Tax and VAT - Norwegian National Budget 2023
The Norwegian National Budget was presented on 6 October. Below you will find an overview of the most important changes concerning Tax and VAT. The article is divided into four main categories: 1) Corporate Tax, 2) Personal and payroll tax, 3) VAT and 4) Matters to mention
1.1. Additional employer contribution of five percent on employment income exceeding NOK 750,000.
Employers are obligated to pay the employer's contribution on salary and other allowance. The rate of employer contribution is geographically differentiated, depending on where the employer is located. The rates vary from 14,1 percent to 0 percent.
The Government proposes an additional employer contribution tax of five percent on salary exceeding NOK 750,000. For employers in the most central parts of the country (zone 1), employer's contribution must be paid at a rate of 19.1 percent (14.1 + 5) on wages over NOK 750,000. It is proposed that the change enters into force from the income year 2023.
For employees who have several employers, the additional contribution is only to be charged when the salary from each individual employer exceeds the limit of NOK 750,000. If an employee earns NOK 760,000 with one employer and NOK 200,000 with another, only the salary exceeding NOK 750,000 shall be charged with additional contribution (NOK 10 000). This is due to system-technical and administrative issues, making it not possible to merge several wages before calculating the contribution. The Ministry of Finance is aware that this may lead to unwanted adaptations, and therefore points to the general anti-avoidance rules.
A notification to ESA in accordance with the state aid regulations will not be necessary as the proposal will apply generally for all employers, also in the measure-zones (0 percent) in Troms and Finnmark.
When the employer contribution is included, the highest marginal tax rate increases from 53,9 percent in 2022 to 55,8 percent in 2023. The proposal is estimated to provide a revenue increase of approx. NOK 7.7 billion in 2023.
1.2. Removal of the continuity-condition in cross-border reorganisations
The Ministry of Finance proposes to remove the heavily debated requirement for continuity treatment in cross-border reorganisations. The simplification of the rules will make it administratively easier to carry out appropriate cross-border reorganisations.
For cross-border mergers, demergers and share swaps, the Tax Act provides for tax-free reorganisation under certain conditions. The central condition was that the transaction carried out with tax continuity in Norway and abroad.
The requirement of tax continuity abroad has in some cases been practically difficult to document, even impossible, as similar conditions may not be required according to foreign law. Instead, the condition has led to transactions not being carried out, and businesses being organised in an unfavourable way. It has also led to more resource-consuming and alternate reorganisations.
For Norwegian participants in cross-border reorganisations, the state's tax proceedings are ensured through the principle of continuity for Norwegian tax positions, as well as through the rules regarding exit tax. The rule has been almost irrelevant for foreign shareholders, as they are liable to tax in Norway for realisation of shares in Norwegian companies.
It is proposed that the change enters into force immediately, with effect from 2022.
Petroleum taxation - Reduction in the uplift rate under the temporary rules
In June 2020, temporary tax rules were introduced for the petroleum sector in order to avoid having projects postponed due to the corona pandemic and low petroleum prices. The rules entailed, inter alia, that in addition to investment cost, an uplift was deductible directly in the special tax base. The uplift rate was originally 24 percent. Upon the shift to a cash flow-based tax system effective from 2022, a technical adjustment of the rate to 17.69 percent was introduced in order to maintain the actual value of the uplift deduction.
The Government now proposes that the rate is reduced to 12.4 percent. This entails a corresponding reduction in the actual value of the uplift deduction. The reduction is proposed effective immediately for costs incurred from and including 1 January 2023.
In the Government’s view, the reduction is not unreasonable, given the increase in oil and gas prices since the introduction of the temporary rules.
No further consideration of readjustment tax
In its alternative 2022 budget, the party, Sosialistisk Venstreparti (Socialist Left), proposed the introduction of a so-called “readjustment tax” on petroleum extraction. The Government will not consider this proposal further.
