NORWAY Law and Practice Contributed by: Thea Slethaug, Axel Bjørke, Sigbjørn Sørensen and Jarand Aarhus, Aider Legal
• certain passive income (dividends, interest, royal - ties) with a Norwegian source. Employment Income Non-resident employees working in Norway are sub - ject to Norwegian tax on employment income for work performed in Norway. A pay-as-you-earn (PAYE) scheme applies to foreign workers, offering a simpli - fied flat-rate taxation option. Withholding Tax Norway levies withholding tax on dividends paid to non-residents (see 3.3 Passive Income ). 2.5 Tax Residence of Legal Entities A legal entity is tax resident in Norway if it is: • incorporated under Norwegian law; or • has its place of effective management in Norway. The Tax Act was amended to introduce the “place of effective management” test with effect from 1 January 2019, aligning Norway’s approach more closely with the OECD Model. An entity managed and controlled from Norway will generally be treated as a Norwegian tax resident, even if incorporated abroad. Consequences of Residence Resident companies are subject to Norwegian cor - porate income tax (22%) on their worldwide income, subject to applicable treaty provisions. 2.6 Definition of Permanent Establishment The Norwegian tax authorities have in their internal procedures defined a PE as “a fixed place of business through which an undertaking’s activities are wholly or partly carried out” with reference to the OECD Model Tax Convention. 3. Taxation of Cross-Border Income 3.1 Income From Immovable Property Resident individuals and companies are taxed on rental income and gains from immovable property on a worldwide basis. Rental income is generally subject to the standard income tax rate of 22%. Gains on the sale of immovable property are included in ordinary
income and taxed at the same rate, subject to certain exemptions (eg, the primary residence exemption). Non-residents are subject to Norwegian tax on income derived from immovable property located in Norway, including rental income and capital gains. Tax treaties generally allocate the primary right to tax immovable property income to the state where the property is located (the situs state), which aligns with Norway’s domestic approach. 3.2 Business Profits Norwegian-resident companies pay corporate income tax at 22% on their net profits. The taxable base includes income from all sources worldwide, with deductions for ordinary business expenses. Non-resident companies are taxed in Norway only on profits attributable to a Norwegian PE. The PE’s profits are determined on an arm’s length basis, as if it were a separate enterprise. Norway operates a participation exemption ( fritaks- metoden ) for corporate shareholders, which broadly exempts dividends and capital gains on qualifying shareholdings from corporate income tax. However, 3% of dividends that are otherwise exempt under the participation exemption are treated as taxable income and are subject to 22% corporate income tax. This 3% income inclusion does not apply to dividends received by companies within the same group. This generally applies to Norwegian companies hold - ing shares in other Norwegian or EEA-resident com - panies. Dividends from companies outside the EEA, or from low-tax jurisdictions, might not qualify. 3.3 Passive Income Dividends • Resident companies: Dividends received are gener - ally exempt under the participation exemption (see 3.2 Business Profits ). • Resident individuals: Dividends are subject to tax at an effective rate of 37.8%. • Non-residents: Norway imposes a withholding tax of 25% on dividends paid to non-residents. This rate is frequently reduced under bilateral tax trea - ties, commonly to 5–15%, and typically 0–15%
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