Enterprises doing business in Norway are not entitled to deduct input VAT for their acquisitions until the enterprise is formally registered for VAT. An ordinary registration can, as a main rule, only take place after a Norwegian turnover is documented. In the stage of starting up the Norwegian division, this delay can be both unpractical and offer a significant liquidity disadvantage.
Enterprises should be aware that there are solutions to this problem. The VAT act provides opportunities for businesses to register in the VAT-register, before the ordinary registration limit for the VAT-register has been reached. The ordinary registration limit is currently NOK 50 000 in taxable turnover during a 12-month period.
The pre-registration options have one obvious advantage: Once a business is registered for VAT, the enterprise can deduct input VAT for costs relating to the registered business.
More on our website: VAT in Norway
The VAT act sets out two possible grounds for a business to pre-register in the VAT register:
Pre-registration option 1 – significant investments
The first option is aimed at businesses who make significant investments in the start-up phase. Without the possibility for early registration in the VAT-register, businesses will not be able to continuously deduct VAT on these early investments, which may cause liquidity disadvantages.
Requirements to apply under option 1
There are three conditions that must be met, in order to pre-register in the VAT-register under option 1:
- The enterprise must document that there has been so-called “significant investments”. The threshold for significant investments is currently NOK 250 000 including VAT. Only investments that are subject to VAT can be taken into account.
- Once up and running, the business should expect an annual turnover significantly above the registration limit (NOK 50000), and that it is likely that the business will be characterized as business activity. Start-ups in high risk industries will be qualified as long as the initiative appears to be serious. The tax office will, among other things, emphasize whether the owner or other third-party lenders have invested considerable amounts in the business, or if the public sector has provided grants or granted a license for the business.
- The business should not reach the registration limit during the first four months after the application for pre-registration is submitted. Such businesses must wait and apply for ordinary registration once turnover surpasses NOK 50 000.
Also read: VAT on e-commerce (VOEC) in Norway
Pre-registration option 2 – practical reasons
The second option is aimed at enterprises that will reach the registration threshold immediately or shortly after starting their business activities in Norway.
It is prohibited to issue invoices with VAT before registration. The registration process takes time, often around 3 weeks. Many enterprises will surpass the registration threshold already on the first invoice, and for these, it is very practical to be pre-registered.
Requirements to apply for option 2
The one and only condition for pre-registration for practical reasons is that the VAT-liable turnover from the business most likely will exceed the amount limit (NOK 50.000 in taxable turnover) no later than three weeks from the time the turnover is initiated. This can be documented with contracts, information from public tender documents etc.
Where to apply – and what happens next?
Applications for pre-registration are processed by the tax authorities.
In the event of refusal of pre-registration, it is important to be aware of the right to a recurring tax settlement. This can be done in connection with an ordinary VAT registration. The right to deduct extends up to three years back in time.
If the application for pre-registration is approved, the business is VAT-registered and has all the rights and obligations that this entails.