1.5. Increased taxation of income from natural resources - onshore wind power and hydro power production
On 28th of September 2022 the Norwegian Government announced that the National budget for 2022 will include proposals for resource rent taxation of onshore wind power and increase of the resource rent tax rate for hydro power. In addition, it was announced that an excise duty on electricity sold at high prices will be introduced on prices exceeding 0.70 NOK/kWh (NO “høyprisbidrag”). We have previously written a blogpost discussing these proposals.
1.6. Introduction of resource rent taxation of aquaculture
A short week before the National budget was published, the Government proposed ground rent taxation on aquaculture with effect from the first of January. The proposal has many similarities with the proposal made a few years ago. One of the main changes is that the Government now proposes a cash-flow taxation, inspired by the recent changes on the ground rent taxation of hydro power production. The proposal sent shockwaves among stakeholders in the fish farming-industry and is currently being reviewed by the bodies entitled to comment.
Personal and payroll tax
2.1. Increase in the tax rate on dividends and share gains with effect from today.
The proposal involves personal shareholders being taxed more heavily by increasing the tax rate on dividends and capital gains on shares from 35.2 percent to 37.84 percent. This will imply that the marginal tax rate, including corporation tax, increases from 49.5 percent to 51.5 percent.
The change is made by increasing the so-called “adjustment factor” from 1.60 to 1.72. A dividend of 100 will therefore be increased by a factor of 1.72, up to 172 before being taxed with 22 percent. This equals 37.84 percent effective taxation
A change in the tax rate also occurred last year, as the adjustment factor increased from 1.44 to 1.6. The changes in the past two years have therefore in total increased the effective taxation from 31.68 percent to 37.84 percent.
In order to prevent another dividend rush before Christmas, this year's change will enter into force immediately. This entails that the new adjustment factor is applicable on dividends and capital gains on shares from 6 October 2022.
The change also applies to the adjustment factor in other sections of the Tax Act, e.g. taxation of interest income on loans from personal taxpayers to companies and taxable withdrawals from “Aksjesparekonto”. Changes to the adjustment factor that does not include dividends and gains/losses on shares will be effective from 1 January 2023.
Since the adjustment factor only applies to dividends and capital gains on shares, the difference between the taxation of dividends and capital gains on shares compared to other capital income (e.g. real estate, bonds, interest with 22 percent taxation) has increased further. With increased tax on both dividends and wealth, shareholders now have to distribute an even greater amount of dividend in order to cover the wealth tax.
2.2. Increase in wealth tax - changes in the valuation base and the tax rate.
The Ministry of Finance proposes to increase the tax rate from 0.95 percent to 1.0 percent for personal taxpayers with assets below NOK 20 million.
For personal taxpayers with assets exceeding NOK 20 million, the rate remains unchanged at 1.1 per cent. The current minimum deduction of NOK 1.7 million (NOK 3.4 million for spouses) will remain the same.
Changes have also been proposed to the valuation of shares and commercial premises, with a reduction of the discount from 25 percent to 20 percent. The proposal implies that a greater share of the taxpayers assets is to be included in the valuation. The valuation of fixed assets (excluding secondary residences and commercial premises) that are owned directly is proposed to be reduced from 75 per cent to 70 per cent. In reality, the change is only relevant to individual taxpayers with fixed assets, mainly sole proprietorships.
2.3 Adjustments in social security- and tax rates
The Government proposes that the marginal tax rate for salary income remains at 47.4 percent in 2023. There is no change in the tax rate on ordinary income, which remains at 22 percent.
It is also proposed to decrease the social security tax rate by 0.1 per cent.
The new rates are 7.9 percent for salary/social security and 11.1 for business income.
The bracket tax for steps 3, 4 and 5 changes accordingly with an increase of 0.1 percent. For steps 1 and 2, the rate remains unchanged.
The income bracket for step 3 is proposed to be increased to 644,700, steps 1 and 2 are adjusted in accordance with salary growth, while steps 4 and 5 are proposed to be continued nominally, which practically means that more people will be in the scope of the income level in steps 4 and 5, compared to 2022.
3.1. Change in the VAT exemption for electric vehicles.
The Ministry of Finance proposes to change the general exemption for sales and long-term rental/leasing (rentals over 30 days) of electric cars, with effect from January 2023. The change implies that VAT will be introduced for the part of the electric car's sales price that exceeds NOK 500 000.
