This country-specific Q&A provides an overview to tax laws and regulations that may occur in Norway.
It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.
This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax-3rd-edition/
How often is tax law amended and what are the processes for such amendments?
Tax laws may in principle be amended at any given time during the year, and the Parliament (Stortinget) is thus not bound by specific timing issues or deadlines. However, usually most tax law amendments are presented in a dedicated proposition document prepared by the Ministry of Finance at the same time as the national budget for the coming year is presented in October each year. In addition tax law amendments may be presented in connection with the revised national budget in April or May each year.
An amendment to a tax law is introduced by the Government (in the case of tax laws by the Ministry of Finance) in the form of a proposition, which is the product of thorough preparatory work. In the case of a major item of legislation or an extensive revision of existing tax law – i.a. a tax reform – the Government generally appoints an expert committee or commission to study the matter. The commission submits a green paper report including a draft bill (Official Norwegian Report, NOU) to the Ministry of Finance.
The Ministry of Finance usually distributes the report for hearings, in order to get comments and opinions from relevant government agencies, organisations, institutions and associations. When comments from the consultation round has been received, the Ministry prepares the proposition. This is first presented to the King in Council, and, if approved there, it is sent to the Parliament (Stortinget) for debate and voting.
The last stage is for the bill to be submitted to the King in Council for the Royal Assent. When the King has signed the Act and the Prime Minister has countersigned, it becomes Norwegian law from the date stated in the Act or decided by the Government.
What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?
The income tax year follows the calendar year, and companies and individuals that do business, have to file tax returns by 31 May in the year following the income year. As a general rule this also applies to foreign companies operating in Norway. Individuals must submit their tax returns by 30 April each year.
VAT liable companies are also obliged to submit VAT returns during the course of the year – usually every two months.
Companies that are liable to keep accounting records must complete their accounts each year. Primary documentation (the annual accounts, etc.) must be maintained for 5 years, whereas secondary documentation (essential agreements that are important for the business etc.) must be kept for 3,5 years.
Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?
The main regulatory authority for tax matters is the Ministry of Finance. The tax administration is divided into five regions, and the tax assessments etc. are carried out by the regional tax offices. Further, there are three specialised tax offices: The Central Tax Office for Foreign Tax Affairs, the Oil Taxation Office, and the Central Tax Office for Large Enterprises. The regional tax offices and the specialised tax offices are administratively governed and instructed by the national Directorate of Taxes.
Timing and the ability to resolve tax issues with the tax authorities, tend to vary depending on the specific case handler and which tax office you are dealing with. Usually, standard and straight-forward issues might be easy to resolve, but with more complicated matters it may take several years before the case is resolved.
Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?
If a taxpayer disagrees with a tax assessment, he may appeal to the Tax Appeal Board. A secretariat prepares the cases and drafts the appeal board decisions. For companies taxed by the Oil Taxation Office, there is a special appeal board.
The tax appeal system was subject to an organisational reform a couple of years ago, which introduced minimum tax competence requirements for the members to be appointed to the Tax Appeal Board. However, due to some of the other organisational changes – and some have argued not enough case handlers – we have seen a rather significant increase in the procedural handling time with the result that cases have piled up.
There are no special tax courts in Norway, but a taxpayer may appeal the case to the Municipality Court if he disagrees with the decision from the Tax Appeal Board. The deadline for initiating court proceedings is six month after the appeal board decision has been sent to the tax payer. A judgement from the Municipality Court may be appealed to the Appeal Court, who's decisions may under certain circumstances be appealed to the Supreme Court.
Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?
Companies must pay advanced tax by 15 February and 15 April in the year following the income tax year. If there are any differences between the taxes levied during the year and the final assessment, the residual amount is due three weeks after the tax assessment has been announced.
Disputed tax amounts must as a general rule be paid within the deadlines even though the tax payer has appealed the case. If the taxpayer wins after the final administrative appeal decision, or a binding court judgment, he will get the amount back with interest.
Further, in addition to the corporate tax deadlines, there are a number of other deadlines throughout the year relating to VAT, withholding taxes, payroll taxes etc.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government?
Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public Register of beneficial ownership?
The tax authorities are bound by the confidentiality provisions set out in the Tax Administration Act, and the breach of those obligations are considered a legal offence. Apart from some statutory exemptions the tax authorities are not allowed to share information received from a taxpayer with other government agencies. In addition, the tax authorities may share information with other countries' tax authorities pursuant to tax treaty obligations and the procedure of information sharing under the country-by-country reporting regime.
