New flat tax regime for non-residents and first-year residents
What is the change?
As of January 2019, a new flat tax regime for foreign employees has been introduced in Norway. The intention behind the new tax regime is to simplify the tax administration. The new regime is similar to «PAYE» where the final tax settlement is done via payroll, and no tax return filling is required.
- The regime is optional, and it is possible to choose regular taxation and file a regular tax return instead
- Applies for non-residents and first-year residents provided capital income under a certain threshold, se below
- Does not apply for 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
- Annual cap on taxable gross income: NOK 617 500 per income year 2019 (will change annually)
- Annual cap on global capital income for first-year residents (NOK 10 000)
- The flat tax rate is 25 % (incl. social security tax) and 16,8% (excl. social security tax)
- Tax deduction card must reflect the new regime
- No deductions allowed
- Taxable benefits in kind is included in tax base
The benefits of taxation under the new regime are numerous for both individual and employer. The main positive outcomes are predictable and reduced costs and less administration. The tax is calculated with the flat rate and the tax settlement is ready when the withheld tax is paid through the payroll.
Where 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 home country, the documentation necessary to claim foreign tax credit deduction 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 is high 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 earning between 464,000 and 617,500 provided 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 to deduction. A thorough calculation might be necessary in order to determine cost-benefit of the new regime.
The new regime is applicable only for foreign individuals who fulfill conditions set by the Norwegian tax administration. The employer must be able to identify for whom the new regime is applicable and beneficial. Employers should also consider if policy and/or assignment letters should be updated. It is important to implement good processes for application of A1/COC and tax deduction card to ensure that the correct tax rate is used. Employers should also initiate necessary preparations for payroll reporting.
Today’s tax administration rules are quite complicated for reporting of business travelers, 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. Some individuals will be excluded from the regime because of the income cap. Nevertheless, the new regime is an important step towards a more simplified tax administration for foreign individuals on a temporary stay in Norway.
We recommend that employers start preparing for the new regime as soon as possible. Deloitte Norway can assist with advisory and services related to implementing the new regime.