Taxes and legal responsibilities
Companies in Norway are subject to a corporate income tax of 22% on their net income. Special tax regimes apply to income from the exploration of petroleum resources, shipping income and income from the production of hydropower.
Income, interest, dividends, capital gains on the disposal of assets and foreign-sourced income are taxable in Norway. However, for resident limited liability companies or entities, the participation exemption method is applicable for dividends and gains on shares and partnership interests. There is no separate tax on capital gains, hence capital gains are taxed as ordinary income at the general corporate income tax rate of 22%.
Main taxes for corporations
- Corporate tax 22%
- National Insurance contribution 14,1%
- There are zones with a lower level
Norwegian incorporated companies do not have to pay any wealth tax on their net assets.
Employers with employees working in Norway are required to pay employer contributions on the gross remuneration received by the employees, including benefits in kind and pension contributions. An employer resident abroad is also required to pay employer contributions in respect of employees working in Norway, subject to a possible exemption. Employer contributions are deductible for corporate income tax purposes. The rate of employer contributions depends on where in Norway the business is carried out. The general rate is 14.1%, but reduced rates apply to certain regions and municipalities in northern Norway and other sparsely populated areas. There are 5 zones with reduced rates of 10.6%, 7.9%, 6.4%, 5.1% and 0%.
In Norway property tax is a tax levied on real estate at the municipal level. Municipalities may choose whether to impose property tax, and not all municipalities have done so. If implemented, the property tax rate ranges from 0.2% to 0.7%.
The property tax base is the market value of the real estate as determined by a valuation carried out by the municipality. Some municipalities allow for applying a reduced tax base, e.g. by a tax-free allowance or a reduction of the market value by a certain factor.
The property tax base includes fixed assets that form an integrated part of the real estate. The distinction between assets that should be included and assets that should not be included in the property tax base is very specific and should be considered on a case-by-case basis.
Property tax may be deducted from the taxable income for corporate income tax purposes.
The Government has proposed to remove the municipalities’ access to include fixed production assets in the tax value. The proposal went through a public hearing in Q3, 2015 and the Ministry of Finance is currently preparing a white paper for the Parliament.
Norwegian tax rules do not offer many incentives, but an R&D incentive scheme called “SkatteFUNN” offers tax credit for R&D costs up to certain thresholds. The scheme is funded and administered by the Research council of Norway.
The amount of the tax credits is either 18% or 20% of the costs incurred, depending on the size of the business. The SkatteFUNN R&D cost ceiling for R&D projects using in-house R&D resources is NOK 20 million per year. The SkatteFUNN R&D cost ceiling for R&D projects also using external pre-approved R&D resources is NOK 40 million per year. Total costs for in-house and external resources must not exceed NOK 40 million.
Calculation of a “man-year”
What can make the annual personnel cost challenging for a foreign citizen, is the so-called vacation/holiday pay. The Norwegian salary system is based on 11 months of salary and one month of vacation pay. The vacation payment is the 12 month and is based on your salary the year before. The employer must every month set aside 10.2 or 12 % of the employees’ salary, to be paid out in june or july the next year…If you have the right to five weeks of paid vacation, then use 12%.
What can make this a bit confusing, is that the gross salary you agree with the employee includes the vacation pay. So, for simple purposes in a rough calculation, I would just use the gross salary, add the employers national insurance contribution on 14,1% and in addition incorporate at least 2% on mandatory occupational pension and the expected salary rise from May. In addition there would usually be mandatory for insurance however the amount will vary dependent upon the occupation. On average, a fixed amount of NOK 1.500 pr employee is often used for calculation purposes in Norway.
According to the Norwegian Act on Mandatory Occupational Pensions of 2005, Norwegian employers have to ensure occupational pension for their employees. All employers with a minimum of 2 employees, each with working hours and a salary of 75% or more have to provide a pension scheme. This also applies to all employers with at least 1 employee who does not have ownership interest in the employer company, with working hours and salary of 75% or more, as well as all employers with employees, each with at least 20% working hours and salary if these employees together make up for at least 2 fulltime positions.
Minimum pension rate is 2% of gross salary.