Sale & transfer of Norwegian real estate

DIRECT SALE OF REAL ESTATE

This section discusses the most important tax implications of the direct sale of real estate. Firstly, the impact for resident individuals and non-resident individuals. Thereafter, the impact for resident companies and non-resident companies.

Capital gains
Gains derived from the direct sale of real estate is subject to individual income tax. Such gain 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%.

VAT/ transfer tax
The sale of immovable property is outside the scope of Norwegian VAT. This means that no VAT is paid on the purchase price. The Norwegian Tax administration claims that consequently, there is no right to deduct input VAT on costs related to the sale. However, this is being disputed in ongoing cases where a building has served as main office or an operations center within a VAT liable business (e.g. business building, shop or factory as well as buildings rented out for use by VAT liable tenants; see section 'Basis of tax' above). Input VAT on costs related to the purchase of immovable property for such use is, however, permitted.

There are no specific transfer taxes in Norway. Stamp duty may apply to the buyer.

Deferral of tax
As commercial real estate is considered an operating asset for the company renting out the real estate, the taxable income can be deferred with an annual revenue recognition of 20% of the taxable income.

Deductibility of costs
Deductions are allowed for expenses incurred in connection with the sale of real estate.

Losses - carry forward
Losses on realisation of assets are tax-deductible for both individuals and companies. Tax losses may be carried forward indefinitely.

Non-resident individuals

Non-resident individuals are treated in the same manner as resident individuals.

Resident companies

Capital gains
The corporate income tax on capital gains is based on the difference between the net sales proceeds and tax written down value.

Business income derived from direct sale of real estate is subject to corporate income tax at a flat tax rate of 22%.

VAT/ transfer tax
The sale of immovable property is outside the scope of Norwegian VAT. This means that no VAT is paid on the purchase price. The Norwegian Tax administration claims that consequently, there is no right to deduct input VAT on costs related to the sale. However, this is being disputed in ongoing cases where a building has served as the main office or as an operation factor within a VAT liable business (e.g. business building, shop or factory as well as buildings rented out for use by VAT liable tenants; see section 'Basis of tax' above). Input VAT on costs related to the purchase of immovable property for such use is, however, permitted.

There are no specific transfer taxes in Norway. Stamp duty may apply to the buyer, see above.

Deferral of tax
As commercial real estate is considered an operating asset for the company renting out the real estate, the taxable income can be deferred with an annual revenue recognition of 20% of the taxable income.

Deductibility of costs
Deductions are allowed for expenses incurred in connection with the sale of real estate.

Losses- carry forward
Losses on the realisation of assets are tax-deductible for bath individuals and companies. Tax losses may be carried forward indefinitely.

Non-resident companies

Non-resident companies are treated in the same manner as resident companies.

INDIRECT SALE

This section discusses the most important tax implications of the indirect sale (shares) of real estate. Firstly, the impact for resident individuals and non-resident individuals. Thereafter, the impact for resident companies and non-resident companies.

Resident individuals

Capital gains
lncome derived from indirect sale (shares) of real estate, is taxed as capital income at a flat tax rate of 22% multiplied by 1.44, i.e. 31.68% as the effective tax rate.

VAT I transfer tax
The sale of shares is outside the scope of Norwegian VAT. This implies that no VAT is calculated and paid for on the purchase price of the shares. On the other hand, there is no right to deduct input VAT on costs related to the transfer of the shares. This counts bath for the seller and the buyer.

There are no specific transfer taxes in Norway. Stamp duty does not apply to indirect sale (shares) of real estate.

Losses - carry forward
Tax losses are deductible and may be carried forward indefinitely.

Non-resident individual

lncome derived from indirect sale (shares) of real estate is not taxable, and tax losses not deductible, for non-resident individuals in Norway. Beyond that, non-resident individuals are as a main rule treated in the same manner as resident individuals, but differences may occur due to tax treaties with other jurisdictions.

Resident company

Capital gain
According to the participation exemption method, companies owning shares or units are exempted from paying tax on profits from the sale of shares or units, subject to certain conditions. Accordingly, costs and losses related to shares or units covered by the participation exemption method, and not deductible.

Liquidation distributions paid to the shareholders are taxed as capital gains and not as dividends, provided that the distribution is in connection with the final dissolution of the company.

