To pay Norwegian tax of almost 1% of the global net wealth – including on the home, cars, shares, bank savings, etc. situated outside Norway – may come as a surprise for many foreigners working in Norway.
Who are subject to net wealth tax?
Norwegian tax resident individuals are subject to net wealth tax of up to 0.85% of their world-wide net wealth.
Expatriates living outside Norway that are commuting on a weekly basis to Norway may have to pay net wealth tax to Norway. The net wealth tax represents an additional and final tax cost for the commuters.
Such tax may be levied on expatriates from countries like the UK, Netherlands, Germany, Denmark, Sweden, Finland, Poland and the Czech Republic. The reason for this is that net wealth tax is not covered by the tax treaties that Norway has entered into with these countries.
Download free guide: Income tax return to Norway
The Norwegian net wealth tax
Norway levies 0.85% net wealth tax on a person’s global net wealth, i.e. irrespective of where the assets are situated.
The tax is triggered on net wealth exceeding NOK 1 500 000 – approximately GBP 133 000 or Euro 155 000.
The basic rule is that the assets should be valuated at fair market value at the end of the calendar year. Thus, the net wealth tax base of e.g. bank savings and investment in shares must be valuated at December 31 each year.
Note that debt is generally deductible in the net wealth tax base.
Further, note that certain assets are included in the net wealth tax base at a value less than fair market value. This e.g. the case for the person’s permanent residence which should be reduced to around 25% of fair market value. The value of shares is reduced to 80% of fair market value for net wealth tax purposes.
The tax treaties and tax residency in two states
Norway has tax treaties with approximately 90 states. The main purpose of these treaties is to abolish double taxation.
A practical situation of double taxation may occur if a person is regarded as tax resident in two countries at the same time. For instance, a UK tax domiciled person with a permanent home and family in the UK who commutes to work in Norway on a weekly basis, may also be regarded as a tax resident of Norway. In such cases the tax treaty will normally decide that the person should be regarded as a tax resident only in the country where the permanent home and family is situated (center of vital interests), i.e. in the UK in this case.
When the tax treaty covers net wealth tax, the basic rule is that it is the country where the person is a tax resident, as defined in the tax treaty, that has the right to levy net wealth tax on the persons worldwide assets. In the above-mentioned case this would be the UK.
However, when the tax treaty does not cover the net wealth tax, Norway may levy net wealth tax based solely on the provisions of Norwegian domestic tax law and irrespective that the person has a home and family in the other state. This may be the situation for British, Dutch or Swedish residents that commute weekly to Norway or is seconded to Norway on short term assignments exceeding one year.
Tax residency in Norway according to domestic law
Individuals that are present in Norway for a period or periods exceeding in aggregate 183 days in any 12-month period or 270 days in any 36-month period are Norwegian tax residents.
When counting the number of days of presence in Norway the arrival day and the departure day are both considered as a full day in Norway.
If the period runs past a calendar year, the person becomes a tax resident as from January 1 in the year the person fulfils the qualifications.
Also read: A brief guide to your Norwegian tax return
The impact on expats commuting to Norway
Employees working in Norway will still have to pay Norwegian tax on income derived from the work performed in Norway. Other income may be protected from Norwegian tax according to the provisions of the tax treaty.
The additional tax burden is related to the net value of the worldwide assets of the individual.
Provided the employee according to Norwegian domestic law is regarded as a tax resident of Norway, the employee will become subject to up to 0.85% net wealth tax of the worldwide assets. This means taxation of the value of e.g. home and cars in the home country, bank savings and shares in private or public companies.
Norway will normally be entitled to levy net wealth tax also on assets that are situated in a third country. This implies that bank accounts in e.g. Switzerland, Lichtenstein, the Channel Islands, or elsewhere shall be included in the net wealth tax base.
It is the individual that is responsible to report the worldwide net wealth when filing the annual tax return. The tax return is due within end of April the subsequent year. Note that the Norwegian tax office may levy penalty taxes for noncompliance, and there are cases where individuals have been sentenced to imprisonment for net wealth tax evasion.
Foreign commuters to Norway from countries with tax treaties that no longer give protection from Norwegian net wealth tax should analyze their net wealth position in order to determine the potential additional cost of the Norwegian net wealth tax.
It is the resident tax status at December 31 in the income year that is decisive for the net wealth tax liability. Thus, individuals that wish to avoid paying the net wealth tax must consider the Norwegian tax residency status as of December 31. It may e.g. be possible to monitor and reduce the number of days in Norway to avoid being tax resident in Norway.
Another tax planning idea would be to invest in assets with a net wealth tax base less than fair market value, ref above.
Get help with your tax return
We recommend expatriates in Norway that could potentially be hit by the Norwegian net wealth tax to contact a lawyer of Magnus Legal to determine whether the rules apply to them, and which actions that could be taken to avoid or reduce the net wealth taxation. Also, if the net wealth tax applies, it is important to make sure that relevant information is included in the tax return to avoid any sanctions from the tax authorities.
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