Tax and VAT - Norwegian National Budget 2024

The 2024 budget was presented at 09.00 today. Here follows an overview of the most important proposals for changes in the tax and VAT area. We have divided the news under the main topics 1) Corporate tax, 2) Personal tax, and 3) VAT

The main impression is that there are few changes in the tax and VAT area in this year's budget. There are only insignificant changes in tax rates for individuals and businesses. The global minimum tax of 15 percent for groups with a total turnover of more than 750 million EURO will be presented as a separate matter later this autumn and the rules will take effect from the income year 2024. On the personal tax area, the Government plans to phase out the temporary extra employer's contribution of 5% for income from work over 750 000 kroner. The limit for this extra contribution is raised to 850 000 kroner for 2024. On the VAT area, there are few changes, but we note, among other things, that it is opened for electronic newspapers to have a larger content of moving images and sound than before. 
When it comes to power taxation, it is proposed to introduce a 35% resource rent tax on land-based wind power from 2024. In addition, the controversial high-price contribution on power is proposed to be removed with retroactive effect from 1 October 2023. 

1. Corporate Tax

As mentioned in the introduction, the Government plans for small changes in the corporate tax area for the income year 2024.

The corporate income tax rate is still 22 percent and has not been proposed to be changed.
For some industries, special changes are planned, which are mentioned below.

Extra employer's social contribution
The Government proposes to start phasing out the temporary employer's social contribution (extra employer's contribution of 5 percent for income from work over 750 000). From 2024, the entry point will be raised from 750 000 to 850 000 kroner.

Differentiated employer's contribution - the exemption scheme
The Government plans to increase the exemption in the employer's contribution from 500 000 to 850 000 kroner per year. This proposal is based on the European Commission's proposal to raise the limit for de minimis aid, which will apply from 1 January 2024. However, it is important to note that this proposal depends on the proposal to raise the limit for de minimis aid being adopted in the EU.

The limit for direct expensing of operating assets
The government proposes to increase the limit for direct expensing of costs related to the acquisition of operating assets, from 15 000 to 30 000 kroner. This also applies to the depreciation of the remaining balance.

Depreciation rate for electric vans
Electric vans have now become strong competitors in the market. As part of the ministry's latest proposal, it is suggested to abolish the increased depreciation rate for electric vans, which was previously 30 percent (compared to the normal 24 percent for vans). This change is planned to take effect from 2024.

Changes in the interest limitation rules
The Ministry sent a proposal for consultation in April 2023 on rule changes related to the EBITDA rule between related parties in section 6-41 ninth paragraph of the Tax Act, as well as adjustments of which types of group contributions that should be deducted in the deduction limit under section 6-41 third paragraph of the Tax Act. The purpose of the proposals was to make the rules more robust against undesirable adjustments.

Based on the consultation, the Ministry proposes in the state budget that net intra-group interest income is not included in the calculation of net interest expenses when the EBITDA rule between related parties in section 6-41 ninth paragraph applies to companies in a group. The Ministry proposes that the changes enter into force immediately with effect from and including the income year 2024.

Legislation of tax exemption practice
The Government proposes to legislate the practice that has been developed under the rules on tax-free reorganisations. The new rules will cover mergers and demergers, conversions and intra-group transfers. Where the rules previously have given the Ministry of Finance authority to consent to exemption from capital gains taxation in specific cases, it is proposed that these rules be legislated, so that exceptions from the Tax Act's rules on capital gains taxation are given to the greatest possible extent in the form of law or regulation, and not administrative decisions. The rules are proposed to enter into force with effect from and including the income year 2023.

The Ministry proposes to legislate tax exemption for certain typical cases. This will apply to tax-free cross-border mergers for securities funds (UCITS funds), tax-free amalgamation and division of savings banks with establishment of savings bank foundations and amendment of the rules for tax base on merger and demerger arrangements that arise in connection with triangular mergers and demergers (so that the tax base is set equal to the face value of the claim – this will mean that there normally will not be any gain or loss on conversion of such claims).

Special rules on taxation of private consumption in companies postponed to 2025
The Ministry of Finance sent a proposal for special rules on taxation of private consumption in companies for consultation in the spring of 2022. The aim was that the new rules would enter into force from 2024. The government wants to continue working on adjustments to the proposal that was sent for consultation, and does not now propose special rules for taxation of private consumption in companies. Instead, the aim is to present a proposal for more targeted special rules in 2024, with entry into force in 2025.

