Tax guide for Americans in Norway

Resident vs. non-resident of Norway

The Norwegian tax system distinguishes between tax residents and non-residents, each of whom is subject to different tax obligations. Your tax status in Norway significantly affects how you are taxed on your income, assets, and possibly your worldwide income.

• If you are considered a tax resident of Norway, you are liable to pay tax to the Norwegian tax authorities on your worldwide income. This includes income earned both inside and outside Norway. Tax residents benefit from the Norwegian social security system and are subject to various deductions and allowances that may reduce their taxable income.
• Non-residents are only taxed on their Norwegian source income. This includes income from employment in Norway, business income from Norwegian activities, and income from real estate located in Norway. Non-residents are not entitled to the same deductions and allowances as residents.

Who can be considered a resident of Norway?

Determining residency status is essential for tax purposes. Norway uses specific criteria to classify individuals as tax residents:

• You are considered a tax resident of Norway if you are present in the country for more than 183 days in any 12 months. This does not have to be a continuous period, but the total number of days within a 12-month window.
• Alternatively, if you stay in Norway for more than 270 days in 36 months, you will also be considered a tax resident. Similar to the 183-day rule, these days do not have to be consecutive.
  Once you meet either of these criteria, you are considered a tax resident and are subject to tax on your worldwide income.

Types of taxes in Norway

The Norwegian tax system is comprehensive and includes several types of taxes that apply to both individuals and corporations.

General income tax

In Norway, the general income tax applies to all taxable income, including income from employment, business profits, pensions, and capital income such as interest, dividends, and rental income.

The general income tax serves as a basis for the taxation of an individual's total income and ensures that all forms of income are taxed at a flat rate. According to the latest data, the flat rate for the general income tax is set at 22%. This rate is consistent across different types of income, providing a straightforward approach to taxing general income.

Personal income tax rates

In addition to the general income tax, Norway has a progressive personal income tax system that applies mainly to income from employment and pensions.

Personal income tax rates are divided into brackets, with each bracket subject to a different tax rate. These bracket rates are in addition to the flat general income tax rate.

The income tax brackets are as follows:

*Norwegian krone

Value-added tax

VAT is an important source of revenue for the Norwegian government and applies to most goods and services sold or consumed in the country. VAT is charged at different rates depending on the type of goods or services provided.

The standard VAT rate in Norway is 25% and applies to most sales, including services. However, there are reduced rates for certain categories:

• A reduced rate of 15% applies to food sold in grocery stores.
• A reduced rate of 12% applies to passenger transport services, hotel accommodation, and admission to cinemas, museums, and amusement parks.

Wealth tax

Norway is one of the few countries that still has a wealth tax, which is levied on an individual's net worth.

This tax is applied to the total value of an individual's assets, including bank deposits, real estate, stocks, and personal effects, less any liabilities. The net worth tax is divided into two parts:

1. A municipal property tax, the rate of which varies by municipality and is generally around 0.7%.
2. A state wealth tax is levied at a rate of 0.15% on net wealth above a certain threshold, which is adjusted annually.

Property tax

Property tax in Norway is levied by municipalities on residential and commercial properties. The rates and basis for the tax can vary considerably from one municipality to another.

Generally, the tax ranges from 0.2% to 0.7% of the assessed value of the property per year. Some municipalities may apply different rates to residential properties than to commercial or secondary properties

Inheritance and gift taxes

According to the latest updates, Norway has abolished inheritance and gift taxes.

Filing income tax returns in Norway

When to file tax returns?

In Norway, the tax year is based on the calendar year and runs from January 1 to December 31. Tax returns must be submitted by the end of April of the following year.

This deadline applies to both individuals and companies operating in Norway. Residents and non-residents who have earned income in Norway are required to file a tax return to report their income, deductions, and taxes paid throughout the tax year.

The Norwegian Tax Administration (Skatteetaten) usually sends out pre-completed tax returns in March based on income and deductions reported by employers, financial institutions, and other third parties.

Taxpayers are responsible for verifying, correcting, and adding to this information as necessary before filing their final tax return by the April deadline.

How to file a tax return?

Most taxpayers can complete the process online through the Altinn portal, which provides access to the pre-completed tax return, allows for electronic filing, and provides instructions on how to make any necessary adjustments or additions.

