Income Tax Rate (%) 41.7 Capital Gains Tax Rate (%) 28 Net Worth Tax Rate (%) 1.1 Inheritance and Gift Tax Rate (%) 30
B. INCOME TAX - EMPLOYMENT
1. Who Is Liable
Individuals resident in Norway are subject to tax on their world-wide income. Non-residents are taxable on Norwegian-source income only. Wages and remuneration may be considered Norwegian-source even if an employer has no permanent establishment in Norway.
Persons staying in Norway for more than six months are considered resident in Norway for tax purposes. Individuals are deemed to remain resident even if they move abroad, unless their stay exceeds four years. However, if the stay exceeds one year and the individual establishes domicile for tax purposes in that country, the individual is no longer considered resident in Norway. Special rules may apply to individuals working on the Norwegian Continental Shelf.
2. Taxable Income
Taxable income generally includes salaries and wages, bonuses, benefits in kind, annuities and pensions, whether the benefit is earned over a long period of time, only occasionally or on a single occasion. Most allowances and fringe benefits are considered taxable income. Stock options to employees are taxed at the date of grant and at the date of exercise.
3. Income Tax Rates
Norway imposes personal income tax (top tax) and ordinary income tax. Top tax is levied on income from employment and pensions, and no deductions are allowed. The top tax rates for 1998 are set forth in the following tables.
Persons Without Dependants Taxable Income Exceeding Not Exceeding Rate NOK NOK % 0 248,500 0 248,500 272,000 9.5 272,000 - 13.7
Persons With Dependants Taxable Income Exceeding Not Exceeding Rate NOK NOK % 0 300,000 0 300,000 305,000 9.5 305,000 - 13.7
A 28% ordinary income tax (county municipal tax, municipal tax and contributions to the tax equalisation fund) is levied on taxable net income from all sources after taxable income has been reduced by NOK 25,000 for persons without dependants, and by NOK 46,600 for persons with dependants. If an individual is taxable in Norway for part of a fiscal year only, the income brackets and excludable amounts are reduced proportionately. Married persons are taxed separately or jointly, whichever yields the more favourable result for the taxpayers.
4. Deductible Expenses
The following expenses are deductible in calculating ordinary income tax if the 15% standard deduction for expatriates on temporary stay in Norway is not claimed:
- Within certain limits, costs of visiting the permanent home if the individual is working and temporarily living abroad;
- Premiums paid to pension plans with Norwegian insurance companies, within certain limitations;
- Alimony; and
- Interest on debts, except those related to real property situated abroad.
5. Personal Deductions and Allowances
In calculating ordinary income tax for 1998, individuals are allowed a standard minimum allowance of 20% of gross compensation, with a maximum of NOK 32,600 and a minimum of NOK 3,700. This allowance is reduced proportionately if the individual is taxable in Norway for part of the fiscal year only.
C. INCOME TAX - SELF-EMPLOYMENT/BUSINESS INCOME
1. Who Is Liable
Residents are subject to tax on world-wide self-employment and business income. Non-residents are subject to tax if they engage or participate in business or other economic activities carried on or administered in Norway, including an activity under which employees are put at the disposal of others in Norway. Furthermore, persons possessing capital in Norway in the form of real property or tangible assets are also subject to tax on income derived from such capital at the ordinary 28% rate described in Section B.3. Special rules may apply to shipping activities.
Active owners are subject to tax on profits from joint stock companies and transparent entities, which is computed by a separate special formula. Active owners are one or more shareholders (partners) who 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. If the dividend allocation among active shareholders or partners differs from the ownership ratio of the company, personal income is allocated according to the dividend allocation.
For personal income tax (top 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.
Active owners are subject to top tax on their share of taxable personal income in addition to the 28% ordinary income tax paid by the company on their share of company profits. The calculation of personal income from entities is similar to the calculation of personal income from self-employment described in Section C.3.
2. Taxable Income
Taxable profits are based on taxable book profit as shown in the annual financial statements maintained in accordance with generally accepted accounting principles. Tax may be deferred by offsetting the gain through extraordinary depreciation on existing assets, within certain limits.
3. Income Tax Rates
In 1998, self-employment income or business income is subject to ordinary income tax at a rate of 28% and to personal income tax, on taxable personal income as computed below, at a maximum marginal rate of 13.7%. For other taxpayers not engaged in professional services, the personal income tax is not levied on income between NOK 710,608 and NOK 3,330,975 and on income that exceeds NOK 5,951,372.
To find taxable personal income from self-employment, first determine deemed capital income by multiplying the tax value of assets used in the business, which is the capital base, by a capital profit rate. This rate may vary, at the taxpayer's option, from 0% to 11.00%. Adjustments to the value used for assets can be made in certain situations.