Global minimum taxation of large corporations (pillar 2)
In 2021, a political agreement was reached on a so-called two-pillar solution, which consists of two main parts. Pillar 2 aims to ensure a minimum taxation of large, multinational corporations. A baseline will be established so that these corporations have an effective global corporate tax rate of at least 15 percent. In Norway, a proposal to implement the pillar 2 rules in Norwegian law has recently been subject to consultation. The ministry is now reviewing the consultation responses, and the government intends to later this autumn present a bill with proposals to introduce a global minimum taxation of large corporations with effect from and including 2024. The introduction of the rules is not expected to generate significant tax revenues in the short term. However, the introduction of the rules will entail significant costs for implementation, reporting and compliance, both for the tax authorities and the affected taxpayers.

Introduction of Resource Rent Taxation for Wind Power
Resource rent taxation for onshore wind power, which was proposed in the fall of 2022 and later postponed, is now proposed to be implemented from 2024.

The tax is designed as a cash flow tax, where immediate deductions are allowed for all (new) investments.

The effective tax rate has been reduced from the originally proposed 40% to 35%. In addition, the proposal contains improved transitional rules for existing wind farms. Deductions for historical investments will be granted based on the ordinary rules for asset depreciation. Unlike the original proposal, the tax value of existing wind power facilities upon entry into the new regime, will be calculated as if depreciations had been made according to the (maximum) ordinary depreciation rates, and not based on the (low) residual values for assets that have been subject to accelerated depreciations (straight-line depreciations over 5 years). In addition, the fact that ordinary depreciation will accrue over time and not immediately (as for new investments in a cash flow-based tax system) will be compensated through the introduction of an interest component (“interest adjustment”).

The deduction related to the "interest adjustment" will be determined based on the average tax values of the assets on January 1st and December 31st in the tax year, multiplied by a benchmark interest rate set by the Ministry.

As for hydroelectric power, revenue recognition is proposed to be based on spot market prices, but the contract price under agreements with independent parties entered into before September 28, 2022, will be respected. Temporary exceptions from spot pricing are also introduced for standard fixed-price agreements and for power agreements related to new projects concluded by independent parties during the period 2024–2030.

However, the ministry does not propose a payout mechanism for negative resource rent income, as is the case in hydroelectric taxation. Instead, negative resource rent income will be carried forward with a risk-free interest rate and deducted from future positive resource rent income from the individual wind power facility.

Furthermore, it is proposed to remove the high-price contribution retroactively from October 1, 2023. The production tax will however be increased to 2.3 øre/kWh, as further described below.

Elimination of High-Price Contributions for Hydroelectric and Wind Power
To redistribute more of the exceptionally high incomes from power production in certain parts of the country, a high-price contribution was introduced for hydroelectric power on September 28, 2022, and for wind power on January 1, 2023. The government now proposes to eliminate the high-price contribution with effect from October 1, 2023. Since this is only a proposal, power producers must continue to pay the fee until a final decision is presumably made in December. Overpaid fees will be refunded.

Expansion of the Industrial Power Exemption in Resource Rent Tax
To accommodate power-intensive industries and predictable power prices, the exemption from spot pricing of industrial power agreements is proposed to be extended to include agreements with a duration of 3 years. This aligns with the proposal put forth by the Ministry of Finance in June of this year, where the time limit was suggested to be reduced from 7 to 3 years.

The proposal is intended to take effect from January 1, 2024.

Increase in Production Tax for Wind Power
The production tax for wind power was introduced in 2022 with the aim of compensating host municipalities for the inconveniences of hosting wind power. Upon introduction, the tax was 1 øre/kWh. Starting in 2023, the tax was increased to 2 øre/kWh, and it is now proposed to be further increased to 2.3 øre/kWh.

No resource rent tax on offshore aquaculture
The government was asked in May 2023 to investigate proposals for introducing a resource rent tax on aquaculture at sea, but maintains its previous conclusion that no such tax will be introduced. The reason for this is that there are no studies today that show that aquaculture at sea will generate resource rent tax. However, the government does not comment on whether such a tax will be introduced at a later date, and emphasizes that the regulatory development will continue.

Furthermore, the government has proposed that financial hedging contracts should be included in the basis for resource rent tax on aquaculture, in order to treat such contracts equally with physical fixed-price contracts.

The government has not attached any further comments to the establishment of an independent price council to determine the market value at the cage edge for salmon at the cage edge from 2024. The ministry therefore continues its work on investigating the proposal for a price council for aquaculture.

Authority to tax foreign companies participating in mineral activities etc. in the 200-mile zones and on the Norwegian continental shelf
As of today, Norway does not have the authority to tax income from foreigners' activities and work related to mineral activities, renewable energy resources or carbon management outside the Norwegian territorial boundary at sea. The Government proposes to introduce a limited tax liability from the income year 2024 for foreign companies etc., participating in the aforementioned industries in the 200-mile zone and on the Norwegian continental shelf. The Ministry emphasizes that it is not proposed to introduce resource rent tax for any of the relevant industries.

