FOREWORD. Norway. Services provided by member firms include:

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1 2015/16

2 FOREWORD A country's tax regime is always a key factor for any business considering moving into new markets. What is the corporate tax rate? Are there any incentives for overseas businesses? Are there double tax treaties in place? How will foreign source income be taxed? Since 1994, the PKF network of independent member firms, administered by PKF International Limited, has produced the PKF Worldwide Tax Guide (WWTG) to provide international businesses with the answers to these key tax questions. As you will appreciate, the production of the WWTG is a huge team effort and we would like to thank all tax experts within PKF member firms who gave up their time to contribute the vital information on their country's taxes that forms the heart of this publication. The PKF Worldwide Tax Guide 2015/16 (WWTG) is an annual publication that provides an overview of the taxation and business regulation regimes of the world's most significant trading countries. In compiling this publication, member firms of the PKF network have based their summaries on information current on 1 January 2015, while also noting imminent changes where necessary. On a country-by-country basis, each summary such as this one, addresses the major taxes applicable to business; how taxable income is determined; sundry other related taxation and business issues; and the country's personal tax regime. The final section of each country summary sets out the Double Tax Treaty and Non-Treaty rates of tax withholding relating to the payment of dividends, interest, royalties and other related payments. While the WWTG should not to be regarded as offering a complete explanation of the taxation issues in each country, we hope readers will use the publication as their first point of reference and then use the services of their local PKF member firm to provide specific information and advice. Services provided by member firms include: Assurance & Advisory; Financial Planning / Wealth Management; Corporate Finance; Management Consultancy; IT Consultancy; Insolvency - Corporate and Personal; Taxation; Forensic Accounting; and, Hotel Consultancy. In addition to the printed version of the WWTG, individual country taxation guides such as this are available in PDF format which can be downloaded from the PKF website at PKF Worldwide Tax Guide 2015/16 1

3 IMPORTANT DISCLAIMER This publication should not be regarded as offering a complete explanation of the taxation matters that are contained within this publication. This publication has been sold or distributed on the express terms and understanding that the publishers and the authors are not responsible for the results of any actions which are undertaken on the basis of the information which is contained within this publication, nor for any error in, or omission from, this publication. The publishers and the authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication. Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances. PKF International is a family of legally independent member firms administered by PKF International Limited (PKFI). Neither PKFI nor the member firms of the network generally accept any responsibility or liability for the actions or inactions on the part of any individual member firm or firms. PKF INTERNATIONAL LIMITED JUNE 2015 PKF INTERNATIONAL LIMITED All RIGHTS RESERVED USE APPROVED WITH ATTRIBUTION PKF Worldwide Tax Guide 2015/16 2

4 STRUCTURE OF COUNTRY DESCRIPTIONS A. TAXES PAYABLE COMPANY TAX CAPITAL GAINS TAX BRANCH PROFITS TAX VALUE ADDED TAX (VAT) FRINGE BENEFITS TAX (FBT) SOCIAL SECURITY CONTRIBUTIONS LOCAL TAXES OTHER TAXES B. DETERMINATION OF TAXABLE INCOME DEPRECIATION STOCK / INVENTORY CAPITAL GAINS AND LOSSES DIVIDENDS INTEREST DEDUCTIONS LOSSES FOREIGN SOURCED INCOME INCENTIVES C. FOREIGN TAX RELIEF D. CORPORATE GROUPS E. RELATED PARTY TRANSACTIONS F. WITHHOLDING TAX G. EXCHANGE CONTROLS H. PERSONAL TAX OTHER TAXATION I. TREATY AND NON-TREATY WITHHOLDING TAX RATES ON DIVIDENDS FROM NORWAY PKF Worldwide Tax Guide 2015/16 3