Norway is a signatory to the Common Reporting Standard and it has been incorporated in national law.
The Government (Ministry of Finance) presented a proposal to the Parliament (Stortinget) on 22nd June 2018 for a new act for the establishment of a register of beneficial ownership. As of 12 September 2018 the proposal had not yet been debated and voted over in the Parliament.
What are the tests for residence of the main business structures (including transparent entities)?
Limited liability companies and partnerships incorporated under Norwegian law and registered in the Norwegian Register of Business Enterprises, and foreign companies whose effective management and control at board level are carried out in Norway, are considered tax resident in Norway.
In order for foreign incorporated companies to avoid tax residency in Norway, the board meetings and other decisions beyond the day-to-day management of the company must take place outside Norway.
Norwegian domestic tax legislation does not define a permanent establishment (PE), and as a general rule a foreign incorporated company conducting or participating in business in Norway will be considered having a taxable presence in Norway.
Most Norwegian bilateral tax treaties are based on the OECD Model Convention and generally companies that are conducting, participating and carrying out business in Norway from a fixed place in Norway, will be considered having a PE in Norway.
The Ministry of Finance issued a consultation paper on 16 March 2017, where it proposed certain amendments to the requirements for tax residency in Norway. According to the proposal, companies incorporated in Norway shall always be considered tax resident in Norway even though the company no longer has a connection to Norway. The only exemption will be in situations where it follows from a tax treaty with a another country that the company is tax resident in that other country and not Norway. For companies incorporated in foreign countries, the place of effective management will be decisive. In this assessment not only the management on board level will be relevant, but also day-to-day management, where the board members normally work and stay, and where the company's offices are placed and business carried out. The Ministry of Finance has not yet presented a proposal to the Parliament.
Have you found the policing of cross border transactions within an international group to be a target of the tax authorities’ attention and in what ways?
The Norwegian tax authorities have a particular focus on transfer pricing issues in relation to cross border intra-group transactions, i.a. in relation to intra-group financing, provision of services and cross-border re-organisations. Further, there has been a focus in recent years on transfer pricing in the petroleum sector, i.a. in relation to the pricing of gas sales from the Norwegian continental shelf.
Is there a CFC or Thin Cap regime? Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?
The Norwegian CFC regime (No.: NOKUS) is applicable to Norwegian shareholders (i.e. shareholders, corporate or individual, resident in Norway for tax purposes) that directly or indirectly own at least 50 per cent of the shares or capital of a foreign company which is resident in a low-tax jurisdiction. For the purposes of these rules a jurisdiction is considered to be a low-tax jurisdiction if the effective taxation of the company is less than two thirds of what would be the effective taxation had the company been resident in Norway. It is not the headline tax rate but the effective tax rate which is relevant. The profits of the foreign company are attributed proportionally to the Norwegian shareholders irrespective of whether any distributions are actually made. A binding black list and a non-binding white list of jurisdictions with sufficient/insufficient taxation levels are issued by the Norwegian tax administration annually.
The CFC rules are not applicable to companies resident within the the European Economic Area (EEA), provided the company is genuinely established and actually performs economic activities. The analysis must be based on an overall assessment, and the Norwegian shareholder must provide evidence to the tax authorities that the substance requirement is met. In addition, if the company is not resident in a country with which Norway has entered into a tax treaty, which contains an information exchange clause, the company must present a statement from the tax authorities in its country of incorporation which confirms that the information provided is correct.
Further, the CFC rules are not applicable in situations where the company is resident in a country with which Norway has entered into a tax treaty for the avoidance of double taxation, and the company's income is not mainly of a passive nature.
Thin cap regime
Norwegian tax law contains no specific statutory or regulatory prescriptions on thin capitalisation but refers to the arm's length principle. All interest paid is, as a main rule, deductible. The tax authorities may contest the deductibility of interest paid to a parent company if the paying company is thinly capitalised. There is no general rule or safe harbour rule prescribing when the company is thinly capitalised or not. The assessment must be based on a number of factors such as the business sector of the company, the EBITDA of the company, and the debt-to-equity ratio of the company.
The interest deduction limitation rules state that interest expenses exceeding interest income (i.e. net interest expense) could be fully deducted if the total amount of net interest expense does not exceed NOK 5 mill. during the fiscal year, or if the interest is paid to a non-related party. Otherwise, net interest expense paid to a related party is deductible to the extent that internal and external interest expense combined does not exceed 25 per cent of the taxable EBITDA of the company. Parties are considered related in cases where one party has ownership or controls 50 per cent or more of the other party.
