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Norway - New flat tax regime introduced

Reduced tax for non-residents and first year residents

With the new 25% tax regime, it will be easier to report and finalize taxes for business travelers, foreign board members and individuals on a short-term assignment in Norway, if these individuals meet the requirements for using this tax regime.

28 January 2019

In January 2019, a new flat tax regime for foreign employees will be introduced in Norway. The intention behind the new tax regime is to simplify the tax administration. The new regime is similar to PAYE, in which the final tax settlement is done via payroll, and no tax return filling is required. 

Key points
  • The regime is optional, and it is possible to choose regular taxation and file a regular tax return instead.
  • The option applies to non-residents and first-year residents provided that taxable capital income is under a certain threshold (see below).
  • The option does not apply to seafarers and workers on the continental shelf, self-employed individuals who have business activity in Norway, and individuals who have rental income from Norwegian properties.
  • The annual cap on taxable gross income will be NOK 617,500 per income year in 2019 (and will change annually).
  • The annual cap on global capital income for first-year residents will be NOK 10,000.
  • The flat tax rate will be 25 percent (including social security tax) and 16.8 percent (excluding social security tax).
  • The tax deduction card must reflect the new regime.
  • No deductions will be allowed.
  • Taxable benefits in kind are included in the tax base. 

Benefits

The benefits of taxation under the new regime are numerous for both individuals and employers. The main positive outcomes are predictable and reduced costs and less administrative tasks. The tax is calculated with the flat rate and the tax settlement is ready when the withheld tax is paid through the payroll. When the employer is responsible for tax payments on behalf of employees (net pay agreements), an effective recharge can be achieved if the employees are taxed under the new tax regime. In addition, when avoiding double taxation in a home country, the documentation necessary to claim foreign tax credit deduction in the home country can be obtained at an earlier stage. 

Who can benefit?

Not all foreign individuals working on assignment in Norway will benefit from the new regime. Since the flat tax rate regime is limited to NOK 617,500 per calendar year, it will be possible to have a significant tax reduction compared to normal taxation if the work period is short and the income high is within the limit. The regime could be beneficial for:

  • Non-resident individuals on a short-term assignment
  • Foreign board members
  • Business travellers 

The regime could be beneficial for full-year residents with gross earnings between NOK 464,000 and NOK 617,500, provided that taxable capital income is under a certain threshold. The situation can differ depending on total income, length of stay in Norway, and level of expenses eligible for deduction. A thorough calculation might be necessary to determine cost-benefit of the new regime. 

Preparations needed

The new regime is applicable only for foreign individuals who fulfill conditions set by the Norwegian tax administration. However, this will not be beneficial for everyone. The employer must be able to identify which individuals the new regime is applicable and beneficial for. Employers should also consider if policy and/or assignment letters should be updated. It is important to implement good processes for the application of A1/COC and the tax deduction card to ensure that the correct tax rate is used. Employers should also initiate necessary preparations for payroll reporting. 

Deloitte’s view

Today’s tax administration rules are quite complicated for reporting of business travellers, foreign board members, and individuals on a short assignment in Norway. With the new tax regime, it will be easier to report and finalize taxes for these groups. Even if the annual cap on taxable gross income will exclude many individuals from taxation in the new regime, the new rules will lead to more beneficial taxation and less administration burdens for many short-term visitors. Deloitte Norway expects this to be the first step towards a more simplified tax administration for all foreign individuals on temporary stay in Norway.

Deloitte Norway can assist with any advisory and services related to implementing the new regime. 

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