5 MEMBER FIRM For further advice or information please contact Oliver Grosse-Brauckmann, PKFI EMEI Regional Director on or BASIC FACTS Full name: Kingdom of Norway Capital: Oslo Main language: Norwegian Population: 5.14 million (2013 estimate) Major religion: Christianity Monetary unit: Norwegian Krone (NOK) Internet domain:.no Int. dialling code: +47 KEY TAX POINTS Company tax is payable by Norwegian resident companies on income from all sources. Nonresident companies pay tax on income sourced in Norway. There is no separate capital gains tax. Capital gains are treated as ordinary income and capital losses are treated in the same way as trading losses. A credit is available for overseas tax payable against Norwegian tax on the same income. Foreign tax on business income may be deducted as an alternative to taking a tax credit. Group companies cannot file consolidated tax returns. Where there is more than 90% common ownership, income can be transferred between resident companies as a means of off-setting profits with losses within the group. The arm's length principle generally applies to transactions between related parties. Withholding tax must be deducted from dividends paid to non-residents, although there is no withholding on dividends paid to corporate shareholders resident in and performing real economic activities in the EEA. Interest and royalties are not subject to withholding tax. Income tax in payable by residents on income derived from all sources. Non-residents only pay tax on Norwegian-sourced income. A. TAXES PAYABLE COMPANY TAX Company tax is payable by Norwegian resident companies on non-exempt income derived from all sources. Non-resident companies are required to pay tax on income sourced in Norway. A company is treated as resident if it has its central management and control or head office located in Norway and, for all practical purposes, a company registered in Norway is also considered a resident. PKF Worldwide Tax Guide 2015/16 4

6 The company tax rate on income is 27%. The tax year is usually the calendar year, although this can be deviated from in certain circumstances, such as to align with non-norwegian parent company's financial year. The tax year follows the financial year. Tax is payable in four instalments. A preliminary assessment is issued after the end of the tax year corresponding to the accrued taxes not yet assessed. This tax is due in two instalments on 15 February and 15 April. The balance after the final tax assessment is payable in two instalments three and eight weeks after the final tax assessment is made, but not earlier than 20 August. Company tax returns must be filed by the end of March for the preceding tax year (this is extended to the end of May for electronically filed returns). It is possible to get an agreed postponement. CAPITAL GAINS TAX There is no separate capital gains tax. Capital gains are treated as ordinary income and capital losses are treated in the same way as trading losses. However, gains on the disposal of shares of resident companies are exempt from tax (and losses on such disposals are not deductible). 3% of dividends received from companies that are tax residents in EEU is taxed as ordinary income unless the receiving part holds more than 90% of the shares and voting power in the company paying the dividend. BRANCH PROFITS TAX There is no separate branch profits tax in Norway. Non-resident companies carrying on a business in Norway are taxed on the profits of that business in the same way as resident companies. VALUE ADDED TAX (VAT) VAT is levied on the sale of most merchandise and services and on imported goods and services. The VAT rate is 25% (15% on food, 8% on passenger transport, broadcasting, cinema tickets, sports events, leisure parks and experience centre tickets and letting of rooms in hotels, motels and tourist cabins, etc.). Some goods are exempt but VAT on the purchase of materials and goods is still deductible for these businesses. This also applies to exports, newspapers, certain periodicals and international transportation. Other areas are exempt without any credit for input tax. This is the case for health services and financial services. FRINGE BENEFITS TAX (FBT) Both residents and non-residents are taxed on fringe benefits. The value of the benefits is taxed as the top slice of employment income. The highest marginal tax rate is 47.2%. SOCIAL SECURITY CONTRIBUTIONS Employers are liable to pay social security contributions relating to salaries and benefits paid to their employees. The fee levied is 14.1% in central areas. Lower rates are available for certain employees in areas in the north of Norway. Social security tax is payable at a rate from 5.1% to 11.4% for individuals, see H. Personal Tax; Other Taxation below. PKF Worldwide Tax Guide 2015/16 5

7 LOCAL TAXES Property taxes in some urban areas are levied at a maximum 0.7% of the tax value of the property. OTHER TAXES Real estate transactions are subject to 2.5% Stamp Duty. B. DETERMINATION OF TAXABLE INCOME The taxable income of a company is determined by ascertaining assessable income and then subtracting all allowable deductions. Generally, to be deductible, losses and expenses must relate to producing the assessable income. Some items such as entertainment expenses and gifts are specifically non-deductible. Only realised expenses are deductible. Special rules apply to the categories listed below. DEPRECIATION Book depreciation is not allowable for tax purposes. Assets with an expected life of more than three years and costing more than NOK 15,000 should be depreciated on a declining-balance method using the following maximum rates: Description Rate Office machinery 30 Purchased Goodwill 20 Trucks, trailers, buses, taxis and vehicles for disabled persons 20 (22) 1 Cars, agricultural tractors, machinery, tools, instruments etc. 20 (30) 2 Ships, drilling platforms, vessels, etc. 14 Aeroplanes 12 Power stations, power lines 5 Industrial buildings, hotels, restaurants 4 3 Office buildings 2 Technical installations in buildings 10 NOTES: 1 Trucks, trailers, buses: 22% from First-year additional 10% depreciation 3 Buildings and installations with an economic life less than 20 years, 10%. Buildings for farm animals, 6% PKF Worldwide Tax Guide 2015/16 6