VAT
The same rules apply as for resident individuals.

Transfer Tax
There are no specific transfer taxes in Norway. Stamp duty does not apply to indirect sale (shares) of real estate.

Subject to certain prescribed conditions, mergers and demergers may be carried out exempt of tax and stamp duty. One condition for exemption is that the companies involved are resident in Norway.

Because of the EEA Agreement, tax deferrals are allowed on cross-border mergers and demergers within the EU/EEA. Another condition for exemption is that all tax positions are transferred with full continuity and in accordance to the exchange ratio at the merger or demerger. The terms and conditions for exemption are stated in the Norwegian Tax Act.

Non-resident company

lncome derived from the indirect sale (shares) of real estate is not taxable, and tax losses not deductible, for non-resident companies in Norway.

Beyond that, the taxation of non-resident companies is dependent on the tax treaty with the resident country and whether the company is resident within or without the EU. Companies with a permanent establishment within the EU are covered by the participation exemption method.

Losses can only be offset against other Norwegian taxable income.

DIRECT TRANSFER INTRA CONCERN (NORWEGIAN REAL ESTATE TO A NORWEGIAN COMPANY)

Resident company

Norway has an optional relief method for intra-group transfers. In essence, capital gains on the transfer are calculated, but then deferred. The transferring company must provide security for the potential tax on the deferred gain. The deferred gain is crystallised if the group connection between the transferring company and the receiving company is broken ('group' in this connection requires a minimum of 90% direct or indirect ownership).

Non-resident company

The capital gain relief method for intra-group transfers may apply when the transferor is a non­ resident group company with limited tax liability to Norway (permanent establishment), provided that the company is resident in a jurisdiction with which Norway has entered a tax treaty.

INDIRECT TRANSFER INTRA CONCERN (NORWEGIAN REAL ESTATE TO NORWEGIAN COMPANY)

Capital gain
According to the participation exemption method, companies owning shares or units are exempted from paying tax on profits from the sale of shares or units, subject to certain conditions. Accordingly, costs and losses related to shares or units covered by the participation exemption method, and not deductible.

Liquidation distributions paid to the shareholders are taxed as capital gains and not as dividends, provided that the distribution is in connection with the final dissolution of the company.

VAT
The same rules apply as for resident individuals.

Transfer Tax
There are no specific transfer taxes in Norway. Stamp duty does not apply to indirect sale (shares) of real estate.

Subject to certain prescribed conditions, mergers and demergers may be carried out exempt of tax and stamp duty. One condition for exemption is that the companies involved are resident in Norway.

Because of the EEA Agreement, tax deferrals are allowed on cross-border mergers and demergers within the EU/EEA. Another condition for exemption is that all tax positions are transferred with full continuity and in accordance to the exchange ratio at the merger or demerger. The terms and conditions for exemption are stated in the Norwegian Tax Act.

DIRECT TRANSFER INTRA CONCERN (NORWEGIAN REAL ESTATE TO A FOREIGN COMPANY)

Resident company

Norway has an optional relief method for intra-group transfers. In essence, capital gains on the transfer are calculated, but then deferred. The transferring company must provide security for the potential tax on the deferred gain. The deferred gain is crystallised if the group connection between the transferring company and the receiving company is broken ('group' in this connection requires a minimum of 90% direct or indirect ownership).

The capital gain relief method for intra-group transfers may apply when the receiver is a non-resident group company with limited tax liability to Norway (permanent establishment), provided that the company is resident in a jurisdiction with which Norway has entered a tax treaty.

Non-resident company

The capital gain relief method for intra-group transfers may apply when both the transferor and the receiver is a non-resident group company with limited tax liability to Norway (permanent establishment), provided that both companies are resident in jurisdictions with which Norway has entered tax treaties.

INDIRECT TRANSFER INTRA CONCERN (NORWEGIAN REAL ESTATE TO FOREIGN COMPANY)

lncome derived from the indirect sale (shares) of real estate is not taxable, and tax losses not deductible, for non-resident companies in Norway.

Beyond that, the taxation of non-resident companies is dependent on the tax treaty with the resident country and whether the company is resident within or outside the EU. Companies with a permanent establishment within the EU are covered by the participation exemption method.

Losses may only be offset against other Norwegian taxable income.

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