Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

Fiscal competition
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Taxation in Norway compared to other European tax systems

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Taxation in Europe - Yearbook 2013

Norway

The main objectives for the Norwegian Government’s tax and ?scal policies are, according to the Ministry of Finance, “… to secure public revenue, to help bring about a fair distribution of wealth, promote employment throughout the country and to improve the ef?ciency of the economy”.

The Government continues to propose rules aimed at further strengthening the tax system’s contribution to a “fair income distribution and to a better environment” (“green” taxes).

1- Main Characteristic Of Tax Policy

The Norwegian tax system is characterised by a relatively high share of indirect taxes by international standards. Value Added Tax (VAT) and excise duties amounts to approximately onethird and income tax and net wealth tax levied on individuals to approximately one fourth of total tax revenues. Corporate tax, including employer’s part of the social security contribution to the National Insurance Scheme, (NIS), and tax on oil and gas activities each amounts to around one ?fth of total tax revenues.

Total tax revenues in 2013 are expected at 1 314 billion NOK (€ 176.4 billion), to be compared with total revenues in 2012 at 1 278 billion NOK (€ 171.5 billion), according to the revised 2012 National Budget; that is, an increase of approximately 2.8%. The tax revenues consists of two main elements:

> Direct and indirect taxes from oil and gas activities, estimated at 401.2 billion NOK (€ 53.9 billion), in 2013, compared to 412,8 billion NOK (€ 55.4 billion), according to the revised 2012 National Budget, - a decrease of 2,8%; and

> Direct and indirect taxes from mainland Norway, (namely, revenues other than from oil and gas activities), estimated at 913.2 billion NOK, (€ 122.6 billion), in 2013, to be compared with 865.2 billion NOK (€ 116.1 billion), in the revised 2012 Budget; - an increase of 5,5%. (Exchange rate used in this document is €1 = NOK 7.45).

Revenues from the oil and gas activities are deposited in the Government Pension Fund Global, (GPFG), and the return from the fund is used to ?nance the public sector. By the end of 2013, the market value of the GPFG should reach approximately 4 281 billion NOK (€ 574 billion).

The Government Pension Fund Global and the Government Pension Fund Norway constitute the Government Pension Fund. The purpose of the Government Pension Fund is "... to support Government savings to inance the pension costs of the National Insurance Scheme and long term considerations in thespending of Government oil and gas revenues ..."

2- Taxation – Social Security Contributions, Allowances, Rates And Amounts For 2012-13

No major changes in the tax system is proposed for 2013, although some changes will be made in certain tax areas including an expanded base and increased basic allowance for net wealth tax for individuals, measures designed to close certain tax loopholes in corporate taxation (such as limitations on deduction of intercompany interests) and strengthening the environmental components of the motor vehicle tax.

The ?gures below show tax rates for 2012 with 2013 rates in brackets.

2.1- Income tax – Companies/Corporations

Ordinary income, capital gains inclusive: 28% (28%)

Depreciation rates (depreciation on assets) varies from 2% per annum (of?ce and other buildings used in the line of business), to 30% per annum (of?ce equipment etc.), depending on type of asset and calculated according to the declining balance principle.

Dividends distributed from a Norwegian domiciled limited liability company to another Norwegian domiciled company or to a comparable type of company domiciled within the EEA, are normally tax exempt under current Norwegian tax rules, that is, no withholding tax.

When a limited liability company domiciled in Norway receives dividends distributed by another Norwegian resident company or by a comparable type of company resident within the EEA, 3% of the received amount is taxed as ordinary income on the hand of the receiving company.

Dividends received by a Norwegian domiciled limited liability company on shareholding in a comparable type of company domiciled outside the EEA are normally taxed in Norway as ordinary income with, however, a right for the receiving company to deduct taxes withheld in the foreign company’s country of domicile.

Dividends distributed by a Norwegian domiciled limited liability company to a comparable type of company domiciled outside the EEA, is subject to 25% withholding tax in Norway. Normally, the 25%-rate is reduced to 15% or less under most tax treaty rules, provided a certain minimum (normally 10% or more) of ownership in the distributing company.

CFC-rules may apply in some cases. (CFC = Controlled Foreign Company.)

