NORWAY Law and Practice Contributed by: Ylva B Gjesdahl Petersen, Marius Holm Rynning and Johan Fredrik Brende, Thommessen
4.2 Tax Treatment The Norwegian tax treatment of equity invest - ments in a growth/start-up company does not differ from the general tax treatment of other non-listed companies in Norway. In principle, ordinary income of the fund is taxable for the fund at a rate of 22%. Norwegian Portfolio Companies As Norwegian growth/start-up companies are typically established as limited liability compa - nies, equity investments in such companies gen - erally qualify under the Norwegian participation exemption. As a result, capital gains on such shares are tax-exempt. Dividends distributed from such companies are taxed at an effective rate of 0.66%. Portfolio Companies Within the EU/EEA Equity investments in growth/start-up compa - nies within the EU/EEA are covered by the Nor - wegian participation exemption, provided that: • the EU/EEA entity is a qualifying object under the Norwegian participation (ie, an entity that generally corresponds to a Norwegian limited liability company); • the respective EU/EEA jurisdiction is not con - sidered a low-tax jurisdiction; and/or • the EU/EEA entity is genuinely established and carries on genuine economic activities within the relevant EU/EEA jurisdiction. Portfolio Companies Outside the EU/EEA Equity investments in growth/start-up compa - nies outside the EU/EEA are covered by the Nor - wegian participation exemption, provided that: • the foreign entity is a qualifying object under the Norwegian participation exemption; • the fund has consistently owned at least 10% of the share capital and controlled at least
10% of the voting rights at the general meet - ing for a period of two years; and • the foreign entity is not resident in a low-tax jurisdiction. 4.3 Government Endorsement The Norwegian government has implemented several material initiatives to increase the level of equity financing of Norwegian growth compa - nies (see 4.1 Subsidy Programmes for a high- level overview). The founders’/key employees’ long-term com - mitment is normally procured by the following. • Vesting agreements – particularly in early- stage venture capital, where the founders are the majority owners of the company, it quite common that venture capital investors require the founders’ shares to be subject to a vesting schedule. Under a typical vesting schedule, the founder will need to sell shares back to the company or other shareholders if they leave the company prior to full vesting. The terms of the sale (including the price) will often depend on the circumstances around a founder leaving (ie, typically “good leaver/bad leaver” mechanism). The purpose of the vest - ing schedule is not only to secure long-term commitment but also to ensure that there is no “dead equity” in the company (equity held by persons no longer affiliated with the com - pany), which could make subsequent financ - ing rounds more difficult. • Shareholders’ agreements – sharehold - ers’ agreements can include provisions 5. Employment Incentives 5.1 General that require founders and key employees to commit to the company for a certain period
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