VAT Aspects of Doing Business in Norway

Transcription

1 VAT Aspects of Doing Business in Norway Oslo,

2 The Norwegian VAT system 9 particular features This publication contains a description of the Norwegian VAT system. We emphasize 10 particular features of Norwegian VAT that multinational enterprises (MNEs) should be aware of: "In managing their VAT risks, foreign MNEs doing business in Norway should consider whether appropriate resources (in-sourced, outsourced or a mix) are allocated to Norwegian VAT issues. Relevant facts and circumstances to take into account are: 1. Norway is not part of the EU and its VAT is therefore based on a separate legal regime. This regime does not fall within the boundaries of the EC Recast VAT Directive as further developed by the ECJ. Any "common solution" in the 27 Member States therefore requires separate consideration in Norway. 2. The VAT treatment of exported services is not based on a catalogue approach as in the EU, but rather a consideration as to whether a service is capable of delivery from/to a remote location or exclusively used abroad. 3. The import of services triggers VAT to a wider extent than in many other countries. 4. Place of supply rules as known in many jurisdictions are non-existent. The issue of VAT liability in Norway is determined differently based on a mix of factors adding complexity and uncertainty. 5. The concepts of taxable person and economic activity differ from many other jurisdictions. 6. The VAT authorities' approach is relatively formal and conservative. 7. Norway applies one of the highest VAT rates in the world (25%). 8. The fiscal representative regime is conservative and reflects an "old fashioned" approach to the handling of invoices, books and accounts. 9. Penalties and interests are high and mistakes therefore expensive." In addition to traditional advice, the Norwegian PwC VAT group assists with indirect tax risk management, loan-staff and products such as a VAT scanner to increase the comfort level of its clients. Should you wish to obtain more information on how the Norwegian PwC VAT group may assist you; Please contact: Espen Qvist espen.qvist@no.pwc.com , Trond Ingebrigtsen trond.ingebrigtsen@no.pwc.com or Yngvar Engelstad Solheim yngvar.engelstad.solheim@no.pwc.com

3 1. General Value added tax (VAT) replaced the previous single-stage sales tax, effective from 1 January The VAT Law (Merverdiavgiftsloven, mval) of 19 June 2009 is the legal basis, accompanied by a Regulation of 15 December 2009 issued by the Ministry of Finance, which are currently in force. The Norwegian VAT is a multi-stage, non-cumulative general tax on consumption of goods and services. It is payable to the authorities by the VAT registered person on the value he has added in the supply chain (output VAT less input VAT). As most other OECD countries, Norway applies a net consumption VAT calculated according to the indirect subtraction method. The Agreement on the European Economic Area (EEA) extends the Single Market of the European Union to three out of the four EFTA countries, namely Norway, Iceland and Liechtenstein (Switzerland, while being a member of EFTA is not a party to the EEA.) In essence, the EEA Agreement unites the 27 EU Member States and the 3 EFTA member states that are parties to the EEA into one single market governed by the same basic rules (Acquis Communautaire). These rules cover the "four freedoms" (free movement of goods, capital, services and persons) and competition rules. Because taxation, including indirect taxation, is not covered by the EEA Agreement (Art. 1(2)), Norway is not required to harmonize its VAT law with EC VAT law. Fiscal frontiers still exist between Norway and the European Union, and transactions between the two are still treated as traditional import and export supplies with the associated customs formalities and paperwork. The Norwegian VAT territory is defined in the VAT Law as the continent of Norway and the area within the limit of Norwegian territorial waters, but not the island Svalbard, Jan Mayen or the Norwegian dependencies. The VAT reform, which was the subject of discussion for more than 10 years, became generally effective from 1 July The reform brought about the following changes: VAT on services in general (remaining exemptions are mentioned below); a reduced VAT rate on food; the introduction of the reverse charge mechanism for the importation of services "capable of delivery from a remote location"; and the abolishment of investment tax for all businesses (from 1 October 2002). Since the reform became effective the legislators have followed up with a number of additional changes in law. The VAT law and in particular the changes that have come about as a consequence of the reform, are continuously developing through jurisprudence and administrative decisions. 3

