Norway tax: Budget news - norway Tax Rates & Tax News

Summary

The Norwegian government published on October 13th their proposed national budget. This newsflash presents the relevant issues for employers and employees in Norway.


Tax rates

In general, the Government does not propose any major changes for 2010 on tax rates and deductions. However, some adjustments have been to two areas; the expected general increase in salary level and the taxation of net wealth. Tax rates – The tax rates on regular income will not change from 2009 to 2010, and the tax rate for combined national and municipal tax will still be 28%.

The threshold for top tax level one will increase from NOK 441 000 to NOK 456 400, and the threshold for top tax level two will increase from 716 600 to NOK 741 700.

9% top tax applies to income between NOK 456 400 and 741 700, and the marginal top tax rate for income above NOK 741 700 is 12%.

The increased threshold for top tax is expected to be in compliance with the general salary increase of 3.5% in 2010.
The wealth tax rate will still be 1.1%. Net wealth exceeding NOK 700 000 will be taxed with the 1.1% flat rate. In 2009 net wealth exceeding NOK 470 000 was taxable, and the limit is increased by 48.9%.

The social security contribution rate for employees is still 7.8%.

Deductions and allowances – The personal allowance will increase by 3.5% according to the expected salary increase in 2010. The personal allowance in tax class one increases from NOK 40 800 to NOK 42 210, and from NOK 81 600 to NOK 84 420 in tax class two.

The basic tax allowance will still be 36%. The upper limit was NOK 70 350 in 2009 and will be NOK 72 800 in 2010. The adjustment of the upper limit is also 3.5%.


Valuation of housing properties

The Norwegian government has proposed a new system for valuation of housing properties in Norway. The new rules will apply for all housing properties except vacation homes, farmhouses and properties abroad. The new rules will not apply for urban business premises.

It is necessary with valuation of properties in Norway that the assessed value of the property is included in the basis for wealth tax calculation. For information about the wealth tax, please see the section above.
The newly proposed rules regarding valuation of housing properties states that the assessed value shall be based upon the property's living space ( P-ROM) multiplied with a price per square meter.

Calculations done by "Statistics Norway" will be the basis for the price per square meter. The price per square meter will be defined based on the kind of housing property, year of construction and geographical location. For primary housing properties one will use 25% of the price per square meter to multiply with the property's living space. For secondary housing properties one will use 40% of the price per square meter to multiply with the living space.

The property that is the taxpayer's main resident will be considered as the primary property. Please note that the taxpayer's address registered with the National registration Office will be the deciding factor. All other housing properties will be considered secondary housing properties. The typical example will be an apartment that you own, but rent out.

There will be a safety valve to ensure that the assessed value does not exceed 30 % of the sales value of primary properties and 60% of the sales value of other properties. If the assessed value exceeds 30% of the sales value of primary properties and 60 % of the sales value of other properties, one can claim that the assessed value should be adjusted.

The new rules will enter into force from January 1st 2010, hence when filing the tax returns for 2009 it will be the old system for valuation of housing properties that will be applicable.

Properties abroad – The new set of rules will not apply for properties abroad. It will therefore still be the market value abroad that will be the basis for calculating the assessed value. The assessed value will be 25% for primary houses and 40% for secondary houses.

Vacation homes – The new rules for validation of housing properties will not apply for vacation homes. The old rules regarding valuation will still apply for vacation homes, but it is suggested that the assessed value is increased by 10%. The separation of vacation homes from housing properties should be defined out from the features of the property. This means that is not the actual use of the property that will be the deciding factor, but instead whether or not the features of the property is a typical vacation home or housing property.


Employers national insurance contributions

Determination of rate (zone): companies hiring out labor – In Norway, the rate for employers' national insurance contribution is differentiated geographically. The highest rate, 14.1%, applies for the central and rural areas. Lower rates apply for remote areas. For certain areas in the northern parts of Norway, the rate is 0%. The rate depends on where the employer's business is registered (in which zone). According to current law, this also applies for companies hiring out labor, even though the assignment is carried out in another zone. Some companies hiring out labor have made adoptions to avoid employers' contributions by registering a branch in a low rate zone.

In relation with the 2010 state budget, it is proposed that the rate will be decided based on where most of the assignment is carried out during the specific bi-monthly reporting period (Jan.-Feb., Mar.-Apr. etc). The purpose of this proposal is to prevent adoptions as mentioned above. The proposal is suggested to come into force as from January 1, 2010.

Foreign registered special ships with activity on the Norwegian Continental shelf and Norwegian territorial water – In general, non-resident individuals, who are working on foreign special ships on the Norwegian continental Shelf and in Norwegian Territorial Waters, are not included in the Norwegian National Insurance Scheme. According to current law the employer is still liable to pay national insurance contributions for these employees, given that the ship's activity is related to extraction of underwater petroleum deposits, and therefore covered by the Norwegian Petroleum Tax Act. In relation with the 2010 state budget, the Government proposes that employers no longer will be liable to pay national insurance contribution in the situations mentioned above. The amendment will, according to the proposal, come into force as from January 1st 2009.

The proposal regarding employers' national insurance contribution for employees on foreign vessels on the Norwegian continental shelf might reduce the employers' costs.

For employers who are hiring out labor the new rules might increase their costs. We presume that this rule only applies to companies whose main activity is hiring out labor.


Changes in the Norwegian tax assessment act

There has been proposed a change to the Norwegian Tax assessment act article 9-6 number 3a. The proposed change is that the two years deadline for changing the tax assessment to the taxpayers disadvantage, will not apply if the taxpayer has not informed the tax authorities of errors on the tax assessment which he is or should have been aware of. The consequence of this new amendment to the article is that the tax authorities now can change the tax assessment to the taxpayers disadvantage also after two years, if the taxpayer has not informed them of errors on the tax assessment that he should have been aware of.


Employer subsidized home computer

Today an employee can purchase a PC from the employer and make payments by deductions in salary. Today this can be deducted from gross salary, with the consequence that salary used to purchase the PC is in practice not taxed. Taxes are withheld on the amount after the deduction for the cost of the PC. The Government does not want keep this arrangement in the future, and proposes an immediate phase out of the arrangement for new contracts entered after October 13, 2009.


New deadline for payment of additional tax withholding

The Government proposes to extend the deadline for payment of additional tax withholding from April 30th until May 31st in the year of assessment.

Under the current legislation individuals can avoid interest accruing on expected tax arrears in the year of assessment if the expected tax arrears are paid before 30th April as an additional tax withholding to Norwegian tax authorities. This deadline is now proposed to be extended until May 31st. Interest will be calculated if payment is received after this date. The amendment is suggested to come into force as from the tax year 2010.


Taxation of one-time payments from Individual Pension arrangements (IPS)

The Government propose to include a section in the Tax Act where one-time payments from Norwegian IPS – Individual Pension arrangements is included in the base for personal income tax (will now be included also in the base for top tax and National Insurance). Although this was the original intention when the new Individual Pension arrangement was introduced, no provision in the Tax Act gave legal authority to include one-time payments in the base for personal income tax. The amendment is suggested to come into force as from January 1, 2010.


Deloitte's view

In our opinion the most substantial proposed change will be the new rules regarding valuation of housing properties. However due to the change in threshold for taxation of net wealth there might not be a significant increase in assessed wealth tax.