Tax proposals in the Norwegian National Budget for 2015

On 8 October 2014 the Norwegian Government released the National Budget for 2015.

The National Budget contains several proposed legislative changes both for direct and indirect tax purposes. In this blog we have summarized the proposed changes that could potentially be relevant for foreign companies doing business in Norway or investing in Norwegian companies, or for foreign residents working or residing in Norway.

The Government has appointed a committee with the mandate to review the Norwegian corporate tax regime in light of EU/EEA and international developments. This committee is expected to give its recommendations on December 2, 2014.

The Budget will now be discussed by the Parliament that will vote on the Budget in the beginning of December. Although the Government is not represented by the majority in the Parliament, it is likely that the proposal will be enacted into law. If enacted, the new rules will be effective from January 1, 2015 unless stated otherwise below.

Obligation to register for VAT – increased threshold

Currently the threshold for registration for VAT purposes in Norway is NOK 50 000. The Government proposes to increase the threshold to NOK 150 000. This should imply that a number of small foreign companies doing business in Norway will be relieved from the administrative burden of registering for VAT.

Please note that the downside of the new proposed rule is that the deductibility of input VAT will be limited accordingly.

E-commerce – Increased threshold for import duty exemption

Import duty and taxes are due when importing goods into Norway whether by a private individual or a commercial entity.

Under the current rules import of goods by a private individual with a FOB value (i.e. the product value excluding shipping and insurance cost) up to NOK 200 are exempt from duty and VAT in Norway.

The Government proposes to increase the threshold from NOK 200 to NOK 500. This may potentially increase mail ordering of goods from abroad by consumers in Norway. However, it should be noted that the new NOK 500 limit includes shipping and insurance cost, thus making the effect of the new threshold somewhat lower than it may initially appear.

Subsidizing of Research & Development (R&D)

A Norwegian enterprise may apply to the Research Counsil of Norway in order to qualify for the special “SkatteFUNN” system, under which the enterprise is entitled to tax credit for R&D expenses. The rate for tax credit is 20% or 18% of qualifying R&D expenses – depending on the size of the corporation. In case the enterprise is not in a tax paying position an amount equal to the tax credit will be paid out in cash.

The Government proposes to increase the ceiling of qualifying R&D expenses from MNOK 8 to MNOK 15 for self-developed R&D expenses and from MNOK 22 to MNOK 33 for acquired R&D expenses. Note that the total qualifying R&D expenses cannot exceed MNOK 33.

Exit tax

Exit tax is levied on latent unrealized capital gains when tangible or intangible assets are moved out of the Norwegian tax jurisdiction. Under the current exit-rules, the timing of payment of tax varies depending on the nature of the asset. For intangible assets and inventory the exit tax is due at the day of exit, i.e. there is no deferral of tax. For other tangible assets the tax is deferred until the asset is realized.

The Government proposes a new payment scheme that covers all assets that exit the Norwegian tax jurisdiction. Under the new scheme the exit tax should be paid in seven annual instalments. If the asset is realized before the seven years has lapsed, the total exit tax becomes payable at the time of the realization.

For tangible assets the changes will have effect as from June 19, 2014, while for intangible assets and inventory the new rule applies from exits made from January 1, 2014.

The Government also proposes to amend the current rules whereby the tax payer is obliged to provide sufficient security for the deferred exit tax. Under the proposed rule the obligation to provide security on exits from Norway to countries within the EU/EEA will be reserved to cases where there is a genuine risk that the tax will not be paid.

Simplified tax regime for partnerships

The Government aims to make the tax rules for tax transparent enterprises (i.e. partnerships) more flexible and simplified. Some of the proposed changes will indeed simplify the tax regime for partnerships, however note that certain of the proposed changes will in effect make investments as a partner in a Norwegian limited partnership less attractive than under the current rules.

Reduced wealth tax rate

Norway still levies net wealth tax on individual tax payers. This tax may even hit expatriates working in Norway for a limited period of time in case the tax treaty does not gives protection.

As from 2014 the wealth tax rate was reduced from 1.1% to 1%. As from 2015, the Government proposes to reduce the rate further to 0.75%.

Additionally, the Government proposes to increase the basic allowance from 1 MNOK to 1.2 MNOK per individual.

For further information please contact:

Martin Wikborg, lawyer

martin.wikborg@visma.com

+4798206242

Written by Martin Wikborg and Monica Wall

Visit our tax return website for more information about how Visma can assist you.

Martin is a lawyer and partner in Visma Advokater and is a specialist on tax and corporate law. He has thorough knowledge in the field after working for more than 25 years i.a. with the Norwegian Ministry of Finance and as a tax partner of Ernst & Young. Martin has advised a large number of Norwegian and multinational corporations on basically all aspects of Norwegian international tax matters, e.g. permanent establishment, transfer pricing, repatriation of profits, reorganizations, merger & acquisition and expatriate taxation.
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