4 2. Taxable persons 2.1. General The term "taxable person" is not defined in Norwegian VAT legislation. By virtue of Sec. 10(1) of the VAT Law, it can be determined that "entrepreneurs" must register and file VAT returns. There is no legal definition of the term "entrepreneur", however. According to case law and a number of interpretations by the relevant authorities and scholars in this area, the core of this term includes ongoing, independent economic activity. Accordingly, non-business activities performed by private individuals are not deemed to be entrepreneurial activity. Furthermore, employees receiving salaries from their employers are not entrepreneurs in respect of the activity concerned. Public bodies must register and are subject to VAT in the same way as entrepreneurs if they supply taxable goods or services (Sec. 2-1 (1) mval). The exercising of public authority is not, however, a taxable activity. Special rules apply to non-profit organizations. Certain activities can qualify non-profit organizations as taxable persons. In general, only taxable persons who are required to register for VAT purposes are subject to VAT liability. All persons are subject to VAT liability in respect of importation of goods. However, an exemption exists for small mail-order purchases if the value does not exceed NOK 200. (Certain delivery terms may, however, imply that a domestic supply has taken place subject to VAT even for direct shipments whose value is below NOK 200.) An exemption also exists for travel goods if the value does not exceed NOK 6,000. All entrepreneurs and public bodies are subject to VAT liability in respect of their purchase of certain services. Registration is required when the taxable person's taxable turnover exceeds NOK 50,000. For non-profit organizations, the threshold is NOK 140,000. For the VAT liability of non-resident entrepreneurs, see Groups A group of companies may register as one taxable person for VAT purposes (Sec. 2-2 (3) mval). The holding requirement is 85% of the ownership rights in the other company. In general, group registration means that intercompany transactions are outside the scope of VAT Divisions A division within a company, with its own separate accounts, may register as a separate taxable person (Sec. 2-2 (2) mval). This means that transactions between the divisions separately registered are considered within the scope of VAT. 4

5 3. Taxable transactions 3.1. General The following transactions are considered taxable: the supply of goods and services in Norway (Sec. 3-1 mval); the self-supply of goods and services (Secs and 3-22 mval) the importation of goods (Sec mval); and the importation of certain services (Sec. 3-30) Supply of goods and services The term "supply" is defined in Sec. 1-3 of the VAT Law as the delivery of goods or the performance of services for consideration, including the exchange of goods and services. Electricity, water for hydro-power plants, gas, heat and refrigeration are deemed to be goods for VAT purposes (Sec. 1-3 (1) b mval). Although immovable property is deemed to be goods for VAT purposes, the sale and lease of such property is exempt from VAT (without input tax deduction) (Sec. 3-11(1) mval). A mechanism exists for the lessors of property to opt for such transactions to be subject to VAT if the building is used for purposes subject to VAT (Sec. 2-3 (1) mval). A supply of services is deemed to be any supply that is not defined as a supply of goods (Sec. 1-3 (1) c mval) Self-supply of goods and services Self-supply of goods and services is deemed taxable if goods or services are "withdrawn" from the taxable part of the business and the use of the goods or services is for purposes other than activities subject to VAT (e.g. for private purposes) (Secs mval) Import of goods and services In the case of goods, VAT liability arises when the goods enter Norwegian VAT territory from abroad (Sec mval). The liability to pay import VAT falls as a rule upon the consignee as set on the customs declaration, regardless of which supplies are involved. The issue of whether a foreign (export) business is required to register for VAT in Norway is a complex one where recent court cases and administrative decisions have complicated the procedures. Imported goods, including deliveries from the Norwegian territories of Jan Mayen and Svalbard, are subject to VAT. The tax is levied on the customs value of the goods, which includes freight, customs duties and other taxes. Import VAT must be paid to the customs authorities, and may be deducted in the periodical VAT return of the importer if he is registered for VAT purposes in Norway. Until 1 July 2001 there was no mechanism in Norway to tax imported services. This changed effective on that date when Norway introduced the reverse charge mechanism as part of the VAT reform. Under the reverse charge mechanism, Norwegian VAT is levied on services "capable of delivery from a remote location" rendered to entrepreneurs and public bodies in Norway. Such services include telecommunications services, consultancy services, transfers of rights to intellectual property and legal advice services. Generally imported services are taxed to a larger extent in Norway than in many other countries. Norwegian VAT registered businesses subject to the new reverse charge rules must declare VAT on the purchase of such services from abroad. They are entitled to deduct a corresponding amount of input VAT on the purchase based on the normal rules of input VAT deduction (see 8.). Only services that are subject to Norwegian VAT (i.e. not exempt, such as financial services) are subject to Norwegian VAT under the new rules. The reverse charge mechanism also applies to entities that are not registered for VAT purposes, but in general not to private individuals. Separate rules were, however, recently introduced for cross-border supplies to private individuals resident in Norway. With effect from 1 December 2004, supply of "electronic communications services" from abroad, Svalbard and Jan Mayen to Norwegian private individuals are subject to VAT by means of registering the foreign supplier through a VAT representative. "Electronic communications services" are defined as: "transmission of sound, text, images or other data by means of electromagnetic signals in open space or cable in an infrastructure for the transmission of signals." Also the supply of capacity and access is covered by the notion "electronic communications services". 5