8 STOCK / INVENTORY All trading stock held at the beginning of the tax year and at the end of the tax year must be taken into account when determining taxable income. Stock is valued at cost without regard to real value. Work in progress and finished products are valued at direct variable cost of materials and labour. Real value is not taken into account. Accepted valuation method is FIFO not average cost or LIFO. CAPITAL GAINS AND LOSSES See text above. DIVIDENDS Dividends are not deductible for income tax purposes for the dividend paying company. Dividends received from other Norwegian companies are tax-exempt under the participation exemption. However, 3% of the dividend is added to the recipient's taxable income unless it holds more than 90% of the shares and voting power in the company paying the dividend. INTEREST DEDUCTIONS All interest costs on business debt are deductible. As from 2014, there is a 'thin capitalisation' limitation applicable for companies that has net interest expense (interest expense less interest income from both external and from related parties) above NOK 5 million. Net interest expense exceeding 30% of taxable EBlTDA is non-deductible to the extent there is related-party interest expenses. Interest on debt guaranteed by a related party is in this context regarded as related-party interest expense. Non-deductible interest expense after this rule can be carried forward for 10 years. There is no carry-forward of unused allowable interest expense. Additional rules apply in oil and gas production. LOSSES Losses may be carried forward. Losses may generally not be carried back but, when a company liquidates, the losses of the year of liquidation may be offset against profits of the two preceding years. There are certain limitations on the usage of losses carried forward after sale or merger of a company and after a company has ceased operating a line of business. FOREIGN SOURCED INCOME Norway has rules designed to ensure that profits sourced in low tax countries are included in the controlling Norwegian company's taxable income. Generally, income from a foreign company will be included if 50% or more of the company is owned or controlled by Norwegians. A low tax jurisdiction applies where the tax payable is less than two-thirds of the tax that would have been payable in Norway. PKF Worldwide Tax Guide 2015/16 7

9 INCENTIVES Generally, there are no special incentives, although research and development credits are granted to small and medium sized companies under qualifying circumstances. C. FOREIGN TAX RELIEF Deductions are available for foreign tax paid or, as an alternative, a credit may be available against Norwegian tax payable on that income. D. CORPORATE GROUPS Group companies cannot file consolidated tax returns. Under special circumstances, taxable income can be transferred between companies residing in Norway. The requirement is that there is more than 90% common ownership of the companies. E. RELATED PARTY TRANSACTIONS Transfer pricing should be based on an arm's length principle. Norwegian tax law gives the tax authorities the power to raise assessments if transactions between the taxpayer and associated companies are not based on an arm's length principle. F. WITHHOLDING TAX Withholding taxes must be deducted from dividends paid to non-residents at a rate of 25%, although there is no withholding on dividends paid to corporate shareholders resident in and performing real economic activities in the EEA. Interest payments and royalties are not subject to withholding taxes. See section I below for the applicable withholding tax rates. G. EXCHANGE CONTROLS Most exchange controls were phased out in However, all imports of capital in cash exceeding NOK 25,000 should be reported to the Bank of Norway. Other transfers of capital need not be reported. H. PERSONAL TAX Income tax is payable by Norwegian residents on income derived from all sources world-wide. Nonresidents are only required to pay tax on Norwegian-sourced income. Residency is determined by domicile or where the individual has spent, or intends to spend, more than six months of the tax year. Under almost all Norwegian tax treaties, foreign-earned income is exempt from Norwegian tax. Where there is no treaty, credit for foreign taxes is given up to the amount of Norwegian tax on foreign income. Income tax is payable on assessable income less allowable deductions. Assessable income includes business income, employment income, certain capital gains, rent and interest income. Some PKF Worldwide Tax Guide 2015/16 8

