COUNTRY PROFILES
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norway — taxation
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Norway |
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Income tax: Corporate tax is assessed at a rate of 28%. Special oil tax: Companies involved in the production or pipeline transport of oil and gas are liable to income tax at 28% plus a special oil tax at a rate of 50%. The special oil tax is calculated according to the provisions of the Petroleum Tax Act. Companies incorporated in Norway are, as a general rule, regarded as resident in Norway. If management on board/ director level is carried out outside Norway, the residency in Norway for tax purposes may cease and the company will be subject to liquidation for tax purposes. Foreign corporations will be regarded as resident in Norway if the place of effective management is in Norway, for example if the board of directors makes its decisions in Norway.
Other taxes
Value added tax: The general VAT rate is 25%; food 13% and passenger transport, broadcasting services, tickets to cinemas 8%. As from 1 September 2006, accommodation services including hotel rooms are charged VAT at the rate of 8%. The registration threshold is NOK 50,000. Wealth taxes: Companies (ASs and ASAs) are not liable to capital tax.
Branch income
Branch income is taxed at corporate rates (ie 28%). Branches of foreign limited liability companies are not subject to wealth tax.
Income determination
Inventory valuation: Inventory is valued at cost. Cost is normally FIFO. LIFO is not acceptable for tax purposes. Conformity between book and tax reporting is not required.
Capital gains: Capital gains realised in the course of a business activity are taxable income. Sales gains in respect of real estate transactions are taxed, regardless of whether they are incurred in connection with business activity. Losses can be offset against the taxpayer’s other income. Gains realized on both business-related and non-businessrelated securities (except for shares) are, in principle, taxable. For most bonds acquired after 10 May 1990, any gains realised at maturity are regarded as taxable income. Realised losses will be eligible for corresponding deductions.
Participation exemption rules for corporate shareholders: The participation exemption method applies from 1 January 2004 for dividends received and from 26 March 2004 for capital gains. Under the new rules, corporate shareholders are exempt from tax on dividends received and gains on all shares and on derivatives where the underlying object is shares, regardless of the level of the holding or the time for which shares have been held. Losses on shares will accordingly not be tax deductible. However, for investments outside the European Economic Area (EEA), the exemption would apply only if a shareholder holds 10% or more of the share capital and the voting rights of the foreign company for a period of two years or more. In addition, shareholdings in low-tax countries outside of the EEA will not be comprised by the new participation exemption rules.
Acquisition and sales-related costs (for example broker etc. costs) must be added to the cost price of the shares for tax purposes. Management costs relating to tax-exempt shares are, however, deductible. A Norwegian parent company (at least 10% ownership) will be allowed a deduction (credit) from Norwegian taxes for underlying company tax paid on dividends received from a foreign subsidiary or subsubsidiary located in the same jurisdiction as the first-tier subsidiary. This deduction, together with any deduction for withholding taxes paid, may not exceed the Norwegian tax attributable to gross dividends
Foreign income: If double taxation is not avoided by a tax treaty with the country concerned, a Norwegian corporation is liable to Norwegian income tax on (1) foreign-branch income and (2) foreign dividends when received. Deductions for foreign tax may be claimed as an expense or as a credit against Norwegian tax payable on that income.
Stock dividends: Stock dividends are not taxable on receipt, provided that the dividends have been distributed in accordance with the tax, accounting and joint stock company acts.
Deductions
Depreciation and depletion: For depreciation, the decliningbalance method is mandatory. Maximum depreciation rates have been defined for various categories of assets. Capitalisation is not required for items or rest balance below NOK 15,000.Special depreciation rules apply to assets that are moved in and out of Norwegian jurisdiction. Oil companies must apply straight-line depreciation over six years or more on offshore installations, and are allowed an uplift of cost price up to 7.5% of the cost price for up to four years.
Net operating losses: Losses may be carried forward indefinitely (for entities liable to the special oil tax, 15 years). Losses incurred in the year of ceasing business may be carried back for a period of two years. If a loss is incurred in the next to last year, it may be carried back to the preceding year.
Payments to foreign affiliates: Royalties and service fees are freely transferable to related companies abroad, provided calculation is based on arm’s-length terms. There are no formal thin-capitalisation rules in Norway. In practice the tax authorities require however that the entity in question is able to service its debts. In addition, any loan terms should be comparable to those that would have been agreed upon by unrelated parties. Interest on financing to the extent that these rules are not satisfied may be regarded as deemed dividends and thus nondeductible and, in addition, subject to Norwegian withholding tax.
Taxes: Real estate tax, as well as foreign income and capital taxes paid by the taxpayer, is deductible in determining corporate income.
Goodwill: Acquired goodwill may be depreciated by the declining-balance method at a maximum of 20% per annum. The Revenue has, however, on several occasions recently questioned the allocation to goodwill and claimed that a part of the purchase price should be allocated to brand and firm names, etc (which may, as a rule, not be depreciated unless of a timelimited nature). Software and FoU with an assumed lifetime of three to five years can normally be depreciated over the life time of the asset according to the straight line method of depreciation.
These rules do not apply to companies engaged in oil and gas-producing activities subject to the Petroleum Tax Act.
Group taxation
Income taxes are assessed on companies individually, not on a consolidated basis. This may be relieved through group contributions between Norwegian companies, provided common direct or indirect (including foreign) ownership is more than 90%. Group contributions may also be given between Norwegian branches of foreign head offices and between Norwegian subsidiaries of foreign companies and between these and branches within the same group located in the EEA area if certain conditions are fulfilled. Group contributions are not deductible for companies engaged in oil- and gas-producing activities subject to the Petroleum Tax Act.
Assets may be transferred tax free between group companies at tax book value for tax purposes and at market value for financial book purposes. Payment in this respect must equal market value of the assets transferred for tax and financial book purposes. The same applies to payment in shares. If the transferee at a later stage steps out of the tax group and is still the owner of the transferred assets,the transferor will be taxed for the difference between the tax book value and the market value of the assets.
Tax incentives
Joint stock companies that own ships or minimum 3% of the shares/ownership interest in a ship owning company/partnership (or contracting vessels in traffic) can choose a special shipping company taxation which postpones taxation of their net income from their own and rented vessels. Net financial income is taxed on a regular basis. In addition, there will be a tonnage duty payable.
Thin capitalisation
There is no fixed debt to equity ratio in Norwegian tax law. However, if Norwegian income from the subsidiary is reduced, owing to community of interest between the Norwegian company and a foreign company, adjustments may be made under the arm’s length provisions of the General Tax Act’s section 13-1. Generally, these provisions only apply if the company has obtained a larger loan from a group company than an independent credit institution would have granted, or if the agreed level of interest is higher than an independent credit institution would have required. The company must also be able to service its debts
Withholding taxes
Norway does not levy withholding taxes on payments of royalties and interest. Dividend payments are subject to withholding tax depending on the internal legislation and the applicable tax treaty.
Contact details:
PricewaterhouseCooper, 0245 Oslo Norway - Tel: +47 96250000 - Fax: +47 23161000 - Website: www.pwc.com/no