Next, subtract from business income the actual net financial income (adding interest expenses and subtracting interest income) and deemed capital income determined by the above formula. Then subtract 20% of the wages and social costs of the business. This yields taxable personal income, which is not eligible for any deductions. However, ordinary income is eligible for the same deductions and allowances permitted to all individual taxpayers on ordinary income.
The following illustrates the method generally used to compute taxable personal income for self-employed individuals.
- Business income, excluding financial income and financial expenses (primarily interest)
- Capital income (tax value of business assets x a maximum 11.00%)
- Personal income
- Computed wage deductions (20% of salaries and social security contributions)
- Taxable personal income (maximum NOK 3,330,975 or NOK 710,608)
This taxable personal income serves as the basis for levying both personal income tax, or top tax, of up to 13.7% and social security taxes of up to 10.7%. It also entitles an individual to pension points in the social security system.
4. Deductible Expenses
To be deductible for tax purposes, items must be included in the statutory financial statements. In principle, all expenses for earning, securing or maintaining income, with the exception of gifts and entertainment expenses, are deductible. Valuation and depreciation rules are the same as those for corporations.
D. DIRECTORS' FEES
Directors' fees are taxed as ordinary employment income.
E. INVESTMENT INCOME
Dividends from foreign companies, interest, rental income and royalties are subject to tax with other ordinary income at the rate of 28%. Because residents receiving dividends from Norwegian companies may claim a full credit for the tax paid by the company, they do not, in effect, pay tax on dividends from Norwegian companies.
F. RELIEF FOR LOSSES
Generally, losses may be carried forward for 10 years.
G. CAPITAL GAINS AND LOSSES
Capital gains from disposals of business assets, including real property, are subject to ordinary income tax at a rate of 28%.
Capital gains on shares are taxable as ordinary income at a 28% rate, and capital losses on shares are deductible against ordinary income.
Gain on 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 the sale. Otherwise, gain on the sale of a private residence is subject to ordinary income tax, and losses are deductible from ordinary income.
H. NET WORTH TAX
A municipal wealth tax is levied at 0.7% of taxable net assets exceeding NOK 120,000. In addition, a national wealth tax is levied on taxable net assets at the following rates for 1998.
Taxable Net Assets Persons Without Dependants Persons With Dependants Not Not Exceeding Exceeding Exceeding Exceeding Rate NOK NOK NOK NOK % 0 120,000 0 150,000 0 120,000 540,000 150,000 580,000 0.2 540,000 - 580,000 - 0.4
I. INHERITANCE AND GIFT TAX
Inheritance and gift taxes are paid on all inheritances and gifts received from resident decedents and donors. Real estate and related assets in Norway are subject to this tax regardless of the donor's residence or citizenship. Gifts and inheritances received from a spouse are not subject to the inheritance or gift tax. Neither inheritances nor, with a few exceptions, gifts are subject to income tax.
Inheritance and gift tax is calculated separately on a progressive scale for inheritances and gifts received from each donor. The first NOK 100,000 received from each donor is tax-free. Gifts given over several years and any inheritance received are aggregated to determine the tax-free portion and the progressive rates.
The following table lists the rates for 1998.
Amount of Inheritance or Gift From From Exceeding Not Exceeding Parents Others NOK NOK % % 0 100,000 0 0 100,000 400,000 8 10 400,000 - 20 30
To prevent double taxation, Norway has concluded inheritance tax treaties with Denmark, Finland, Iceland, Sweden, Switzerland and the United States.
J. SOCIAL SECURITY CONTRIBUTIONS
Employers and employees as well as self-employed individuals are required to make social security contributions. Contributions are payable on all taxable salaries, wages and allowances and, for self-employed individuals, on personal income.
For employees, contributions are withheld by employers together with income tax, and the total amount is paid to the authorities. Employers' contributions, payable bimonthly, are deductible for income tax purposes. Employees' and self-employed individuals' contributions are not deductible. The 1998 contribution rates are 7.8% for employees and 10.7% for self-employed persons. The employer's contribution is 14.1% on salary up to NOK 710,608, and 26.6% on salary above this amount. In certain municipalities, the rate for employers is lower.
Expatriates and foreign employers of employees working in Norway are also subject to these contributions if an exemption (or reduction) is not obtained under social security conventions between Norway and the country in which the expatriate or the employer is domiciled. To provide relief from double social security taxes and assure benefit coverage, Norway has concluded totalization agreements, which usually apply from one to five years, with the following countries:
Austria* Greece* Portugal* Belgium* Iceland* Spain* Canada Ireland* Sweden* Denmark* Italy* Switzerland Finland* Liechtenstein* Turkey France* Luxembourg* United Kingdom* Germany* Netherlands* United States * European Economic Area Agreement member countries.