The proposal is mainly consistent with the announcement made in the Government's budget settlement in June. We have previously discussed proposals for the changes to the electric car exemption in this blog post.
The Ministry of Finance also proposes to introduce a partial tax liability, when leasing electric cars. The tax will consist of a more specific calculation, that takes the amount limit of NOK 500,000 into account. This in order to preserve neutrality between sales and leasing of electric cars.
The overall VAT-pressure on electric cars is somewhat more comprehensive than expected, looking at the change in the value added tax obligation and excise duties combined.
The Government states that the proposal does not imply that it will be more expensive to buy electric cars with a selling price up to NOK 500,000. However, electric cars with a selling price above NOK 500,000 will be moderately more expensive. This entails that most electric cars will have a small, or none, increase in VAT.
A separate blogpost will be written to discuss this topic more in detail.
3.2. The VAT-exemption for electronic news services concludes from 1 January 2023
The Government proposes to abolish the exemption for electronic news services. This entails that news channels such as TV 2 Nyheter, BBC News, CNN, etc., will be delivering services that are subject to VAT.
After the exemption was introduced in 2016, TV-distributors have split their invoices when selling channel packages containing VAT-free news channels and other VAT-liable channels.
Discontinuation of the exemption implies that the TV distributors have to invoice the entire package as one, with 25 percent VAT added.
The news industry will still be able to use the exemption for newspapers and electronic newspapers.
It is proposed that the changes will be in force with effect from 1 January 2023. If invoices are issued in advance, the VAT treatment must be considered in order to avoid an extra VAT cost for the distributor.
3.3. Extension of VAT obligations for non-established companies for B2C sales
Currently, non-established suppliers are obliged to register for VAT in Norway for B2C sales of Electronically Supplied Services (ESS). In the budget, it is proposed to extend this obligation to also comprise suppliers of other intangible services, typically consultancy/advisory services (including legal advice).
The proposed rules will apply to sales to consumers and non-profit organisations, but not to sales businesses and governmental and public bodies (B2B and B2G).
The VAT registration and reporting obligation only applies if the turnover in Norway exceeds NOK 50,000 within a 12 month period. There is a simplified VAT registration and reporting procedure in place for ESS, that will also apply for the companies that are comprised by the proposed new rules.
It is also proposed in the budget that all sales of intangible services from Norwegian suppliers to consumers outside Norway shall be VAT zero-rated, which is a minor adjustment from the current “use and enjoyment” rule concerning such services.
The new rules will enter into effect from 1 January 2023.
4. Matters to mention
4.1 Taxation of international groups
New rules for taxation of international groups are in development, in accordance with the agreement reached in the Inclusive Framework in October 2021, the so-called TwoPillar system.
Pillar 1 treats how the right to tax is to be distributed between countries. Groups within the scope of Pillar 1 are groups with a global turnover of more than 20 billion EURO and a profitability ratio of more than 10 percent, are to be taxed with a proportion of the profit in the market states. Pillar 2 treats the minimum taxation of multinational groups, and the aim is to ensure that such groups are to pay at least 15 percent tax in all countries where they have operations. Groups within the scope have more than EUR 750 million covered.
The goal is for the Norwegian rules to be ready during 2023, and to be in force from 2024.
4.2 Tonnage taxation scheme - follow-up on the petition resolution
In 2021, the Ministry of Finance issued a consultation document with a proposal to allow shared operations for companies within the scope of the tonnage tax regime.
In accordance with current regulations, companies within the scope cannot conduct other activities or own assets other than those being specified. The proposal implies that shipping-related activity, which is considered disqualifying under current regulations, shall be allowed. However, as a subject to ordinary taxation.
It was proposed in the consultation that the change should enter into force with effect from the income year 2022.
The Ministry of Finance mentions in the proposal for the state budget for 2023 that they are working on a follow-up of the consultation, as they have no basis for putting forward a proposal for a change right now. The Ministry also points out that the proposals require an approval from ESA, and that an approval must be obtained before a legislative process is initiated.
