From 2019, a new and simplified tax scheme is available for foreign workers in Norway. The scheme is called PAYE (Pay As You Earn). Most foreign workers will fall under this scheme the first year they work in Norway.
About the PAYE scheme
Your income from employment is taxed at a rate of 25 percent. The rate includes national insurance contributions at 8.2 percent. Your employer deducts the tax directly from your salary and the deducted tax is the final payable tax. The 25 percent deduction is made from your gross earnings. It is not possible to claim any deductions under this scheme. There is no obligation to file a tax return and no tax settlement will be issued by the tax administration. The tax deducted by the employer is the final tax settlement.
Who can choose to join the PAYE scheme
The scheme is meant for foreign employees who work in Norway for short periods of time, and who are not tax residents in Norway. The scheme applies to most foreign workers the year in which they become tax residents in Norway. Persons living abroad and receive director’s fee or similar from a Norwegian company also fall under the PAYE scheme.
You cannot join the PAYE scheme if your annual income exceeds the limit set out in the bracket tax step 3 (equal to NOK 639,750 for the income year 2020).
You cannot join the PAYE scheme if you have taxable income from:
- The Norwegian continental shelf
- Norwegian (NOR/NIS) ships abroad
- real property or moveable property in Norway
- the Norwegian State
- business in Norway
Also read: Annual wage report in Norway
How to join the scheme
All foreigners working in Norway must have a tax deduction card. If you meet the criteria, you will join the scheme automatically when you apply for a tax deduction card.
Married couples can choose different tax regimes. If only one of you qualify for the PAYE scheme you can choose to sort under different schemes, you do not have to choose the same tax rules.
If you change your mind during the tax year and do not want to be taxed under the PAYE scheme but rather prefer the general tax rules, you can opt out of the scheme by changing your tax card at any time during the tax year.
If you have chosen to be taxed under the general tax rules, you cannot re-join the PAYE scheme for the ongoing income year. The following tax year you can re-join the scheme if you meet the criteria.
Taxable income under the scheme
- Gross wages
- Holiday pay
- Any other taxable benefits
- Any travel, meals, per diem, housing covered by the employer
If the sum of the income listed above exceeds the limit set out in the bracket tax step 3 (equal to NOK 639,750 for the income year 2020), you will be taxed under the general tax rules.
If you are not sure how much you will earn during the tax year, you can start with PAYE and then, if necessary, opt out later in the income year. If you earn more than the income limit, the entire income will be taxed under the general tax rules.
Exemption from paying national insurance contributions
If you have full or partial exemption from paying Norwegian National Insurance (NI), the PAYE tax rate should be reduced accordingly. You can get a tax deduction card with a reduced rate if you show documentation to the tax office proving you are a member of a foreign insurance scheme. For instance, you can use form A1 issued by the authorities in your home country and approved by the Norwegian NI office, which will show that you are a member of an insurance scheme in another EEA state.
Tax resident during the income year
If you become a tax resident during the year, you can stay in the PAYE scheme for the remainder of the income year. However, you must bear in mind that the income limit of NOK 617,500 includes worldwide income from employment and capital gains such as interest income and income from letting property. If capital gains income increase NOK 10,000 you must be taxed under the general tax rules.
Change from PAYE to general tax rules after ended tax year
If it turns out that your will be better of paying tax under the general tax rules, you can apply for a refund by submitting a request of amendment. You can claim a refund for up to 3 years after the income year when the tax was assessed under the PAYE scheme. If you have been taxed under the general tax rules, you cannot opt to PAYE.
Article first published 17 January 2019, updated January 2020.