External loans guaranteed by a related party of the borrower (tainted debt) are also covered under the rule. The interest deduction limitation rule applies to limited liability companies, and other similar companies and entities. It also applies to partnerships, shareholders in CFCs and foreign companies with permanent establishments in Norway. Financial institutions are exempt from the interest deduction rule.
The Norwegian Ministry of Finance has proposed to extend the interest deduction limitation rules to include external debt, and a consultation procedure on the proposal was completed in 2017. The proposal was expected to be followed up in the national budget for 2018. However, the ministry has announced it still worked on the proposed amendments. The rules are expected to be introduced with effect for the income year of 2019.
Transfer pricing and APA
Transfer pricing documentation rules impose an obligation for companies to prepare specific transfer pricing documentation as an attachment to their tax returns. Reporting requirements and transfer pricing documentation rules apply to companies that own or control, directly or indirectly, at least 50 % of another legal entity. A Norwegian permanent establishment with its head office in a foreign country, and a foreign permanent establishment with its head office in Norway, are covered by the rules. Furthermore, partnerships where one or more of the partners are taxable in Norway are also covered by the rules. The taxpayer must generally be prepared to file transfer pricing documentation (type and volume of the transactions, functional analysis, comparable analysis, and a report of the transfer pricing method used) within 45 days of a written notice from the tax authorities.
Norwegian tax authorities do not have a formal procedure to issue unilateral APAs. It is, however, possible to discuss the transfer pricing principles with the tax authorities. The Ministry of Finance has announced that they are considering introducing APA regulations, but they have not yet done so. In the case of sales of gas between related parties, a special APA procedure exists within the oil tax authorities, but so far this has not been used much in practice. Recently, Norway has opened up for mutual APA negotiations with other countries, but only a handful of pilot cases have so far been dealt with under such MAP/APA approach.
Is there a general anti-avoidance rule (GAAR) and, if so, in your experience, how would you describe its application by the tax authority? Eg is the enforcement of the GAAR commonly litigated, is it raised by tax authorities in negotiations only etc?
Norway has several substance over form rules. In general, these rules apply to any transaction or structure whose primary motive is to achieve tax benefits and is deemed disloyal to the tax legislation.
One anti-avoidance rule applies in connection with changes of ownership through sale of shares, mergers, demergers and other transactions. If the predominant motive of such a transaction is to exploit a tax loss carry forward or other tax positions, the tax position will be considered void.
In addition, a general anti-avoidance doctrine has been developed by the courts. Transactions with little or no other purpose than avoiding tax may under certain circumstances be disregarded for tax purposes, provided that the transaction can be considered disloyal to the purpose of the tax legislation.
The Norwegian anti-avoidance doctrine is often described as one of the most expansive, and the tax authorities have often argued for the application of the anti-avoidance doctrine in tax re-assessment cases. Consequently, the enforcement of the doctrine has been litigated on numerous occasions, and several times before the Supreme Court.
Have any of the OECD BEPs recommendations been implemented or are any planned to be implemented and if so, which ones?
Norway is fully participating in the BEPS project and has already implemented – or are in the process of implementing – a large number of the BEPS recommendations.
The Norwegian participation exemption was amended in 2016 so that dividends received by a Norwegian company will not benefit from the participation exemption if the distributing company has a right to a tax deduction for the payment. In light of BEPS Action 2 (targeting hybrid mismatches), the Ministry of Finance has said that it will continually assess the need for further amendments.
As for CFC rules, the Ministry of Finance has indicated that it will do an assessment of the current Norwegian regime in order to analyse whether adjustments should be made in light of BEPS Action 3.
The Norwegian Tax Act already contains interest deduction limitation rules (BEPS Action 4). The Ministry of Finance has, however, proposed amendments, which aim to align the Norwegian rules even more with the BEPS Action 4 recommendation. The amendments has not yet been implemented.
Pursuant to BEPS Action 6 (preventing the granting of treaty benefits in inappropriate circumstances), the countries have committed to implementing a minimum anti-avoidance standard, either a "Limitation of Benefits" rule (LOB) or a "Principal Purpose Test" (PPT). The Ministry of Finance has said it will go for the PPT alternative.