To file online, you will need:

1. A Norwegian identification number (D-number or personal ID number).
2. Secure login information, such as BankID, MinID, or Buypass, to access the Altinn portal.

If you prefer or are required to file a paper return, special forms can be downloaded from the Tax Administration's website.

Types of income in Norway

The Norwegian tax system includes different types of income, each with its own set of taxation rules. Understanding these distinctions is critical to accurately reporting income and ensuring compliance with Norwegian tax laws.

Employment income

Employment income is the most common type of income and includes wages, salaries, bonuses, allowances, and other forms of compensation received for services rendered. In Norway, all earned income is subject to income tax, which includes both the general income tax rate and personal income tax brackets.

Benefits in kind, such as company cars, free or subsidized housing, and interest-free loans, are also considered employment income and are valued and taxed accordingly.

The Norwegian tax authorities set standard values for many of these benefits to simplify reporting and taxation.

Equity compensation

Equity compensation is becoming increasingly popular in Norway, especially in start-up and technology companies, as a way to attract and retain talent.

The taxation of equity compensation in Norway depends on the type of equity granted and the conditions attached to it:

• Stock options. Taxed as earned income at the time of exercise. The taxable amount is the difference between the market value of the shares at the time of exercise and the exercise price.
• Restricted stock units (RSUs). Taxed as compensation at the time of vesting. The taxable amount is the fair market value of the shares at the time they become unrestricted and transferable to the employee.
• Employee stock purchase plans (ESPPs). Employees can purchase company stock at a discount, and the discount provided by the employer is taxed as employment income at the time of purchase.

Capital gains

In Norway, capital gains are generally taxed as income at a flat rate of 22%. This applies to gains from the sale of stocks, bonds, and real estate, among other assets.

However, some specific rules and exemptions may apply depending on the type of asset and the period of ownership.

For example, the sale of a principal residence may be exempt from capital gains tax if certain conditions are met, such as the length of time the property has been owned and used as a principal residence. Similarly, gains from the sale of stock may be subject to a shielding allowance, which may reduce the taxable gain.

Taxpayers can carry forward losses from capital assets to offset future capital gains. This can help manage the tax impact of investment activity over time, allowing investors to offset gains and losses across different tax years.

Interest income

Interest income is taxed at the same flat rate of 22% as other forms of general income. This flat rate simplifies the taxation of different types of income, including interest income.

Social security in Norway

The Norwegian social security system provides comprehensive coverage, including health care, parental leave benefits, child allowances, disability benefits, and old-age pensions. It aims to ensure that all residents have access to essential services and financial support in times of need.

Both employers and employees contribute to the social security system. The contribution rate for employees is usually around 8.2% of their gross income, while employers contribute at a higher rate. The self-employed also pay contributions, although at a slightly different rate, to ensure they receive comparable benefits.

Tax deductions for expats in Norway

Expatriates living and working in Norway may be eligible for certain tax deductions that can reduce their taxable income. Understanding these deductions can help expats minimize their tax liability and make the most of their earnings in Norway.

Personal deductions

Expats, like all Norwegian taxpayers, are entitled to a personal allowance that reduces their taxable income. This allowance is intended to cover basic personal expenses and is automatically included in the tax calculation for all residents.

Under certain conditions, expatriates may be entitled to additional allowances or deductions, such as a special expatriate allowance for additional costs associated with living and working in Norway. These allowances are subject to specific rules and may require documentation to substantiate the expenses.

Minimum deduction

The minimum deduction is intended to cover expenses related to employment, such as commuting, home office expenses, and other work-related expenses. This deduction is available to all employees, including expatriates, and is calculated as a percentage of income up to a certain limit.

For tax year 2023, the minimum deduction is set at 46% of gross earned income, with a maximum of NOK 109,850. This deduction is automatically calculated and applied to the taxpayer's income, reducing the total taxable amount.

Interest expenses

In Norway, taxpayers can deduct interest paid on loans from their taxable income. This deduction is particularly important for those with mortgages, student loans, or other personal loans.

All interest paid on debt, including mortgage interest, consumer loan interest, and credit card interest, is deductible.