6 4. Place of taxation 4.1. General The VAT Law does not contain any specific provisions on the place of supply of goods and services. Certain principles can, however, be deduced from various articles of the law and the relevant regulations. The starting point is the territoriality principle: transactions taking place in Norway are subject to Norwegian VAT, and, conversely, transactions taking place abroad are outside the scope of Norwegian VAT. This general principle applies to the supply of both goods and services. In brief, the determination of the place of supply is based on: the physical location of goods at point of supply; the actual place of performance of services; the place of use of services; and the place of establishment of the supplier and the customer Place of taxation of goods In general, the place of supply of goods is Norway if the goods are physically located in Norway when sold. If the goods are transported abroad, the place of supply remains in Norway, but the export sale is zero rated. On the other hand, the sale of goods physically located abroad is outside the scope of Norwegian VAT. Imports are subject to Norwegian VAT merely by the fact that goods are entering the Norwegian customs territory from abroad (including Svalbard and Jan Mayen). This generally applies independently of the place where the supplier or the customer is established. The taxation of imports and the zero-rated exports reflect the destination (of the goods) principle. The above principles can be deduced from Secs. 1-2, 3-1, 3-21, 3-29, 6-21 and 6-22 of the VAT Law Place of taxation of services Services physically performed in Norway (e.g. work on movable or immovable property located in Norway) are generally subject to Norwegian VAT, regardless of whether such services are performed by a resident or non-resident taxable person (Secs. 1-3 (1) d, 3-1 (1) and 2-1 (1) mval). On the other hand, services physically performed abroad are not subject to Norwegian VAT. However, Sec (1) mval imposes the condition that the services must be "exclusively used" outside the territorial scope of the Norwegian VAT Act to escape Norwegian VAT. With respect to services "capable of delivery from a remote location" (see 3.4.), the place of supply is abroad if the recipient is resident (hjemmehørende; see ) outside the territorial scope of the Norwegian VAT Act, and is an entrepreneur or a public body (Sec (2) mval). For electronic communication services the same applies irrespective of the foreign recipient s status. The place of supply of services from abroad "capable of delivery from a remote location" to a Norwegian entrepreneur or public body is Norway if the recipient is resident in Norway (Sec (1) and (2) mval). The mechanism to tax the supply is not by registration of the foreign entrepreneur in Norway, but by the customer accounting for the Norwegian VAT due. (See, however, 3 above in respect of "electronic communications services" supplied to private individuals where tax is collected my means of registering the foreign supplier). Entities that are not registered for VAT purposes, except for private individuals, must file a special quarterly VAT return on the services purchased. The term "resident" would not always coincide with the establishment most closely connected with receiving the supply. In the commentary to the regulation, the Ministry of Finance emphasizes that the place of consumption of the service should be decisive in the case of businesses with multiple establishments where there is doubt as to what establishment is receiving the service. 6