2.2- Personal Income Tax

Ordinary income tax: 28% (28%)
Capital income tax: 28% (28%)

Dividends received by a Norwegian domiciled individual are subject to ordinary income tax. Withholding tax on dividends paid to the distributing company’s country of domicile, are normally deductible in the Norwegian taxes levied on the same income.

Surtax on wage income and income from self-employment
From (threshold)
(+ 4%)
Rate
NOK 490 000
9,0%
(NOK 509 600)
(9,0%)
From (threshold)
(+ 4%)
Rate
NOK 796 400
12,0%
(NOK 828 300)
(12,0%)

2.3- Individual’s Contribution To The National Insurance Scheme, (NIS)

Lower threshold for contribution to the NISNOK 39 600(NOK 39 600)
Wage income contribution 7,8% (7,8%)
Contribution on income from self-employment in the primary sector (i.e. forestry, farming, fishing) 7,8% (7,8%)
Contribution on other self-employment income 11,0% (11,0%)
Contribution on pension income 4,7% (4,7%)

2.4- Employer’s Contribution To The National Insurance Scheme

Varies depending on the geographical location of the employer’s business 0,0% - 14,1% (0,0% - 14,1%)

2.5- Maximum Marginal Tax Rates

Wages 47,8% (47,8%)
Self-employment 51,0% (51,0%)
Dividends and withdrawals,
(including 28% corporate tax)
48,2% (48,2%)

Special rules apply for calculating the basis for tax on dividends, - in some cases also on interest income.

Pension 44,7% (44,7%)

2.6- Allowances

Personal allowance for taxpayers in Class 1 (single) is NOK 45 350 in 2012. Increased by 4% in 2013 to NOK 47 150.

Personal allowance for taxpayers in Class 2(supporting/single parent) is NOK 90 700 in 2012. Increased by 4% in 2013 to NOK 94 300.

Basic allowances in wage income. The 2012 rate is 38%, increased to 40% in 2013, i.e. up 2 percentage points. Lower limit is NOK 4 000 in 2012, unchanged for 2013. Upper limit is NOK 78 150 in 2012. Increased to NOK 81 300 in 2013 (+ 4%).

Basic allowances in pension income. The rate is 26.0% in 2012, unchanged for 2013. Lower limit is NOK 4 000 in 2012, unchanged for 2013. Upper limit for 2012 is NOK 65 450, increased to NOK 68 050 in 2013 (+ 4%).

Total basic allowance in wage income and basic allowance in pension income is limited to the maximum basic allowance in wage income.

Special wage income allowance is NOK 31 800 for 2012, unchanged for 2013. Taxpayers who only have wage income are entitled to the higher of the basic allowance in wage income and the special wage income allowance.

There are special allowances for, for instance:

> Disability etc.

> Special tax allowance for pensioners

> Taxpayers living in the northernmost areas of Norway (Finnmark and Nord-Troms).

> Seamen

> Fishermen

> Self-employed within farming/agriculture.

> High expenses due to illness

> Payments to individual pension schemes.

> Travel between home and work site/of?ce.

> Union fees.

> Saving schemes for young individuals under 34 years of age.

> Documented expenses for child-minding and childcare.

> Donations to voluntary organisations.

2.7- Tax on Net Wealth

Threshold, municipal tax
(+ 16%)
750 000 NOK (870 000 NOK)
Rate, when exceeding threshold 0,7% (0,7%)
Threshold, state tax
(+ 16,1%)
750 000 NOK (870 000 NOK)
Rate, when exceeding threshold 0,4% (0,4%)

2.8- Inheritance Tax

Thresholds:
Level (1) 470 000 NOK (470 000 NOK)
Level (2) 800 000 NOK (800 000 NOK)
Rates:
Children/parents, level (1) 6,0% (6,0%)
Children/parents, level (2) 10,0% (10,0%)
Others, level (1) 8,0% (8,0%)
Others, level (2) 15,0% (15,0%)

"Discount" on the value of non-listed shares is 40%. The rate is unchanged in 2012 and 2013. The "discount" applies when calculating basis for inheritance tax on non-listed shares and shares in general partnerships. The maximum amount enjoying this "discount" is limited to 10 million NOK.

