On October 7, 2024, the Støre government presented the National Budget 2025. Key takeaways include a notable tightening of exit tax regulations. The proposed changes imply that persons moving from Norway will be subject to an exit tax on latent capital gains exceeding NOK 3 million on shares and other securities. The exit tax must be paid within a 12-year deadline.
Background for the exit tax
On March 20, 2024, the Ministry of Finance presented a consultation paper with proposals to tighten the exit tax. The purpose of the rules was to ensure Norwegian taxation of funds accrued in Norway. The proposals presented in the consultation paper will be implemented with minor changes.
Proposed changes in the exit tax
Norwegian residents who change residency to another country may be subject to an exit tax.
Under the current legislation, taxpayers can defer payment of the exit tax until the shares are divested. The proposals presented in the National Budget 2025 establish a 12-year deadline for payment of the exit tax, irrespective of whether the shares are sold. Taxpayers can choose between immediate payment, interest-free installments over 12 years, or payment at the end of the 12-year period with interest.
The exit tax amounts to 37,84 % and is calculated on unrealized capital gains in shares and securities. This includes share savings accounts and capital insurance in both Norway and abroad.
Exit tax and deductions for emigration and transfers abroad
A base tax deduction of NOK 3 million is granted. Latent gains exceeding NOK 3 million will be subject to exit tax. A deduction for losses exceeding NOK 3 million is conditional upon emigration to an EU/EEA country. There is no loss deduction for those who settle outside this area.
Transfers to recipients residing or domiciled outside Norway exceeding NOK 100 000 annually are subject to exit tax.
The exit tax and valuation upon emigration from Norway
The exit tax is determined based on the market value of the shares and securities the day before leaving Norway. There are no deductions for value decreases after the emigration date. Valuations are in Norwegian Kroner and any foreign currency must be converted to NOK.
Input value is generally set at market value at the time of immigration.
In our response to the consultation paper, Magnus Legal highlighted the unfortunate effects of currency fluctuations between the time of acquisition or immigration and the time of emigration. Currency fluctuations could trigger the exit tax without real increases in underlying shares or securities. Regrettably, the government does not account for such effects in the proposals.
The valuation of shares in non-quoted companies can be challenging. Suppose no exit tax is determined at the time of emigration. In that case, it is proposed that the tax administration shall have the authority to adjust the tax-base within a 15-year period after the year of emigration.
What about the exit tax on inheritance and death
In the initial proposals on March 20, there was no option for deferring payment upon the taxpayer's death. This has been moderated in the National Budget 2025 proposals, where heirs domiciled outside of Norway can assume the tax positions of the deceased, thereby continuing the payment deferral period. If the heirs reside in Norway, the exit tax is waived.
The changes outlined above are proposed to retroactively effect transfers starting on March 20, 2024.
Exit tax on dividends
Under the previous rules, exit tax was not affected by dividends taken during the 12-year period. This is proposed to change, as dividends from the company will result in a proportional payment of the exit tax. The distributed amount shall be multiplied by a standard factor of 0.7. Dividends taken after emigration shall be considered part of the exit tax. For every NOK 100 received in dividends, NOK 70 of exit tax must be paid.
The change is proposed to take effect from October 7, 2024.
Full taxation without reduction for foreign capital gains tax
Under the previous rules, capital gains tax suffered abroad upon the divestment of shares could be credited against exit tax in Norway. Under the proposed changes, Norway will retain full taxation rights. Any tax credit for capital gains paid abroad must therefore also be sought in that respective country.
The National Budget 2025 must be approved by Parliament, which must rely on support from other political parties. We expect the government to obtain sufficient support from the Socialist Left Party (“SV”). The outcome of negotiations should be expected within the first half of December.
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