7 5. Taxable amount VAT is calculated on the consideration charged for taxable goods and services, excluding VAT. In the case of importation, VAT is calculated on the value of the goods for the purposes of customs duties. The taxable amount includes (Sec. 4-2 mval): all costs incurred in fulfilling the agreement, including packaging, freight, insurance, etc., regardless of whether such costs are included in the price or charged separately; customs and excise duties; other duties, fees and charges connected with the transaction; auction fees; and service fees and tips (voluntary or compulsory). Second-hand goods supplied in Norway are subject to a separate VAT scheme (Sec. 4-5 (1) mval). According to this scheme, the taxable amount for VAT on the resale of the second-hand goods is the markup, provided that the seller has purchased the item from a person who was not obliged to charge VAT. The mark-up is defined as the difference between the sale price and the purchase price of the goods in question. The same scheme applies to works of art, collectors items and antiques supplied in Norway. VAT on the import of works of art, collectors' items and antiques (but not other second-hand items) is computed on a taxable amount equal to 20% of the customs value (Secs. 4-5 (1) and 4-11 (2) mval). 7

8 6. Rates The standard rate of VAT is 25%. A reduced rate of 15% applies to foodstuffs. A super reduced rate of 8% applies to passenger transport, the national television licence fee and cinemas. Hotel and accommodation services are subject to VAT at 8% from 1 September 2006.The zero rate applies to exports and a number of other supplies (see 7.2.). The VAT rates are fixed each year by parliament (Stortinget). From 1970 (when VAT was introduced) until 1993, the standard rate was 20%. In 1993 it was increased to 22%, in 1995 to 23%, in 2001 to 24% and in 2005 to 25%. 8

9 7. Exemption 7.1. Exemptions without input tax deduction In the case of transactions exempt without input tax deduction, output VAT is not charged on the transaction, and input VAT may not be reclaimed on the purchase of goods and services used in making the supply. The most important goods, services and businesses exempt without input tax deduction are the following (Secs mval): health services (not all kinds), ambulance services, technical dental services and goods supplied by dentists and used as part of dental treatment; social services; educational services; certain financial services; certain cultural services; travel guide services; works of art sold by the artist who made them; the right to use fitness clubs; services as part of the execution of public authority, such as registration transactions in return for registration fees and the issuance of passports, driving licences, etc.; the supply or lease of immovable property; sales of catalogues, programmes, prospectuses, calendars, souvenirs, etc. by museums, theatres and charitable institutions; lottery services; funeral services; and used goods for private purposes. 9