2.9- Value Added Tax (VAT)

The ordinary VAT rate in 2012 is 25%. Reduced rate is 15%. Low rate is at 8%. A zero rate applies in some cases. Unchanged in 2013.

Norwegian VAT legislation contains rules for adjusting the basis for VAT when certain assets (real estate etc.) are sold or otherwise changes ownership.

2.10- Stamp Duty

Stamp duty on sale of real estate is 2.5% of the sale’s price in 2012. Unchanged in 2013.

2.11- Excise tax

Heavy excise tax is levied on tobacco, alcohol, cars, gasoline, etc.

3- Economy

Norwegian economy is expected to continue its growth in 2013.

By the end of 2012, the Norwegian mainland economic growth had exceeded the average for the last 40 years. Low interest rates and income growth have contributed to a sustained increase in household demand. The economy is also stimulated by relatively high oil prices. This is re?ected in the rapid growth in activity within the construction sector and amongst petroleum industry subcontractors. Unemployment is low in historical terms as well as in comparison with the levels seen in other countries.

Strong growth in some parts of the Norwegian economy contrasts with the position of those parts of the economy that depend on demand in European export markets. Weak developments in Europe in combination with high wage costs and a strong NOK exchange rate, mean that many Norwegian exporters are facing a challenging situation. Although exports of traditional goods have bounced back somewhat during 2012, these still remain lower than before the ?nancial crises. The Norwegian Government emphasizes the need for ?scal constraint to support continued balanced developments of the economy and to reduce pressure on exposed industries.

European ?nancial markets have experienced much turbulence in recent years. Norwegian banks are less affected by the volatility in Europe than other European banks. Norwegian banks have avoided lending large amounts to businesses or governments in exposed euro zone countries. At the same time activity in the Norwegian economy has kept up rather well. Therefore, Norwegian banks have slightly improved their solvency and established a somewhat more robust funding over the last couple of years. However, Norwegian banks have slightly improved their solvency and established a somewhat more robust funding over the last couple of years. However, Norwegian banks have borrowed extensively abroad, and this makes them vulnerable.

The Government proposes a relatively neutral budget for 2013: the structural, non-oil and gas deficit is expected to increase more or less in line with the growth in mainland Norway trend GDP.

The main features of this budget are:

> Spending of petroleum revenues, as measured by the structural non-oil budget deficit is estimated at NOK 125.3 billion (€ 16.8 billion) in 2013.

> The real underlying growth in the expenditures from 2012 to 2013 is estimated at 2.4%, of which approximately half originates from growth in old age pensions.

> Net cash flow from petroleum activities is estimated at NOK 123.7 billion (€ 16.6 billion). This deficit is covered by transferring money from the Government Pension Fund Global.

> Unchanged level of taxation.

Key figures for the Norwegian economy (preliminary national account figures):

Private consumption increased by 3.7% in 2012 to NOK 1 170,3 billion (€157.1 billion EUR), from NOK 1 128.6 billion (€ 151.5 billion) in 2011. Expected further increase in 2013 at 4.0%.

Public consumption increased by 1.9% in 2012 to NOK 596.9 billon (€ 80.1 billion), from NOK 585.8 billion (€ 78.6 billion) in 2011. Expected further increase in 2013 at 2.2%.

Consumer Price Inflation (CPI) increased by 0.8% in 2012. The forecast for 2013 is a further 1.9% increase.

Wages (on average) increased by 4.1% in 2012. The forecast for 2013 is 4%.

Unemployment rate for 2012 was 3.1% of the total work force. A slight increase to 3.2% is expected in 2013.

The Central Bank of Norway (Norges Bank) lowered its key policy rate to 1,5% p.a. on March 15th 2012. The rate is expected to remain at this level for some months to come, depending, however, on the Norwegian currency’s (NOK’s) strength against other currencies, primarily EUR, GBP and USD.

Sources: Publications of Finansdepartementet (Ministry of Finance) and Statististisk Sentralbyrå (Statistics of Norway).

Jan I. Frydenlund
Attorney at Law
Advoco advokat?rma DA

This is part of :

Taxation in Europe - Yearbook 2013
The yearly report on the evolution of European tax systems

A short presentation of IREF ’Yearbook on Taxation in Europe’ Series
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