4.3 Taxation authority for foreign persons and companies on the Norwegian Continental Shelf
In accordance with current regulations, only companies and individuals with residence in Norway are taxable for income from activities related to mineral activities, exploiting renewable energy resources, and CCS (carbon capturing and storing) on the Norwegian Continental Shelf.
The Ministry of Finance submitted a proposal introducing a taxation authority in February 2022 that scopes foreign individuals and companies performing the mentioned activities on the Norwegian continental shelf. The proposal is aiming to ensure equal treatment between Norwegian and foreign activity, regardless of place of residence.
The Ministry of Finance announces that the bodies entitled to comment essentially agree with the proposal, but states that there is a need for closer assessment of certain issues, including the proposals relation to residual tax legislation.
The Ministry of Finance will then arrange for a new proposition to Stortinget during 2023, with effect from the income year 2024.
This blogpost is written by Cathrine Lund, Eivind Robstad, Erik Stenvik Granly, Eunike Lois Hanken, Hanna Hagen Torvund, Kjetil Øpstad, Lars Walby, Magnus Qvam Sveberg, Marit Barth, Marius Mansika-Aanstad, Martine Brun, Per Kirknes, Silje Guttormsen, Silje Toftegaard, Ståle Wangen og Øystein Andal.
Jeg heter Marit Barth, og er partner/advokat i Advokatfirmaet PwC. Jeg har jobbet med mva for næringsdrivende og selskaper siden 2003 og har lyst til å blogge om mine erfaringer på dette området. Mitt mål er å gi deg informasjon, analyser og nyheter på en annen måte enn det du får gjennom nyhetsbrev og annen faginformasjon. Jeg håper også at jeg noen ganger klarer å inspirere deg, utfordre deg og kanskje provosere deg litt. Hvis du har synspunkter, innspill, kommentarer eller spørsmål til noe du leser eller ser her på bloggen blir jeg glad for å høre fra deg.
Velkommen til #norgesskatteblogg.
My name is Marit Barth and I am a lawyer and partner in PwC Tax & Legal Services. I have been working with VAT since 2003, and I would like to blog about my experiences in this area. My goal is to give you information, analyses and news in a different way than you get through newsletters. I also hope that I sometimes manage to inspire you. If you have input, comments or questions to something you read, I will be happy to hear from you.
Welcome to Norway’s Tax blog.
Jeg heter Ståle Wangen og jobber som advokat i Advokatfirmaet PwC. Jeg leder PwC Norges avdeling for internasjonal skatt og jobber til daglig med å bistå norske og utenlandske virksomheter med skatteplanlegging, strukturering av kjøp og salg av virksomheter, internprising og andre spørsmål knyttet til bedriftsbeskatning i Norge og utlandet. Jeg har mer enn 20 års erfaring med skatterådgivning.
Skatteverdenen blir stadig mer internasjonal og kompleks. Ved kjøp og salg av varer og tjenester utenfor Norges grenser må norske virksomheter håndtere skatteregler både i utlandet og i Norge. PwC har kontorer i de fleste land og vi har et unikt nettverk av skatterådgivere som kan bistå med spesialkompetanse på de fleste områder. Jeg håper mine innspill kan gi deg en alternativ innfallsvinkel til ulike temaer enn hva tradisjonelle nyhetsbrev gir.
Ta gjerne kontakt dersom du har spørsmål, kommentarer eller innspill.
My name is Ståle Wangen and I work as a partner and lawyer in PwC Tax and Legal Services in Oslo. I am head of PwC Norway’s international taxation services, and I have more than 20 years of experience assisting Norwegian and foreign businesses with tax planning, cross border restructuring, mergers and acquisitions (M&A), transfer pricing and other issues related to corporate taxation
Tax world is becoming more international and complex. Norwegian companies must increasingly handle tax rules abroad. PwC has offices almost all over the world and we have a unique network of tax advisors who can assist with expertise in most areas.
Please feel free to contact me if you have any questions, comments or input.
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