On October 6, 2022, the Norwegian Government proposed several tax rules in connection with the presentation of the national budget for 2023.
To be effective, the proposals must be accepted by the Parliament (“Stortinget”). As the Government is in minority in Stortinget, it will need support from other parties. This will likely be SV (the Socialist Party). Thus, we expect changes that likely will increase the tax burden even more for high income earners and wealthy individuals.
The summary below reflects the changes that we assume are relevant for our non-Norwegian clients doing business or working in Norway.
Corporate tax and vat
Combined company and shareholder tax
The ordinary corporation tax rate of 22% remains unchanged, and the participation tax exemption method will remain for corporate shareholders.
However, with effect from October 6, 2022, the divided tax for individual shareholders increases to 37.84%. This means that the effective combined corporate and shareholder tax rate is 51.5%.
The tax rate of 37.84% is also applicable on individual’s capital gains on shares.
Employer’s social security contribution – NOK 750 000 threshold
Presently, in most regions of Norway the employer’s social security contribution (payroll tax) is 14.1% of gross salary, although this rate is reduced in certain regions. In addition, there is a 5% contribution for employers within the finance sector.
The Government now proposes an increase of 5% on gross salary exceeding NOK 750 000 per employee.
Thus, effective from 2023 the regular rate of 14.1% will apply on salary up to NOK 750 000 and with the new rules, the rate will be 19.1% on salary exceeding NOK 750 000.
VAT on the sale of remotely delivered services to Norwegian individuals
Currently, a non-Norwegian service provider that delivers services remotely from outside Norway shall not add Norwegian VAT on the invoice. When the Norwegian buyer is a business or public enterprise, the byer will have to add and pay the Norwegian VAT, i.e. the reversed charged VAT. A Norwegian individual byer (consumer) does not have such obligation, and thus such a purchase is without Norwegian VAT.
The Government proposes to change this so that private individuals will have to pay 25% VAT when purchasing remotely delivered services from abroad.
The suggested VAT obligation will be administered and enforced through the existing VOEC system (i.e. the system applicable on VAT on E-Commerce). This means that foreign service providers will be responsible for the VAT handling when selling remote services to consumers in Norway.
As a consequent of the above, the Government proposes that Norwegian businesses' export sales of remotely delivered services to all types of buyers abroad will be VAT exempt in Norway.
Resource rent tax for aquaculture and power production
It is proposed that enterprises engaged in fish farming and onshore wind parks wil be hit by a new resource rent tax which is proposed to be 40% on top of the corporate tax. Thus, total tax burden for such enterprises will be up to 62%.Moreover, the Government proposes an increase in the rate for the existing resource rent tax on hydro energy producers.
Individual taxation
General
In addition to the above-mentioned increase of the tax rate on dividends and capital gains on shares there are minor adjustment on the tax rates and thresholds applicable on salary income.
The marginal salary tax rate, including employee social security contribution, remains at 47.4% on income exceeding around NOK 2 million.
Net wealth tax
Norway is one of a very few countries that levies net wealth tax.
This tax is levied every year on worldwide net asset of individuals that are tax resident of Norway, and on Norwegian real estate for individual that are not resident of Norway.
It is proposed to increase this tax burden two ways:
- Firstly, the base for the tax will be increased. I.e. shares and commercial property which today are included in the tax base with a value of 75% of fair market prices, will next year be included with 80%.
- Secondly, to increase the tax rate from 0.95% to 1%.
The additional rate of 0.10% on net assets exceeding NOK 20 million will remain.
We are afraid that based on pressure from SV the salary taxation for high income earners and the net wealth tax will be increased even more when the issue is debated in Stortinget.
“Monster tax” – may be introduced from 2024
The Government announces that as from 2024 a new tax regime will be introduced. Tax advisors has named this as the “Monster tax”. The tax will be levied on the company and on the individual shareholder holding more than 50% of the shares when the company possesses apartments, houses including vacation houses, boats, helicopters, or airplanes.
In short, this regime implies that in periods when such asset is not leased out to a third person, the tax office will deem that the shareholder uses the assets him-/herself.
The way the income is computed may imply that over a period from 2 to 8 years the combined tax paid by the company and the shareholder for the deemed use of the asset will exceed the purchase price of the asset.
We thus strongly recommend our clients not to hold such assets via their companies, and in case this is already a fact, they should be thinking of restructuring the ownership.