The Norwegian transfer pricing rules are generally in accordance with the OECD Guidelines, and changes made to the Guidelines are immediately implemented as Norwegian law (cfr. BEPS Action 8-10).
Norway has implemented the country-by-country reporting rules (BEPS Action 13).
Further, Norway is part of the BEPS Inclusive Framework and the MLI.
In your view, how has BEPS impacted on the government’s tax policies?
As mentioned above, Norway has already implemented a number of the BEPS Actions and made several amendments to Norwegian tax legislation in order to be in line with the BEPS recommendations. Further amendments may be introduced in the time to come, and in our view the BEPS initiative will have a big impact on the Norwegian Government's tax policies going forward.
Does the tax system broadly follow the recognised OECD Model?
Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties.
If so, what are the current rates and are they flat or graduated?
The Norwegian tax system does generally follow the recognised OECD Model.
a) Business profits
Net taxable income are as of 2018 taxable at a flat rate of 23%.
Special tax regimes do however apply to income from the exploration of petroleum resources, with special tax rates of up to 55% additional to the flat rate, making the total rate 78%.
In the financial sector, a tax rate of 25 % is applicable, and in addition, a special tax of 5% is applied to total salary costs paid by employers in the sector.
A tonnage tax regime is available for qualifying shipping companies exempting them from corporate income tax on operating income and instead paying a small tax based on the net tonnage of ships owned by the company.
In addition to the ordinary income tax of 23 %, hydro-electric power plants are subject to a 35,7 % natural recourse rent tax, so that that the total tax rate amounts to 58,7 %. An amount equal to the normal rate of return on the investment is shielded against the additional tax. In addition, the hydro-electric power plants are subject to a municipal natural resource extraction tax of NOK 0.013 per produced kwh.
Taxable business profits are calculated as the difference between earnings and expenses recognized for tax purposes.
b) Employment income and pensions
Net income is primarily taxed at 23%, further employment income will be taxed at the following progressive rates:
- 1,4% for any income exceeding NOK 169,000
- 3,3% for any income exceeding NOK 237,900
- 12,4% for any income exceeding NOK 598,050
- 15,4% for income exceeding NOK 962,050
In addition a social security contribution of 8,2% of gross income is payable, resulting in a marginal tax of 46,6%.
The social security contribution for pensions (and other types of personal income other than employment income) is 5,1%.
Various deductions are available, including a standard deduction from ordinary income for incidental personal expenses and unlimited deduction for interests paid on debt.
c) VAT (or other indirect tax)
The supply of goods and services is generally subject to VAT, unless exemptions applies. Financial services, healthcare and education are examples of exempt services. The Norwegian VAT is a multi-stage, non-cumulative general tax. Norway applies a net consumption VAT, calculated according to the indirect subtraction method. The suppliers of goods and/or services are entitled to deduct from the amount of VAT due on their supplies (output VAT) the amount of VAT incurred on their purchases (input VAT).
All companies with an annual turnover that exceeds a threshold of NOK 50,000 must register with the Norwegian VAT register. Taxable entities/ persons with no place of business or residence in Norway must register via a representative who resides or has its place of business in Norway.
Taxpayers must pay the net amount of VAT (balance of output and input tax for the tax period) to the tax authorities, or if input tax exceeds output tax for the period reclaim the balance.
The standard rate of VAT is 25%. For certain goods and services reduced rates are applicable, i.a. a reduced rate of 15% applies to food items and a reduced rate of 12% applies to passenger transport, hotels and accommodation services and various activities such as cinemas, museums and sport events. Zero-rated suppliers, for example exports and suppliers to offshore industries, have the right to deduct input VAT although their output VAT is zero.
Norway offers a refund scheme allowing foreign entities not obligated to register for VAT in Norway to recover input VAT incurred. Refund is limited to business that would have been subject to Norwegian VAT if conducted in Norway, and subject to formal requirements.
d) Savings income and royalties
Royalties and savings income are included in taxable income and taxed at a flat rate of 23%. Norway does not levy withholding tax on royalty payments to nonresidents.
e) Income from land
Income from land is taxed at flat rate of 23%.
f) Capital gains
Capital gains are generally included in income for corporate tax purposes and taxed at a flat rate of 23%. There is a corresponding right to deductions for losses.
Capital gains on shares are tax exempt for all corporate shareholders under the participation exemption. Capital gains on shares in companies resident in the EEA (excluding low-tax jurisdictions) are tax exempt irrespective of participation and holding period. For companies resident in a low-tax jurisdiction within the EEA the substantial business test applies. Capital gains in companies resident outside the EEA, but not in low-tax jurisdictions, are also tax exempt if the shareholder has held at least 10% of the shares and capital for a period of two years.
