National Budget 2019 - Corporate taxation, VAT and personal taxation
The national budget for 2019 was presented on 8 October 2018. This article provides an overview of the main proposals regarding corporate taxation, VAT and personal taxation.
The main features of the proposals for the amendments in corporate taxation:
- The corporate income tax rate is proposed reduced from 23 % to 22 %;
- previously proposed amendments of the interest deduction limitation rules, whereby i.a. interest expenses on external debt is also subject to limited deductions will enter into force from 1 January 2019;
- the previously proposed amendments of the tax residency rules for companies will also take effect from the fiscal year 2019, implying i.a. that companies that have been incorporated under Norwegian company law will always remain resident in Norway, and;
- no statutory anti-avoidance rule is introduced.
The corporate tax rate is proposed reduced from 23 % to
A bit unexpectedly, the Government proposes to reduce the corporate tax rate from 23 % to 22 %. There will still be a common tax rate on ordinary income for enterprises and individuals.
Adjustment of the tax residency rules for companies
A company is subject to tax in Norway on its worldwide income if it is resident in Norway, cf. the Income Tax Act section 2-2. Norwegian tax law currently puts the main emphasis on the place where management of the company at board level takes place, i.e. where the actual board decisions are made. Foreign companies are not regarded as tax resident in Norway as long as the board meetings and the board decisions are made outside of Norway.
The Government has proposed the following changes:
- Norwegian companies: A company that has been incorporated under Norwegian company law will always remain tax resident in Norway. There is an exception for a company that is tax resident in another country pursuant to the tax treaty between Norway and this country.
- Foreign companies: For companies that have been incorporated under foreign company law, the place of management will still be decisive. However, the assessment will no longer be based on the place of management at board level, only. Pursuant to the proposal, a broad assessment has to be made of whether the real management takes place in or from Norway. This will include both management at board level and CEO level, and the place of the offices and operations of the company.
Revised interest deduction limitation rules
The previously proposed amendments of the interest deduction limitation rules, whereby i.a. interest expenses on external debt is also subject to limited deductions will enter into force from 1 January 2019.
Current Norwegian interest deduction limitation rules entail that interest from related parties are only deductible within 25 % of the tax EBITDA of a company to the extent the net interest costs exceed a threshold of NOK 5m. Interest on debt to unrelated parties is fully deductible, provided the debt does not benefit from a guarantee or similar from a related party.
The new rules will include limitations also on third party interest and two alternative escape clauses based on a consolidated debt to equity ratio.
The proposed new rules entail the following:
- For Norwegian companies that form part of a group, as defined by rules for financial accounting, interest expenses on external debt will also be subject to limited deductions (25% of EBITDA).
- The Norwegian part of such a group is proposed to have a combined threshold of net interest costs of NOK 25m for the limitations to apply.
However, two alternative escape clauses for the rules are now also proposed under which the company or group can escape the limitations completely provided the following requirements are met;
- The relevant company on a stand-alone basis has a debt to equity ratio similar to or stronger than the consolidated debt to equity ratio in the group which the company is a part of.
- If the Norwegian part of the group has a consolidated debt to equity ratio which is similar to or stronger than the consolidated debt to equity ratio in the wider group.
For Norwegian groups, and companies that are not part of a group, the threshold of net interest costs of NOK 5m will still apply.
Detailed regulations on how to calculate the debt to equity ratio in the Norwegian part of a wider group has been set out in the proposal.
Adjustment of the economic rent tax on hydroelectric power plants and the special tax on petroleum activity
Due to the reduction in corporate income tax from 23 % to 22 %, the Government proposes to increase the economic rent tax on hydroelectric power plants and the surtax on petroleum activity to 37 % and 56 %, respectively.
Bank and insurance
The Government proposes considerable changes for insurance- and pension entities.
The Government proposes an increase of the valuation discount for shares and operating assets for net wealth tax purposes, including related debt to from 20 % to 25 %. The basic tax free allowance is increased to NOK 1.5m.
The Government proposes that the maximum tax rate for residential and vacation property is reduced from 7 to 5 per-mille with effect from 2020.
Employer obligations for gratuity
Gratuity or tip is taxable income and the employee is responsible for ensuring the reporting through the tax return. Now it is suggested that the employer will be obligated to report, deduct payroll withholding, and pay employer social security obligations also for salary in form of gratuity.
The suggestion is in accordance with the already approved changes in the bookkeeping regulations valid from 1 January 2019. Thus, the employer must have an overview of the total gratuity received, how the salary is divided between the employees, and to treat this as salary.
The suggested changes will enter into force 1 January 2019.
Share savings account (aksjesparekonto) extended to include dividends
The share savings account-arrangement (aksjesparekonto) has until now meant that tax on capital gains is postponed until the amount is taken out of the account, not when the gain is realised. In order to secure a coherent system it is now suggested that the same will apply for dividend payments.
Furthermore it is suggested that the arrangement is limited to personal shareholders living in the EEA area. In this connection capital gains from realisation of securities or shares in a savings account owned by a foreign person will be considered an investment in the account.