10 7. Exemption 7.2. Exemptions with input tax deduction (zero rating) In the case of transactions exempt with input tax deduction, output VAT is not charged on the transaction, but input VAT may be reclaimed by registered entrepreneurs in respect of the purchase of goods and services used in making the supply. Such transactions are thus zero rated. The following goods and services are exempt with input tax deduction (Secs mval): newspapers published at least once a week and periodicals sold mainly to subscribers; books at retail stage; electric power when supplied for households in the three northern regions of Nordland, Troms and Finnmark; vehicles powered by electricity; second-hand motor vehicles previously registered in Norway; services relating to the planning, construction, repair and maintenance of public roads and railways; the supply of ships at least 15 m in length for carrying passengers in domestic traffic, transport of goods, towing, salvage, rescue, icebreaking or hunting the supply of special designed ships for petroleum activities the supply of training ships the leasing of ships at least 15 m in length for international traffic or for carrying passengers in domestic traffic; the supply or leasing of warships at least 10 m in length; the supply of fishing vessels at least 6 m in length and ships intended for exploration or weather forecasting; the supply or leasing of commercial and military aircrafts; the supply or leasing of drilling rigs; the supply of goods and services in connection with the repair, maintenance, building or rebuilding of ships, aircraft and drilling rigs; services provided from salvage or rescue ships; goods and services when sold in connection with the sale of a business or part of a business (transfer of going concern); goods and services supplied for use outside the territorial scope of the Norwegian VAT Act, including Svalbard and Jan Mayen,; local transport services in connection with direct transport of goods and persons to or from abroad; goods and services for use on board ships in international traffic, or on board special ships in the oil-industry at sea; goods and services for the use on aircrafts in international traffic; and goods and services for use on the continental shelf in connection with exploration for and exploitation of submarine natural resources 10

11 8. Input tax deduction 8.1. General VAT registered persons may deduct input VAT to the extent the purchases are used for activities subject to VAT (Sec. 8-1 mval). This means that VAT cannot be deducted on costs for private use or activities exempt from VAT (without input VAT deduction). Furthermore, according to Secs. 8-3, 8-4 and of the VAT Law, no deduction is allowed for VAT related to the following: catering and the hiring of premises for entertainment; art and antiques, unless the purchaser sells goods of the same kind in his normal business; room and board and other in-kind remuneration of the owner, management, employees and pensioned staff of the business; work on, and running of, immovable property (including related movables and equipment) to meet housing needs, or holiday and other recreational needs; goods and services purchased for entertainment purposes; gifts for public relation purposes; motor vehicles (certain businesses may however deduct input VAT such as car sale-, car lease- or taxi businesses); and any costs where the paid VAT cannot be documented (e.g. by way of an invoice) Pro rata rule If a VAT registered entrepreneur carries out business activities that are only partly subject to output VAT, his right to deduct input VAT on costs for mixed use is restricted on a pro rata basis (Sec. 8-2 mval). Reg. provides details on the apportionment of deductible and non-deductible input VAT. The authorities have taken a very strict view on the distinction between acquisitions for exempt use as opposed to general costs subject to a pro-rata deduction. PwC is the firm in Norway who has taken the lead on this issue by representing a number of businesses before the courts to settle the disputes Adjustment period As from 1 January 2008, input VAT relating to immovable property and certain other capital goods can be adjusted within a period of 10 and 5 years respectively if the use of the said object changes (Sec. 9-8 mval). 11

12 9. Export There is no definition for the term "export" in the VAT Law. According to Sec of the VAT Law, supplies of goods and services to abroad are zero rated. Certain other export related supplies are also zero rated. Non-resident entrepreneurs making export supplies from Norway must register for VAT and charge VAT at a zero rate on the export supplies. 12