Capital gains on partnership interests will for a corporate partner be tax exempt if 90% of the partnership investments in shares in companies are tax exempt according to the rules outlined above. Gains will not be tax exempt if the value of shares that are not tax exempt at any time during a two-year period exceeds 10% of the total value of shares. Losses on the partnerships interest will, for a corporate partner, only be deductible if the partnerships non-qualifying shares have exceeded 10% of the total value of shares during the previous two years. For this reason tax rules regarding gains and losses on partnerships interests are asymmetrical. For corporate partners resident in Norway this applies irrespective of where the partnership is registered.
For private tax payers capital gains from the sale of real property used as permanent residence are taxable only if the taxpayer owned the property less than one year (five years for vacation home).
g) Stamp and/or capital duties
A stamp duty on real estate transactions of 2,5% of marked value applies. Norway does not levy capital duties.
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
The commercial balance sheet is the basis for calculating business profits. However, the tax act has separate rules regarding valuation of assets, liabilities, depreciation, some revenues and deductible expenses that are not always corresponding with general accounting principles. Based on these rules a separate tax balance sheet is prepared.
Accordingly, taxable income and the revenue profits of a business are not necessarily identical.
Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities? What entities are transparent for tax purposes and why are they used?
Limited liability companies, both private (aksjeselskap – AS) and public (allmennaksjeselskap – ASA), are widely used for business activity in Norway, and recognised as separate taxable entities.
General partnerships (ansvarlig selskap – ASA) where the partners are jointly and severally liable for the obligations of the partnership, and limited partnerships (KS/IS) where one or more general partners has unlimited personal liability and one or more limited partners has liability limited to a pre agreed amount, is also common. Both forms of partnerships are considered as separate legal entities, but for tax purposes partnerships are considered as transparent. Generated income and loss is calculated on the partnership level but taxed at the partners' level.
Such tax transparent entities are primarily favorable if the partners want to use losses from the business carried out within the partnership to reduce personal tax burden. A company that started out as a partnership may be converted into a limited liability company without taxes being levied, given that a set method is followed for the conversion.
Trusts may not be formed under Norwegian law. Trusts formed under the law of other jurisdictions is generally recognised for tax purposes and regarded as separate taxable entities.
Is liability to business taxation based upon a concepts of fiscal residence or registration? Is so what are the tests?
Companies incorporated under Norwegian law and registered in the Norwegian Register of Business Enterprises will as a starting point be tax resident in Norway. If the operations of the company, as well as the effective management and control at board level is carried out abroad, the company could however be regarded as not being tax resident in Norway.
Companies incorporated under foreign law and registered in a foreign business register, whose effective management and control at board level is carried out in Norway, are considered tax-resident in Norway.
Foreign incorporated companies conducting or participating in business in Norway will be considered as having a taxable presence in Norway. Most Norwegian bilateral tax treaties are based on the OECD Model Convention, and generally companies that are conducting, participating and carrying out business in Norway from a fixed place in Norway will be considered having a PE in Norway. Activities on the Norwegian continental shelf related to petroleum resources will always constitute a taxable presence pursuant to Norwegian domestic law.
(Please see item 7 above for a description of a recent proposal on amendments to the requirements for tax residency).
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
Financial services, are generally exempted from VAT. In 2017 a financial tax was however introduced. According to these rules, financial companies are subject to a tax rate of 25%, compared to the normal corporate tax rate of 23% (for 2018). In addition a 5% tax is levied on such companies' salary costs. These rules do to a large extent offset the advantage from the VAT exemption.
The Norwegian tonnage tax regime is a favorable tax regime for shipping companies. Under the regime income from shipping activities are not subject to ordinary business taxation. Companies taxed under the regime pays a moderate tonnage tax based on the net tonnage of relevant vessels under the regime. Companies within the regime may only engage in business activities relating to the chartering and operation of own vessels or support vessels. Further, there are limitations as to what assets the company may possess stating that the company cannot own non-shipping related assets.
The petroleum tax regime applies to all petroleum-related income on the Norwegian continental shelf. The petroleum tax regime is characterized by a high marginal income tax rate of 78%. The high tax rate is however to some extent offset by generous tax deductions.
