Foreign multinationals that wish to expand their activities to Norway must consider which kind of legal entity and corporate structure they should use. The choice may have impact on the success in doing business in Norway as well as a multitude of legal and compliance implications.
The elements impacting on the choice of legal entity
When deciding which entity form that best suits your purposes, you should consider i.a.:
It is not required to incorporate a Norwegian company when doing business in Norway, and many global finance institutions operate via branches in Norway due to financial regulations. However, in certain areas the business partners or customers would prefer to conduct business with a Norwegian company since this is the most commonly known entity form and should normally not imply surprises for the business partner.
Further, it may be relevant to limit any liability to the operations conducted in Norway. In such case a Norwegian limited liability company may be preferred.
Tax and VAT consequences
The starting point is that corporate tax and VAT consequences are basically the same irrespective the form of the entity that conducts the business in Norway.
Although the tax and VAT rates normally will be identical irrespective the legal for of the entity, certain kinds of businesses conducted in Norway by a non-Norwegian entity should not trigger corporate tax liability and/or VAT liability.
More information: Should your business register for VAT in Norway?
All entities conducting business activities in Norway must comply with a wide set of registration and reporting requirements.
The choice of entity has only minor impact on these compliance oblations. I.e. all entities must register with the centralized Registry for legal entities and if they have employees working in Norway, they must file monthly reports on salary, etc.
It is important to note that Norway levies rather harsh fines on failure to comply timely and correctly. Further note that your Norwegian partner or customer should expect that its service providers are compliant with all obligations, and in some cases, non-compliance is a reason to terminate the contract.
The administrative costs are closely linked with the compliance obligations, and these may be done by the entity itself or outsourced to a to a service provider.
It is in any case important that when budgeting the costs for conduction business in Norway the enterprise should map all compliance obligations and the related expenses in order to be compliant.
The legal entities
The most common alternatives for foreign enterprises doing business in Norway are:
- Branch (NUF);
- Limited Liability Company (AS or ASA)
- Partnership and joint venture (ANS, DA or KS)
- Sole proprietorship (ENK)
The Branch (NUF)
A branch is not a separate legal entity but a part of the same legal body as the main enterprise. Therefore, all risks and obligations of a branch also belongs to the main entity. Utilizing a branch will therefore not limit any potential liability for the main enterprise.
A branch of a non-Norwegian enterprise is in Norway called a “NUF” (Norskregistrert utenlandsk foretak). Note that the registration as a NUF only reflects that the foreign enterprise is registered in Norway and does not indicate whether the enterprise has office premises or employees in Norway. Nor is a registration as a NUF decisive with respect to the various compliance obligations related to VAT, corporate tax, etc.
A NUF should commonly be subject to the same compliance obligations as a Norwegian limited liability company. You should however compare the two entity forms in order to determine the most appropriate entity form to be used for your business in Norway.
A NUF may or may not elect a board and/or a CEO, and there is no requirement regarding the nationality or the resident of the persons holding such positions. If no board or CEO is elected an individual contact person must be appointed.
A NUF will often be obliged to keep books of accounts according to Norwegian GAAP (General Accepted Accounting Principles). Normally the enterprise will be required to account the same transactions in the home jurisdiction and thus this may be perceived as double work.
According to domestic law the threshold for a foreign entity to become subject to Norwegian tax is rather low if the entity conducts business activities in Norway or at the Norwegian continental shelf. However, if there is a tax treaty in place between Norway and the home state of the entity, Norwegian taxing right is only applicable if the business activities in Norway constitute a so called “permanent establishment”.
The corporate tax is based on extract of accounts which reflects the business operations carried out in Norway. The corporate tax rate of a NUF equals the tax rate of a limited liability company. Norway does not levy withholding tax on distributions of branch profits to the foreign head office.
Also read: Norwegian business culture
Limited Liability Company (AS or ASA)
There are two forms of limited liability companies in Norway. The AS (“Aksjeselskap”) which in other countries may be regarded as a “private limited liability company”, whereas the ASA (“Allmennaksjeselskap”) would be regarded as a public limited liability company.
For foreign enterprises incorporating a subsidiary in Norway the most appropriate form would be the AS.
The minimum share capital of an AS is presently NOK 30 000 (around Euro 3 000).
Conducting an AS follows strict rules based on the Norwegian Limited Liability Company Act. e.g.:
- The AS must elect a board of directors of at least one member. Only individuals can act as board members and at least 50% of the members must be resident if the EEA/EU;
- The AS must have a set of by-laws;
- The repatriation of profits from Norway must follow certain procedures, e.g. the company must retain enough funds to be able to continue the business operations, and the dividend distributions must be decided by the shareholder meeting;
- The AS must keep books of accounts according to Norwegian GAAP (General Accepted Accounting Principles). The annual financial report is made public available.
- The AS is deemed to be a separate subject for corporate tax. Dividends distributions to non-Norwegian shareholder may suffer additional dividend withholding tax, although such tax is abolished in certain circumstances.
Also read: Register a company in Norway
Partnership (ANS, DA or KS)
If the reason for conducting business in Norway is to cooperate with other enterprises a partnership may be option.
There are various forms of partnership structures available in Norway. To be formerly registered the partnership must be incorporated as an ANS (Ansvarlig Selskap), a DA (Selskap med delt ansvar) or a KS (Kommandittselskap). The major differences between the three types of entities is how potential liability is distributed to the partners.
- In the ANS (General Partnership) all partners are jointly and severally liable for the partnership’s liabilities;
- In the DA (Pro Rata Partnership) each partner has unlimited responsibility for a specific percentage of the total liability of the partnership;
- In the KS (Limited Partnership) one or more partners (general partner) have joint and severally responsibility for the partnership’s liability, whereas the limited partners are liable only up to a specific amount of their investment. The general partner may be a limited liability company (AS), but it must hold at least 10% of the KS.
Non-registered joint ventures (JV) are rather uncommon in Norway. Single JV projects may be based on agreements of cooperation rather than forming a registered partnership. However, some public customers may no longer accept these kinds of JVs and participants in a JV will therefore prefer to participate via an AS, or any of the above-mentioned forms of partnerships.
Sole proprietorship (ENK)
An individual engaged in business activities may elect to do this directly and not via a company. In such case the individual must register the sole proprietorship (“Enkeltpersonforetak” or “ENK”).
The ENK has unlimited liability for the debts of his or her business.
The ENK must keep books of accounts and the tax rates deviates from the corporate tax rates as they are linked to the tax rates of employees.
Need assistance: Helping companies succeed when doing business in Norway
For more information about doing business in Norway, download our free guide that gives a practical overview of the required actions applicable for foreign enterprises with business operations in Norway.