxpayer's tax return. To avoid interest charges, half of the total tax should be paid by 1 May.
Individuals. Norwegian tax administration for individuals relies on a withholding system. All individuals liable for tax, both employees and self-employed individuals, are obliged to make advance tax payments during the income year. Employers calculate the appropriate amount to withhold based on employees' tax deduction cards, which employees obtain from their local assessment office. If the card is not issued or if it is not presented to the employer, the employer must withhold 50% of the employee's gross salary. The withholding calculation includes all of an employee's wages and other remuneration.
Individuals who are self-employed or have income other than salary income receive an estimate of taxes to be paid during the income year from the assessment office. Estimated taxes are due in equal instalments on 15 March, 15 May, 15 September and 15 November.
Individual income is assessed for a fiscal year ending 31 December. Individuals who do not have trading income must submit their annual tax returns by 31 January of the year following the fiscal year. An extension of one month may normally be obtained. The due date is 28 February for individuals with trading income, with a possible extension of one month.
Assessments are usually issued in the third quarter following the close of the income year.
Companies pay the balance of their assessments in two instalments, one three weeks after the assessment is issued (normally September) and the other on 15 November as scheduled.
Individuals receive a tax computation showing total assessed taxes compared to advance tax payments and withholding. Any excess is reimbursed to the individual, and any taxes due are payable in two equal instalments.
If a tax return is submitted late, the taxpayer receives an estimated assessment and usually forfeits the right to appeal the assessment. If no tax return is filed, the tax authorities assess tax based on an estimate of the taxpayer's income, and the taxpayer loses the right to file.
Taxpayers appeal both factual issues and legal interpretation issues. After receiving a notice of assessment, the taxpayer has a right to appeal to the elected Assessment Board of Layman (Ligningsnemnda) within three weeks. After the taxpayer receives the assessment board's decision, the taxpayer has three weeks to further appeal.
PENALTIES AND INTEREST
If a tax return is not filed on time, a fine may be imposed. If no tax return is filed or if necessary documents are omitted, the tax authorities will impose a surtax of 30% of the tax determined by estimated assessment. Such taxpayers also risk a fine and imprisonment. If the tax liability is not paid on time, interest will be charged at a rate of 1% a month.
If taxes withheld are less than the tax assessed, 5% interest is charged unless the difference is paid by 1 April in the year after the income year. If too much tax is withheld, 5% interest is paid to the taxpayer.
If less than 50% of the total tax due is paid by 1 May of the year after the fiscal year, companies must pay interest of 3% on the difference between 50% of the total tax and the amount of tax paid.
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.
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