10 expenses incurred in earning the assessable income are deductible. Some actual expenses can be replaced by standard deductions. The general combined rate of the national and municipal income taxes is 27%. A lower rate of 23.5% applies for the counties of Finnmark and Nord-Troms. A personal allowance of NOK 74,250 is available to jointly assessed married couples and for single persons with dependents. The allowance for single persons without dependents and married persons assessed separately is NOK 50,400. OTHER TAXATION All income from capital is taxable at 27%. However, the value of dividends chargeable to tax is reduced by an amount representative of a risk-free return on the invested capital. The rate was 1.2% for the 2014 tax year. The rate is published in January in the year following the tax year. An additional progressive national income tax is payable on "gross personal income" (which includes gross income from employment or self-employment, including pensions). With effect from 1 January 2015 the rates of the national income tax are: Taxable income (NOK) Rate Classes 1 and 2: 0 550, , ,600 9 From 885, In addition, social security taxes are paid. Employees pay 8.2% of gross salary income. For selfemployed individuals the rate is 11.4%. For persons below the age of 17 years, or above the age of 69 years, the rate is 5.1%. Wealth tax is charged on the net tax value of assets above NOK 1,200,000 at a rate of 0.85%. Property transferred by gift or on death after 31 December 2013 is no longer subject to inheritance tax. I. TREATY AND NON-TREATY WITHHOLDING TAX RATES ON DIVIDENDS FROM NORWAY Ordinary Rates Parent / Subsidiary 1 Non-tax treaty countries: Treaty countries: Albania 15 5 Argentina Australia Austria 15 0 Parent / Subsidiary Rate Requirements PKF Worldwide Tax Guide 2015/16 9

11 Ordinary Rates Parent / Subsidiary 1 Parent / Subsidiary Rate Requirements Azerbaijan Republic % capital participation and an investment of at least $ 100,000 Bangladesh % capital participation Barbados % capital participation Belgium 15 5 Benin Brazil Bulgaria Canada % voting power Chile % voting power China Croatia Cyprus % voting power Czech Republic % capital Denmark % capital Egypt Estonia 15 5 Faroe Islands % capital Finland % capital France 15 0/5 25% capital/10% capital Gambia 15 5 Georgia % capital Germany 15 0 Greece Greenland % capital Hungary Iceland % capital India Indonesia Israel % voting power Italy Ivory Coast Jamaica Japan 15 5 Kazakhstan % capital Kenya % capital Korea Latvia 15 5 Lithuania 15 5 PKF Worldwide Tax Guide 2015/16 10

12 Ordinary Rates Parent / Subsidiary 1 Parent / Subsidiary Rate Requirements Luxembourg 15 5 Not Luxembourg except holding companies Macedonia Malawi % voting power Malaysia 0 0 Malta Mexico 15 0 Morocco Nepal 15 5/10 At least 25% / 10% of the share capital Netherlands 15 0 Netherlands Antilles 15 5 New Zealand Pakistan Philippines % voting power Poland 15 0 Company holding 10% of the capital for at least 2 years Portugal Qatar 15 5 Company holding 10% of the capital Romania Russia Senegal Sierra Leone % voting power Singapore 15 5 Slovak Republic 15 5 Slovenia Company holding 15% of the capital South Africa % capital participation Spain Sri Lanka Sweden % capital Switzerland % capital Tanzania Thailand % capital Trinidad and Tobago Tunisia Turkey % capital (if dividend is exempt from tax for the recipient in its state of residence) or if derived by PKF Worldwide Tax Guide 2015/16 11

13 Ordinary Rates Parent / Subsidiary 1 Parent / Subsidiary Rate Requirements the Norwegian Government pension fund Uganda Ukraine 15 5 United Kingdom % voting power United States Venezuela % capital participation Vietnam 15 5/10 At least 70% / 25% of the share capital Zambia Zimbabwe NOTES: 1 Unless otherwise indicated, the reduced treaty rates given in this column apply if the recipient company owns at least 25% of the capital in the Norwegian company. The rate for Non-tax treaty countries should be used if the shareholder has not provided proof for tax-residency in a tax-treaty country. This means, in general, that the reduced rates cannot be used if the shares are held in nominee accounts. A shareholder in a tax treaty country who has been deducted the 25%, may apply for a refund of the excess taxes withheld. PKF Worldwide Tax Guide 2015/16 12

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