Taxpayers with more than one account will be able to transfer the securities or shares without taxation between accounts. Also, securities or shares in an share savings account can be transferred to a spouse in connection with a divorce or to an heir in case of death, without taxation.
Disclosure requirement for intermediary companies
It is suggested that the duty to provide information to the tax authorities includes digitale promoters of rental property. It is also suggested that the promoters that use other channels than digital promotion services also have a duty to disclose relevant information. The duty includes information about the object and the connecting payment.
Value added tax, excise duties and customs
The NOK 350 limit for import of goods
Surprisingly, no changes have been made to the VAT threshold of NOK 350 in the presented national budget. The threshold rule maintains that no VAT or customs duties shall be calculated on consignments of goods from abroad that has a value below NOK 350.
Increased purchase of goods from abroad and online purchase has led to criticism from the trade industry regarding the VAT threshold. The Industry argues that the exemption entails a differential treatment between Norwegian and foreign suppliers. The Minister of Industry has announced that they will address this issue more closely in the trading industry report at the end of the year.
The Ministry of Finance is very vague about the timing of progress in the national budget. They will follow developments in the EU and globally.
For revenue reasons, the chocolate tax was increased by about 80 % in the revised budget for 2018. As a result of that, with the VAT limit of NOK 350 on import of goods, consumers have increased their purchases of sugar products from abroad in preference to products in Norway. This has led to a considerable dissatisfaction from Norwegian suppliers. In the National budget of 2019, the Government has, for now, proposed to reduce the chocolate fee to be on the same level as in 2017.
However, the Government has not proposed any changes concerning taxes for beverages, even though the beverage taxes was also subject to a substantial increment under the last years budget.
There have been several examples in the media that private individuals import soda from Sweden (no fee and VAT). We assume that this trend will continue until the Government changes its mind.
The Government also announces that it will set a selected committee to assess and address the correct rate of taxes for chocolate and sugar products, and the proper tax rate on non-alcoholic beverages. The committee shall also consist of a representative from the industry sector. The Government does not rule out readdressing these fees in next year’s budget.
Air passenger tax
The changes made in air passenger tax rates will going forward be differentiated based on distance. Two rates have been proposed:
Short distance (within EU - NOK 75)
Long distance (outside EU - NOK 200)
The purpose of imposing air passenger tax has been to generate revenue for the state. This will remain the main purpose in the future, but the government believes that the change now made, may also have an environmental impact, as it can reduce the demand for long distance trips.
The low rate will apply to flights with a final destination in Europe. Primarily the low rate will apply to flight trips to destination countries which have their capital closer than 2500 km from Oslo.
The final destination will determine the rate that applies on the trip, and the final destination will be considered to be the one in the travel documents. In our assessment, transfer in Europe will most likely not cause differential treatment as long as the passenger has purchased a continuous journey with the final destination outside of Europe.
The Government has further proposed that the newly introduced rate shall be implemented from 1st April 2019. The changes will also be presented to ESA for approval. This means that the implementation will still depend on ESA approval.
VAT zero rating on supplies of e-books and electronic publications
The Norwegian government has in the proposed national budget for 2019 proposed to zero-rate supplies of e-books and electronic publications from Norwegian VAT (with credit). The proposed VAT zero rating will, first of all, require changes in the existing regulations as well as approval from the EFTA Surveillance Authorities (ESA). The Government expects that the VAT zero rating can enter into force at earliest 1st of July 2019.
Supplies of e-books and electronic publications are today subject to 25 % Norwegian VAT, although paper books and specific publications on paper have been subject to VAT zero rating for many years. The new rules will align the digital development.
VAT on non-life insurance
The Government is considering to introduce VAT on non-life insurance as an extension of its work in financial tax.
Sales of insurance services are currently excluded from Norwegian VAT. Non-life insurance is based on the payment of an insurance premium and is therefore not that suitable for accounting traditional VAT compared to the margin-based services.
The Government, therefore, believes that VAT on non-life insurance may make sense regardless of the type of financial tax imposed on other parts of the financial industry.
There is further no other announcement about the time perspective for a possible extension of the VAT base to cover non-life insurance, in addition to the fact that the Government will look closer into it.
This blogpost is written by Camilla Fingarsen and Jennifer Wong.
Mitt navn er Jennifer Wong og jeg jobber som advokat i PwC. Mitt arbeidsfelt er merverdiavgift og toll, med særlig fokus på internasjonale forhold og cross border transactions. Jeg har arbeidet i PwC siden 2018 og til daglig bistår jeg norske og utenlandske virksomheter med blant annen rådgivning, strukturering og spørsmål knyttet til rapportering av merverdiavgift og tilsvarende indirekte skatter i Norge og utlandet.
My name is Jennifer Wong and I work as a lawyer at PwC Tax and Legal Services. I assist clients with VAT advice on Norwegian and international queries, as well as indirect tax analysis, cross-border planning, merger and acquisition and efficiency improvement from a vat compliance perspective. Please do not hesitate to contact me if you have any questions.
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