Alimony

Alimony payments are not deductible by the payer in Norway. Similarly, these payments are not considered taxable income for the recipient. This approach simplifies the tax implications of alimony and avoids the need for complex calculations and adjustments in the tax returns of both parties.

Charitable contributions

To qualify for a deduction, contributions must be made to approved charities and non-profit organizations. The Norwegian tax authorities maintain a list of approved organizations.

There is a minimum threshold for charitable contributions to be deductible, and there is also a maximum limit on the amount that can be deducted in a given tax year. For example, in tax year 2023, the total deduction for charitable contributions cannot exceed NOK 50,000.

Contingent liabilities/pension plans

Contributions to approved pension schemes are often deductible from taxable income up to certain limits. This deduction can reduce your overall taxable income, potentially reducing your tax liability for the year.

The specific rules for deducting pension contributions may vary depending on the type of pension plan. For example, there are annual limits on how much you can contribute to a tax-advantaged personal pension savings account (IPS).

While contributions may be deductible, pensions are taxed when withdrawn in retirement. This deferred taxation allows the investment to grow tax-free until retirement, providing a tax-efficient way to save.

Fines and penalties

Fines and penalties imposed by the government or other authorities for violations of laws and regulations are not deductible for tax purposes in Norway. This includes:

• Penalties for speeding, parking, and other traffic violations.
• Fines for late payment or underpayment of taxes.
• Penalties are imposed for violations of environmental, workplace safety, and other regulatory requirements.

Losses

Losses incurred in business activities can be carried forward to offset future profits. These losses can be carried forward indefinitely, providing a way to smooth out tax liabilities over time.

Losses from the sale of capital assets, such as stocks or real estate, can be used to offset capital gains. If capital losses exceed capital gains in a given year, the excess loss can be carried forward to offset future capital gains.

The tax treaty between the US and Norway

The tax treaty between the United States and Norway is designed to prevent double taxation of individuals and corporations that have tax liabilities in both countries. The treaty covers various types of income and capital and sets limits on the taxation of residents of one country by residents of the other. Key aspects of the treaty include:

• The treaty defines how a resident of one country will be treated for tax purposes by the other country and helps determine which country has the right to tax the individual's income.
• Establishes reduced rates of withholding taxes on dividends, interest, and royalties paid by residents of one country to residents of the other, facilitating cross-border investment.
• The treaty outlines the rights to tax capital gains, including exemptions for certain types of gains.
• It provides mechanisms, such as foreign tax credits, to eliminate double taxation of income taxed in both countries.
• The treaty ensures that citizens and companies of one country are not discriminated against by the tax laws of the other country.

Most popular tax forms for US expats

US expats, including those living in Norway, are required to file US tax returns reporting their worldwide income. Some of the most common tax forms for US expats include:

1. Form 1040: The standard individual income tax return form.
2. Form 2555: Used to claim the Foreign Earned Income Exclusion (FEIE), which allows qualified expats to exclude a portion of their foreign income from US income tax.
3. Form 1116: For claiming the Foreign Tax Credit (FTC), which allows taxpayers to offset taxes paid to foreign governments against their US tax liability on the same income.
4. FinCEN Form 114 (FBAR): Required when a US person has a financial interest in, or signature authority over, foreign financial accounts that exceed certain thresholds.
5. Form 8938: Used to report certain foreign financial assets when the aggregate value exceeds the applicable reporting threshold.

Norway tax forms for US expats

US expats living in Norway must also comply with Norwegian tax laws, which include filing Norwegian tax returns. Important forms and documents include

1. Skattemelding (income and wealth tax return): The primary tax return form for individuals, reporting income, assets, deductions, and taxes paid.
2. Aksjesparekonto (ASK) reporting: For those with Norwegian investment accounts, reporting gains, losses, and dividends.
3. Skattekort (tax card): Not a form to be filled out by the taxpayer, but an important document issued by the Norwegian tax authorities that determines the tax rate applied to your income by your employer.

Understanding and correctly completing these forms is essential for US expats in Norway to ensure compliance with local tax laws and avoid penalties.

Given the complexity of tax obligations in two countries, many expats benefit from consulting with tax professionals who specialize in expatriate tax issues.