Overview of Norwegian real estate tax

TAX TREATMENT OF INCOME AND GAINS

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Rental income

Individuals

lntroduction
Rental income is taxed as ordinary private or business income.

Liability to tax
Rental income received by individuals is subject to individual income tax.

Basis to tax
lncome of individuals is regarded as either employment income, business income or capital income. Rental income can either be taxed as business income from a sole proprietorship with a progressive tax rate between 33.4 % and 49.6 %, or as capital income at a flat tax rate of 22 %.

Companies

lntroduction
Rental income is taxed as business income.

Liability to tax
Rental income earned by companies is subject to corporate income tax as business income.

Basis to tax
Business income is taxed at a flat tax rate of 22 %.

Capital gains

Individuals

lntroduction
Capital gains are taxed as ordinary private income.

Liability to tax
Capital gains of individuals are subject to individual income tax.

Basis of tax
lncome of individuals is regarded as either employment income, business income or capital income. Capital gains are taxed at a flat tax rate of 22 %.

Companies

lntroduction
Capital gains are taxed as business income.

Liability to tax
Capital gains earned by companies are subject to corporate income tax as business income.

Exemptions
Business income is taxed at a flat tax rate of 22 %. However, an important exception applies under the participation exemption method, whereby companies owning shares or units are exempted from paying tax on profits or dividends from shares or units, subject to certain conditions.

VAT & transfer taxes*

modell_2_2.png* Norway applies a 'stamp duty' on the transfer of immovable property

 

Value Added Tax

Individuals

lntroduction
Value added tax is a tax based on the increase in value of a product or service at each stage of the supply chain.

Liability to tax
lf an individual or a company performs commercial or professional activities in Norway, it will, as a main rule, be subject to VAT.

Basis of tax
The main VAT rule for the supply and lease of immovable property (meaning buildings and constructions) is that such transactions are exempt from Norwegian VAT. However, there is an optional VAT liability on the lease of immovable property. This optional VAT liability applies when the tenant is a VAT liable business or a public body which is entitled to VAT compensation and is in practice commonly used in business to business situations.

In this situation, the VAT rate is 25%. This VAT is calculated using the rent together with any related costs of goods and services. The VAT liability gives the right to deduct input VAT on costs related to the construction, maintenance and keeping of the immovable property. Input VAT deducted on building projects with a VAT cost higher than NOK 100.000, and which does not constitute mere maintenance, is subject to adjustments in a 10 year period from completion, depending on changes in the use of the property.

Companies

The same rules as for individuals apply.

Transfer Taxes

Individuals

lntroduction
Transfer tax is a tax on the passing of real estate from one person or company to another. In Norway there is stamp duty on the registration of ownership to real estate. There are no other transfer taxes.

Liability to tax
Anyone acquiring Norwegian real estate, and who wants to register their ownership, is subject to stamp duty of 2.5% on the market value of the property.

Basis of tax
The market value of real estate is usually equal to the purchase price in the transaction, but in some cases it may differ. The basis for tax is then the market value.

Exemptions
There are various exemptions available in case of (de)merger or internal reorganisation. However, various detailed conditions apply.

In case the real estate is transferred a second time within six months, the tax due on the second transaction may be reduced by the earlier transaction.

Companies

The same rules as for individuals apply.

Local taxes - property tax

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Introduction
Each municipality decides whether they will levy property tax or not, and on what kind of property. The property tax is annual, and it is deductible from business income and company income.

Liability to tax
Most municipalities in Norway levy an annual property tax on the real estate in the municipality. Property tax can be levied on either residential or commercial buildings, or on both. In municipalities with property tax, every owner or user of residential or commercial buildings is liable to local property tax.

Basis of tax
The local property tax is based on local valuation rules and is intended to find the market value. The property tax rate is between 0.2% and 0.7%, dependent on the municipality.

Net Wealth/worth taxes

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Individuals

Introduction
Wealth or worth tax is levied on either 75 % or 100 % of the total value of assets, including real estate. Loans are also deductible at either 75 % or 100 %.

Liability to tax
Only resident individuals are subject to wealth or worth tax.

Basis of tax
As a starting point, wealth or worth tax is levied on 100 % of the total value of assets for resident individuals. However, shares, commercial real estate and other operating assets, are valued at 55 % of the total value. Loans are deductible at either 75 % or 100 %, proportionate to the distribution of total assets between the 75 % and 100 % valuation. For houses and cottages used by the individual as holiday homes, there are favourable valuation rules of 25 % of the fair market value. The applicable tax rate is 0.85 %.

