The tax system in Norway is based on direct and indirect taxes.
- Direct taxes: e.g. income tax payable to the State and local authorities; wealth tax, property tax and inheritance tax.
- Indirect taxes: value-added tax is the most important, but this group also includes several special duties, e.g. on alcohol, tobacco and petrol.
The tax system
Undertakings etc. domiciled in Norway are generally liable to pay taxes to Norway in accordance with the Tax Act.
The Tax Act also contains provisions to the effect that foreigners with businesses in Norway are obliged to pay tax on income from activities that they run or participate in and which are operated or managed from Norway, including activities where staff are provided to others within Norway.
Norway also has tax agreements with a number of States, mainly to avoid double taxation and prevent tax evasion. Norway may have waived the right to tax businesses that come from countries with which it has entered into tax agreements.
Most tax agreements are drawn up on the basis of the OECD Model Double Taxation Convention, but they may contain individual variations.
The Petroleum Tax Act contains provisions on the liability for tax on income from exploration or extraction of petroleum deposits and associated activities in Norwegian waters and on the continental shelf.
Direct taxes are paid by:
- Personal taxpayers - e.g. salary-earners, self-employed persons (sole traders) and members of partnerships and the like.
- Impersonal taxpayers - e.g. limited companies and cooperatives.
Income tax is payable on income from employment, pensions, benefits in kind, returns on capital and profits from business activities.
Norway has a two-part system for taxing income. All taxpayers, both personal and impersonal, are liable for a flat rate of 28 % on their general income.
General income is net taxable income, made up of gross taxable income minus deductible costs and losses. Business income is included in general income and comprises income minus expenses associated with the business activity.
Personal income includes income from employment, remuneration to active members of partnerships, and estimated personal income from sole trader businesses according to the enterprise model. Personal income is only determined for natural persons and provides the basis for calculating higher-rate tax and social security contributions.
One-person businesses (sole traders) are taxed by a shielding method. This means that business income minus a shielding deduction is taxed as estimated personal income on an ongoing basis. The shielding deduction is equivalent to the alternative risk-free yield that could be achieved by investing capital in risk-free bonds.
Tax on estimated personal income may be up to 51 %. The shielding method for sole trader businesses differs from the shielding method for limited companies and partnerships in that the additional yield is taxed on an ongoing basis, whether or not the profits have been taken out of the business.
In limited companies and partnerships, etc., these profits are taxed at 28 %. When the profits are distributed to physical shareholders, they are taxed according to a shielding method. This means that the profits minus the shielding deduction are further taxed at 28 %. The maximum tax payable on profits and dividends is then 48.16 %.
Indirect taxes associated with production, sales, imports or exports include value-added tax, special levies and customs duty.
Special levies include:
- motor vehicle taxes,
- environment taxes and
- duties on alcohol and tobacco etc.
Customs duty is collected mainly on imports of major agricultural products, clothes and other textile goods.
Value-added tax is payable to the State on sales, imports and exports.
VAT has to be charged on sales and exports of goods and services defined in more detail in the VAT Act. VAT is chargeable at all stages in the sale process.
The VAT rates are:
- 25 % on ordinary sales
- 15 % on food
- 8 % on public transport and accommodation services etc.
Registering for tax
Owners of one-person businesses (sole traders) and members of a partnership must pay advance tax for each period once there is any income.
In order for new sole-trader businesses and unlimited liability partnerships to be sent payment forms, they must notify the Tax Office of the business themselves, and indicate how much profit or loss they expect to make in the first year.
For limited companies and other organisations whose income is not included in the individuals' tax returns, tax is paid in the course of the year following the income year.
New businesses must inform the Tax Office of the start-up in order to be sent payment forms.
Economic operators with VAT-liable income and withdrawals exceeding NOK 50 000 over a period of 12 months must be entered in the VAT Register, and must charge and pay VAT on their sales (output tax).
VAT must be charged on the consideration for the taxable sale. This is the amount that the buyer and seller have agreed should be paid for the goods or services.
In the case of imports, VAT is calculated on the customs value of the goods; cf. Chapter 7 of the Customs Act. When services are imported, VAT is calculated on the consideration paid for the services.
Registration in the VAT Register can be handled electronically via Altinn or using the form 'Coordinated register application, part 2 - schedule for the VAT Register'.
Submission of tax return
Sole traders and partnerships pay tax four times a year by submitting a payment form sent to them.
Limited companies etc. are sent forms for the payment of tax twice in the first six months following the income year. On each occasion, the amount represents one-third of the tax calculated in the last assessment. The last instalment is payable after the new year's assessment.
Sole traders submit form RF-1030 (tax return for economic operators), due by 30 April of the year following the income year. Limited companies submit form RF-1028 (tax return for limited companies), while partnerships submit partnership returns, both by 31 March, or electronically via Altinn by 31 May.
Anyone running a business is obliged to file an annual report and accounts for the business together with the tax return.
A taxpayer must submit sales figures six times a year. Where VAT-liable sales and withdrawals do not exceed NOK 1 million in a calendar year, excluding VAT, the Tax Office may allow the sales figures to be submitted once a year. Taxpayers in the fisheries, agriculture or forestry sectors must submit sales figures once a year.
The amount to be paid to the State is the total VAT calculated on sales and outputs (output tax) minus VAT paid on purchases (input tax).
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