13 10. Administrative requirements Registration Records An entrepreneur subject to VAT must submit written notice regarding the commencement of his activity to the tax authority in the county where he has his place of business, or place of residence if he has no place of business. (Sec mval). Notice must also be submitted when the activity ceases (Sec mval). Account books with underlying documents, such as invoices, must be kept, and made available for inspection, for a period of 10 years following the calendar year to which they relate. if VAT returns are not filed in time or in the prescribed form, the output tax payable may be increased by 3% (maximum NOK 5,000); a standard daily fine (NOK 860) if the taxable person fails to give the tax authorities compulsory information VAT returns Invoices VAT registered entrepreneurs making a supply to another entrepreneur must issue a sales invoice. The invoice must contain: date and number of invoice; name and address of the supplier; registration number of the supplier followed by the letters "MVA"; price (in any currency) and due date; VAT amount in NOK; name and address of the customer; description of goods or services supplied; place of supply; and date of supply. Supplies to private individuals do not require such detailed invoices. Electronic invoicing is permitted in Norway. Self-billing generally requires a permit (certain sectors do not need a permit). Persons required to register for VAT must file a bimonthly return. The tax authorities may allow taxpayers to submit monthly returns if the input VAT regularly exceeds the output VAT by at least 25%. If the difference is at least 50%, an accounting period shorter than 1 month may be granted, the shortest period being 1 week. The tax authorities may also allow small businesses to submit annual returns if the annual taxable turnover is less than NOK 1 million. The balance of VAT due must be remitted to the authorities within 1 month and 10 days of the end of each accounting period Interest and penalties The following sanctions apply (Secs mval): additional tax of up to 100% of assessed tax if the taxable person's act could have resulted in a loss of tax revenue; When an assessment is made, interest is due at 2,75% per year, When payment is delayed, interest is due at 8,75 % per year; and A refund of tax is made if the excess payment is at least NOK 100. Refunds due must be paid by the authorities to the entrepreneur within 3 weeks of the date the return was received. Delayed refunds carry interest at 8,75% per year Appeals A complaint concerning an assessment by the tax office (skattekontoret) may be brought before the Board of Appeals (Klagenemnda for merverdiavgift) (Sec mval). Other complaints are decided by the Directorate of Taxes (Skattedirektoratet). Decisions of the regional tax office, the Board of Appeals and the Directorate of Taxes may be brought before the ordinary courts and pursued to the Supreme Court if necessary. There are no courts dealing exclusively with VAT matters. 13

14 11. Non-resident entrepreneurs In general, VAT provisions applicable to resident entrepreneurs apply to foreign entrepreneurs VAT registration A foreign entrepreneur with a place of business in Norway must be registered with the appropriate regional tax office. A foreign entrepreneur who has no place of business in Norway, must be registered through a fiscal representative, provided that he makes supplies subject to VAT in Norway and the reverse charge mechanism does not apply. The fiscal representative and the foreign entrepreneur are jointly and severally liable for correct reporting and any tax amounts payable. The representative must have his residence or place of established business in Norway (Sec. 2-1 (5) mval). In practice, the foreign entrepreneur is registered with the regional tax office of the place of establishment of the representative. One unattractive feature of this scheme is that the representative in Norway must enter certain information on the invoices VAT refund scheme A foreign entrepreneur who is not required to register for VAT purposes in Norway may nevertheless claim a refund of input VAT paid for goods and services to be used for business purposes in Norway (Sec mval). A refund is granted if (a) the VAT is attributable to an activity carried out by the entrepreneur abroad, (b) the entrepreneur would be required to be registered in Norway for VAT purposes if the activity were carried out there, and (c) the VAT on the activity would be deductible. The Ministry of Finance may make the refund subject to the condition of reciprocity, i.e. if the home country of the foreign entrepreneur offers Norwegian businesses the same refund opportunity, although such conditions have so far not been imposed. 14

15 12. International VAT dispute resolution A taxpayer involved in an international VAT dispute where two or more jurisdictions claim rights to tax has few (or possibly no) options available to settle the dispute. Norway like other countries has not sought to address this issue through tax treaties. (The issue of whether tax treaties should play a role for VAT is addressed by the author in more detail in an article published in Intertax.) 15

16 For more information please contact: Espen Qvist Trond Ingebrigtsen Yngvar Engelstad Solheim no.pwc.com The information contained in this publication should not be relied on as professional advice and should not be regarded as a substitute for advice in individual cases. No responsibility for any loss occasioned to any person acting or refraining from action as a result of material in this publication is accepted by the author or the publisher PwC. All rights reserved. In this context, PwC refers to PricewaterhouseCoopers AS, Advokatfirmaet PricewaterhouseCoopers AS, PricewaterhouseCoopers Accounting AS and PricewaterhouseCoopers Skatterådgivere AS which are member firms of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. 16