Introduction of VAT on the purchase amount exceeding 500 000 NOK for electric vehicles - amendments to the VAT zero rate from 2023

Sales and long-term rental / leasing of all electric vehicles (EV) are currently subject to VAT zero rate in Norway. The Norwegian Government has announced that the exemption will be amended from 2023. 

The announced amendment implies that VAT will be imposed on the part of the EV's purchase price that exceeds NOK 500k. There is currently some degree of uncertainty connected to how the imposed VAT will be implemented in practice, particularly in relation to long-term rental/leasing of EV’s.

VAT zero rate for sale of EVs - a success factor for the electrification of the Norwegian car fleet

Norway has been a leading nation in Europe in terms of sales of new EV’s. Several parties have pointed out that the VAT zero rating of new EV’s has been an important factor in the electrification of the Norwegian car fleet, and a major contributor to Norway’s path towards a green transition in the mobility sector. 

The VAT zero rating of EV’s implies that the purchase price for EV’s is 25% less than a vehicle that uses fossil fuel solutions. The customers have thus had a clear financial incentive to choose an EV due to the reduced purchase price. 

Historically, Norway has also had low electricity prices compared to other European countries, which has also implied that the operating costs for EV are low compared to fossil fuel vehicles. 

Broad political agreement to amendment the VAT zero rating for EV’s

VAT zero rating of sale and long-term rentals/leasing of vehicles that are powered exclusively by electricity implies a subsidy of EV’s through the VAT system. This is due to the fact that private individuals and companies are normally not entitled to a deduction of  25% VAT. 

According to the Norwegian Statistics bureau, two out of three new vehicles in Norway are now EV, suggesting that the EV’s are more self sustainable even without the VAT zero rate. 

Several political parties have therefore questioned whether it is the current VAT zero rate, and through this the subsidy of EV’s fulfils the political purpose to increase the amount of EV’s in Norway. These questions have particularly been raised for EV’s the highest price ranges. 

Most political parties have therefore wanted to make amendments to the VAT zero rate for EV’s, but there have been some differences between the parties on how the amendment should be arranged and implemented.

The Government, consisting of the Norwegian Labour Party and Centre Party, initially announced that the VAT zero rate would be removed entirely, and that VAT should be imposed on the full sale amount. The VAT zero rate should instead be replaced with a subsidy scheme for VAT on EV’s with a purchase price of less than NOK 500k. We have previously discussed the proposed subsidy scheme in this blog.  

The Government and its budget partner, the Socialist Left Party, did however agree on a solution that implied that the obligation to calculate and pay VAT kicks in for EV’s where the purchase price exceeds NOK 500k.  

The Government, and the Socialist Left Party, do not want to subsidise EV’s with a relatively higher purchase price through the VAT system, which is why the VAT liability is limited to the purchase price that exceeds NOK 500k.  

How to calculate the customers VAT cost 

For customers, the VAT liability for the purchase price exceeding NOK 500k. E.g.if the t EV’s  sale price is  NOK 600k, the basis for calculation of VAT is NOK 100k. The VAT cost will be. NOK 25k (standard VAT rate of 25%).

The calculation is as follows for an electric car with a purchase price of NOK 600,000:

Purchase price ex VAT: 600,000 - 500,000 (VAT zero rated amount) = 100,000
Amount subject to VAT: 100,000
VAT rate 25%: 100,000 x 25% (VAT) = 25,000
Purchase price incl. VAT: 600,000 + 25,000 = 625,000

VAT obligation for EV’s delivered in 2023

The Government has announced that the VAT obligation will be implemented from 1. January 2023. The VAT obligation will thus be applied on EV’s that are registered after this date. This implies that EV’s that are purchased, but not yet delivered, by 1. January 2023, will be subject to VAT on the amount exceeding NOK 500k. 

This applies regardless of whether the car was ordered with delivery in 2022, but where the delivery was delayed as a result of delivery problems, e.g. due to missing chips, transportation capacity etc.   

However, please note that EV’s with a purchase price less than NOK 500k will still be subject to VAT zero rate for the entire purchase price. The announced amendment to the Value Added Tax Act will therefore not affect vehicles that the Government has deemed to be affordable for the ordinary consumer. This is a result of the political desire to limit the VAT obligation for EV’s of a more significant economic value.

Few details about the new VAT obligation for EV’s

The announcement that EV’s will be subject to VAT on the purchase amounts that exceeds NOK 500k was made after a budget agreement between the Government and the Socialist Left Party in June 2022. The announcement was limited to a general program statement, without any specific information on the details of the new VAT obligations for EV’s. We expect that further details will be made available in the National Budget for 2023. 

There are still many uncertainties on how the new VAT obligation for EV’s will be implemented in practice. Further, from a VAT perspective, the amendment implies a new approach to how VAT is levied on goods and services. This is due to the amendment implying that VAT is introduced on parts of a purchase value. 

Suppliers might find it challenging to set up its ERP systems, sales documents, and VAT coding, as the same supply will both be subject to VAT rate 25% and rate 0%. This is partially due to the requirement in Norwegian Bookkeeping Regulation to specify sales with different VAT rates separately. 

Further, the announcement does not contain any detail on how the VAT obligation for EV’s will affect imports from manufacturers abroad. Today, electric cars must be reported as VAT exempt imports in the VAT returns. We assume that the amendment will imply that the importers will have to make a split between the part of the vehicle that is subject to VAT and the part that is subject to VAT zero rate, and report these amounts separately. 

Importers normally rely on the declaration of imports in Altinn for reporting and deduction of VAT. In our opinion, vehicle importers will probably need to establish enhanced manual controls to ensure correct reporting when importing EV’s with a value above NOK 500k. 

Uncertainty related to how the amendment will affect the leasing of EV’s

The amendment to the VAT zero rate for EV’s especially implies uncertainty related to how the VAT obligation will affect leasing EV’s with a value exceeding NOK 500k. This particularly applies to already established EV leases that have a duration beyond 2022. 

It should be expected that VAT will be charged on part of leasing agreements over the remaining leasing period, normally between 3 and 5 years, as a consequence of the amendment. The tax authorities should in our opinion issue statements as soon as possible to clarify on how the amendment will affect leasing customers to avoid uncertainty in existing and new leases. 

We recommend that the leasing sector make an assessment of relevant customer agreements in order to clarify what possibilities and liabilities that a possible VAT obligation for EV’s might imply. 

Affected parties should follow the amendments to the VAT zero rate for EV’s closely

The full scope of details and implications of the announced introduction of VAT on the purchase price for EVs with a value of more than NOK 500k are currently not clear. However, the amendments are announced to come into effect from 1. January 2023. 

This implies that affected parties in the industry have a relatively short time to carry out the necessary amendments and updates of e.g. VAT reporting, right to deductions and sales documents etc. 

There are several uncertainties surrounding the amendment. We expect that these uncertainties imply that communication with customers and lessees of electric cars might be challenging, as there are currently few specific answers and information available.