SkatteFunn is a scheme that entitles enterprises subject to taxation in Norway a tax deduction for R&D costs, provided that the research program has been approved by the Research Council of Norway. For small and medium sized companies the scheme allows for a tax deduction of 20% of R&D costs, whereas for large enterprises the tax deduction is 18% of R&D cost.
Norwegian authorities offer a wide range of state aid for investments, R&D and development and exports through a regional development fund (Innovasjon Norge), supporting startups in Norway and abroad.
The employers' social security contributions are differentiated based on where in Norway the businesses are located, and the rates are lower in certain rural areas.
Are there any particular tax regimes applicable to intellectual property, such as patent box?
There are no special intellectual property tax regimes in Norway.
Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
If a Norwegian resident company holds more than 90 % of the capital and votes of other resident companies, the companies will constitute a tax group. A company resident within the EEA can be the parent company in a Norwegian tax group.
Each company in a tax group is as a general rule treated as a separate entity for tax purposes, and there is no direct fiscal consolidation. Group companies can however make group contributions, which are tax deductible for the transferor and taxable income for the receiving company.
Group companies can also make intragroup transfers of assets without achieving immediate realisation of latent gains, i.e. the taxation is deferred.
The PE of a company resident in either the EEA or in a state with which Norway has a tax treaty may also qualify for the group consolidation benefits described above.
Are there any withholding taxes?
In general withholding taxes are not levied in Norway, with the exemption of dividend withholding tax on distributions other than those to corporate shareholders resident in the EEA that have an "actual establishment" and conduct real business activity in the relevant jurisdiction (unless an exemption is provided under a tax treaty).
Are there any recognised environmental taxes payable by businesses?
There are no genuine environmental taxes, but the indirect taxes include several duties that are considered as environmental taxes with respect to their subject, such as vehicle tax, transport fuel tax, sulfur dioxide and pesticides tax and energy tax.
In addition, there are tax breaks encouraging environmentally friendly activities.
Is dividend income received from resident and/or non-resident companies exempt from tax? If not how is it taxed?
Pursuant to the participation exemption the basis for taxation of dividends is 3 % of the dividends received, which are subject to 23 % corporate income tax. Such dividends are thus subject to an effective tax rate of 0,69 %. Losses are not deductible. However, if the receiving company owns more than 90 % om the distributing company, the dividend is fully tax exempt.
Dividends on shares from companies resident in Norway are subject to the participation exemption method irrespective of participation and holding period. The same applies for dividends from shares in companies resident in the EEA, with the exception of companies established in low-tax jurisdictions. Companies in low-tax jurisdictions within the EEA must be genuinely established there and conduct genuine business within the stare of residency (substantial business test).
Dividends on shares in companies' resident outside the EEA, but in low-tax jurisdictions, are also tax exempt provided that the shareholder has held at least 10% of the shares and capital for a period of two years. Dividends on shares in low-tax jurisdictions outside the EEA are not tax exempt and losses on such shares will be deductible.
Norwegian branches of foreign companies are covered by the participation exemption method irrespective of the state of residency of the foreign company.
If you were advising an international group seeking to re-locate activities from the UK in anticipation of Brexit, what are the advantages and disadvantages offered?
Norway is a highly developed and modern country with a small but robust and open economy. The country's economy is a mix of free marked activity and large state ownership. A wide range of opportunities, stable political environment and excellent economic framework is some of the features that makes Norway appealing to foreign investors. Norway is not a member of the European Union (EU), but is a member of the European Economic Area (EEA).
A corporate tax rate of 23 % and a participation exemption method on dividends and capital gains that is amongst the most liberal within the EEA, are some of the advantages of investing in Norway. Combined with no withholding tax on royalties or interests in general, or on dividends paid to corporate shareholders within the EEA and a wide range of double taxation treaties this makes Norway suitable for holding companies, especially when investing within the EEA.
Other advantages is a tax consolidation regime for corporate groups by which losses can be off set, and efficient and accessible authorities (including tax authorities, with the possibility to request a tax ruling to clarify the tax consequences of a planned structure or transaction).
There are few tax incentive schemes and special tax programs available in Norway. Another disadvantage is the extensive anti-avoidance doctrine (substance over form) in place to control innovative tax-planning techniques.
Another disadvantage is the interest limitation rule (described in more detail under item 9 above). The Ministry of Finance has, however, announced that they will prepare a consultation paper to introduce VAT in the financial sector as well as withholding tax on royalties and interests in the coming years.