Income tax is assessed on a fiscal year ending December 31, and net worth tax on net taxable assets as of the same date. For individuals who do not have trading income, annual tax returns are submitted on January 31 in the year following the income year. An extension of one month may normally be obtained. For other individuals, the due date is February 28, with a possible extension of one month. Taxes are withheld by employers from salaries, wages and other remuneration paid to employees.
Individuals who are self-employed or have income from sources other than salaries, wages and similar compensation receive from the assessment office an individual estimate of taxes to be paid during the tax year. These estimated taxes are due in four equal instalments on March 15, May 15, September 15 and November 15. When assessments are made, normally in the third quarter of the year following the income year, an individual receives a tax computation showing total assessed taxes compared to taxes paid. Any amount overpaid is reimbursed to an individual, and any taxes due are payable in two equal instalments.
Non-residents are taxable in Norway on income derived from Norwegian sources only. Similarly, capital gains tax is applied on capital assets located in Norway only. Dividends paid to non-residents from Norwegian companies are subject to a 25% withholding tax unless a lower treaty rate applies. There is no withholding tax on interest and royalty payments. Non-residents are also subject to tax at various rates on
- Income from and capital invested in activities carried on or managed in Norway or on the Norwegian Continental Shelf;
- Earned income for work carried out in Norway;
- Income from providing employees for principals who are carrying on activities in Norway;
- Income from, and capital in, real and movable property located in Norway;
- Directors' fees from Norwegian companies. (The 15% standard deduction for non-residents cannot be used on this income);
- Wages earned by foreign seamen on ships registered with the Norwegian common shipping register (NOR). However, non-Nordic residents are exempt from tax on wages earned from ships registered with the Norwegian international shipping register (NIS); and
- Fees to foreign entertainers and artists for performances in Norway.
Non-residents may also be subject to Norwegian taxes if they participate as general partners or limited partners in businesses carried on in Norway. A leasing business with property in Norway is taxable even if the activity is not carried out through a fixed place of business in Norway.
Non-residents earning employment income are subject to Pay-As-You-Earn (PAYE) withholding on their compensation. Non-resident employees who have not given their employers tax deduction cards issued by the tax authorities are subject to 50% withholding. If they have presented these tax cards, they are eligible for the reduced rate specified in the tax cards. The withholding taxes are preliminary payments and are credited to taxpayers when returns are filed. Non-residents must file tax returns by the earlier of January 31 after the close of the calendar income year, or four weeks prior to leaving Norway.
M. DOUBLE TAX RELIEF/DOUBLE TAX TREATIES
Norway's double tax treaties generally follow the Organisation for Economic Cooperation and Development (OECD) model. Most allocate income between jurisdictions to prevent double taxation; however, for dividends, interest, and royalties, and frequently for directors' fees and income from the Continental Shelf, the credit method is applied. Norway has double tax treaties with the following countries:
Australia India Poland Austria Indonesia Portugal Azerbaijan Ireland Romania Barbados Israel Senegal Belgium Italy Sierra Leone Benin Ivory Coast Singapore Brazil Jamaica South Africa Bulgaria Japan Spain Canada Kenya Sri Lanka China Korea (South) Sweden Croatia Latvia Switzerland Cyprus Lithuania Tanzania Czechoslovakia 1 Luxembourg Thailand Denmark Malawi Trinidad and Tobago Egypt Malaysia Tunisia Estonia Malta Turkey Faroe Islands Mexico Ukraine Finland Morocco United Kingdom France Nepal United States Gambia Netherlands USSR 2 Germany Netherlands Antilles Vietnam Greece New Zealand Yugoslavia 3 Hungary Pakistan Zambia Iceland Zimbabwe
1 Norway honours the Czechoslovakia treaty with respect to the Czech Republic and the Slovak Republic.
2 The Russian Federation is the only republic of the former USSR that honour the USSR treaty.
3 The Yugoslavia treaty has been suspended by Norway. Cases are dealt with individually by the authorities.
Norway has signed double tax treaties with Argentina, the Russian Federation, Venezuela and Singapore that have not yet taken effect. Norway is currently negotiating new treaties with Brazil, Albania, Ireland, Cyprus, Lebanon, Portugal, the United Kingdom, Canada and Spain.
N. CHANGES TO PERSONAL TAX LEGISLATION
No new personal tax legislation is expected in Norway for the immediate future.
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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