The authorities that are proposed are based on the model from the petroleum tax act so that both core activities and associated activities are covered. This entails that also activity that a foreign company performs in the form of being a contractor or subcontractor is subject to the tax liability.

The tonnage tax scheme - it is not proposed to allow split activities
In connection with the presentation of the revised national budget for 2020, the Storting (Norwegian parliament) requested the government to investigate the possibility for companies within the tonnage tax scheme to conduct ordinary activities in addition to qualifying activities. The ordinary activities would then be taxed according to the regular tax rules.

The Solberg government sent out a consultation proposal on 24 September 2021 to introduce access for tonnage-taxed companies to perform certain types of shipping-related activities (split activities). In the consultation paper, it was estimated that the proposal would facilitate, among other things, better utilization of vessels in the tonnage tax scheme, as well as result in an annual revenue loss of 50 million kroner.

The Ministry of Finance has stated in the proposal for the state budget for 2024 that there should be a high threshold for making changes to the tonnage tax scheme during the approved period and will therefore not propose to allow split activities in the tonnage tax scheme.

2. Personal tax

Overall, minimal changes have been proposed for the personal income tax area for the income year 2024, but some minor adjustments are mentioned below.

The basic allowance is increased
It is proposed to increase the personal allowance from 79 600 kroner in 2023, to 88 250 kroner in 2024.

No changes are proposed for the upper limit for the minimum standard deduction for wages/social security and pension from 2023, which are 104 450 kroner and 86 250 kroner respectively. Nor are the rates for the standard deduction changed, which are 46 percent for wages/social security and 40 percent for pension.

Higher income limit for additional employer's social security contribution
A partial phasing out of the additional employer's social security contribution that was introduced in 2023 is initiated, by the Government proposing to increase the income limit from 750 000 kroner to 850 000 kroner.

Lower social security contribution
It is proposed to reduce the social security contribution rates on wages/pensions and business income by 0.1 percentage point, equaling 7.8 and 11.0 percent respectively.

No changes are proposed in the wealth tax
The government proposes to maintain the basic allowance in the wealth tax at 1.7 mill. kroner (3.4 mill. kroner for married couples), keeping the threshold at 20 mill. kroner for step 2, and maintaining the amount limit at 10 mill. kroner for high valuation of primary residence, in nominal terms.

The net wealth tax base for commercial property outside the large cities of Oslo, Bergen, Trondheim and Stavanger is reduced
The Government proposes to increase the discount rate by 1 percentage point for both rented and non-rented commercial properties outside the large cities of Oslo, Bergen, Trondheim and Stavanger from 2024. The change aims to mitigate the clear regional differences in the country. The proposed increase in the discount rate by 1 percentage point corresponds with the current interest rate level to a reduction in estimated rental value of about 10 per cent.

An increased discount rate combined with the interest rate hike in 2023 may result in a significant reduction of the wealth value for personal shareholders who directly or indirectly own commercial property, and it should therefore be considered to make adjustments before the end of the year.

3. VAT

Discontinuing of the zero-rating for hydrogen-based electric vehicles
The government proposes to remove the VAT zero-rating for the sale and leasing of electric vehicles with fuel cells (hydrogen-based electric vehicles). The vehicles have limited demand in the market, and are mainly sold to business customers with the right to deduct input VAT. The government has therefore found that there is no need to keep the zero-rating and proposes to discontinue it from 1 January 2024.

Change in the VAT zero-rating for newspapers: newspapers can have a larger content of live images and sound
The government proposes a change in the VAT zero-rating for newspapers. The proposal implies that electronic newspapers can have a larger content of live images and sound. Newspapers that are covered by the VAT zero-rating must, according to the current regulations, "mainly" contain text or still images (approx. 80 percent). This is proposed changed to a requirement for "a predominant share of text and still images" in order to be comprised by the VAT zero-rating (more than 50 percent). The main purpose of the newspaper must however still be to produce news and current affairs material in the form of text or still images.

This blog post is written by Erik Stenvik Granly, Erlend Bastrup, Silje Toftegaard, Synne Hangeland, Sebastian Sandaker, Marit Barth, Ståle Wangen, Marius Mansika-Aanstad, Kjetil Øpstad, Mats Berggreen, Oscar Valland Lund, Lars Walby, Magnus Qvam Sveberg, Lina Skyberg and Kjetil Vinnes Raknerud.

The content of the blog is intended as general information, and should not be considered legal advice. The content is often simplified and is not adapted to the recipient's specific situation. In addition, there may have been changes after the blog was published that are not reflected. We therefore recommend that professional assistance is sought. PwC does not take responsibility for any errors or omissions in the blog, including decisions that are wholly or partly based on the content.