Suitable vehicles for Norwegian real estate

Commonly used vehicles

Limited liability company
Limited liability companies are the most common type of business entity in Norway. A limited liability company can be a private entity, known as a private limited liability company (in Norwegian: aksjeselskap / AS) or a more general type, known as a public limited liability company (in Norwegian: allmennaksjeselskap / ASA). Both forms are regulated by specific legislation; the Limited Liability Companies Act and the Public Limited Liability Companies Act, respectively. These acts are based on the same principles as the EU's limited company legislation. The main difference between the two types of business entity is that private limited liability companies may not be listed on the stock exchange.

The minimum capital requirement is NOK 30.000 for private limited liability companies and NOK 1.000.000 for public limited liability companies. Requirements governing the number of board directors and board composition vary according to company type, turnover, number of employees and whether a company has a corporate assembly.

Companies resident in Norway are taxed based on the worldwide income. Limited liability companies are taxed with a flat tax rate of 22 %.

Limited partnerships
Limited partnerships (in Norwegian: Kommandittselskap / KS) have one or more partners with unlimited liability and one or more partners with limited liability. Limited partnerships are regulated by the Partnerships Act.

Limited partnerships are transparent and taxed at the owner /partner level.

Unlimited partnership
In unlimited partnerships the partners have joint and unlimited liability for an entity's liabilities (in Norwegian: ansvarlig selskap / ANS), or they may have an agreement to apportion the liability pro rata (in Norwegian: selskap med delt ansvar / DA). Unlimited partnerships are regulated by the Partnerships Act.

Unlimited partnerships are transparent and taxed at the owner /partner level.

Silent partnership
Silent partnerships (in Norwegian: indre selskap / IS) may be established as a limited or unlimited partnership. What distinguishes a silent partnership from other types of business entity is that it may not act as such in relation to third parties. Silent partnerships are regulated by the Partnerships Act.

Silent partnerships are transparent and taxed at the owner /partner level.

Safe proprietorship
Sole proprietorship (in Norwegian: enkeltpersonforetak / EPF) is a common type of business entity in Norway. This type of business entity requires that one physical person is personally responsible for the business activity and has unlimited liability for the business enterprise.

Sole proprietorship resident in Norway are taxed on the basis of worldwide income. Sole proprietorship is taxed at the owner /partner level, with a progressive tax rate between 33.4 % and 49.6 %.

Norwegian branch of a foreign company
A foreign company may conduct business activities in Norway through a branch, called a Norwegian branch of a foreign company (in Norwegian: norsk utenlandsk foretak / NUF). The branch is not regarded as a legal entity but must be registered and assigned an organisation number.

Companies resident abroad are only taxed on income derived from sources in Norway. A Norwegian branch of a foreign company is taxed at a flat tax rate of 22 %.

Covid-19 measures

Wealth Tax

Personal business owners and shareholders may defer payment of wealth tax if the annual result was negative in 2020.

Personal owners may use a temporary scheme with deferred payment of wealth tax on business assets for FY 2020. The scheme applies to personal taxpayers who own an accountable business with a negative annual result for FY 2020, and who receives wealth tax of at least NOK 30,000 in FY 2020 related to business assets.

One must defer wealth tax for FY 2020 within the submission deadline for tax return.

Personal owners may apply to be exempted from paying preliminary tax and preliminary tax in 2020 related to business assets.

Deficit Reversal

Companies may reverse losses against taxed profits in FY 2018/2019.

A company have a temporary possibility to return maximum MNOK 30 of company losses in 2020 against taxed profits in 2018/2019. The tax value of losses in 2020 will be paid to the company in the tax return 2021. Calculations and payments will be performed automatically. A company that do not wish to take part in the scheme must make a request in conjunction with the tax return 2020.

Deferred payment

Businesses, companies and private individuals with liquidity problems due to covid19 may apply for deferred payments of tax and duty claims. The rules for deferred payment apply from 12 June 2020. Deferred payment may be postponed until 28 February 2021.

Instalment plan from 1 April 2021

If one has deferred payment under the temporary deferral scheme mentioned above, one must pay (be able to) the deferred claims in instalments for a six-month period; first instalment is due 1 April 2021.

If any instalments are not paid on time, the scheme will lapse, and ordinary collection is implemented. The default interest rate will be used, currently 8 %.

Reduced default interest rate

The default interest rate was reduced to 6 % for most tax and duty claims from 10 June to 31 December 2020. Exceptions was made for claims for preliminary tax and tax deductions with default interest rate.

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