Participation exemption in Norway - DLA Piper Guide to Going Global

Residence and basis for taxation

Domestic

Companies are considered tax resident in Norway if they are:

Established and registered in Norway or
Have its place of effective management in Norway.

Foreign

Foreign companies that are not tax resident in Norway may have limited tax liability in Norway if they:

Conduct or participate in business activities in Norway
Operate or manage business activities from Norway
Make employees available to others in Norway or
Own real estate or other property in Norway.

Taxable income

Domestic

Companies that are tax resident in Norway are taxed on their worldwide income (unlimited tax liability). The taxable income is generally calculated as the total income reduced by the costs generated by the business.

Foreign

Foreign companies with limited tax liability in Norway are generally taxable on their relevant net Norwegian source income in the same manner as domestic companies.

Interest deduction limitation rules

Norway has legislation to limit the deduction of interest on loans on both internal and external debt. In principle, tax deductions for interest are limited to 25 percent of the company's deemed Tax EBITDA. The application threshold is generally NOK25 million in net interest expenses on the Norwegian part of consolidated group. To certain related parties, the threshold may be only NOK5 million on a company level. Certain exemptions apply, based on the asset-to-equity ratio of the company compared to the group. For Norwegian entities that are not part of a consolidated group, the applicable threshold is NOK5 million for net interest on internal debt.

Tax rates

The corporate tax rate is 22 percent (2024).

Tax compliance

Norwegian tax resident companies and foreign companies that have assets or receive income in Norway are generally required to submit a yearly tax return (with attachments). The tax return must be submitted electronically by May 31 the year after the income year.

Advance payments of corporate taxes are due twice a year (February 15 and April 15 the year following the tax year). Any shortfall is payable during the fall, normally in November.

Alternative minimum tax

Not applicable for this jurisdiction.

Tax holidays, rulings and incentives

Tax holidays

Not applicable in this jurisdiction.

Tax rulings

Companies may apply for a binding advance ruling concerning tax consequences on a future transaction. A binding advance ruling will last for 5 years, provided that the transaction is carried out within 3 years from December 31 of the year the binding ruling was issued.

Tax incentives

Limited research and development credits are available.

A Tonnage Tax Regime is available, which implies favorable taxation of qualifying shipping companies.

Consolidation

Norway does not have a tax consolidation system and hence separate entity taxation applies for income tax purposes.

However, companies belonging to the same group (which applies to share ownership of more than 90 percent of the shares) may exchange group contributions. A group contribution is deductible for the paying company and is taxable for the recipient company.

Participation exemption

Dividends

Dividends received by a company tax resident in Norway from another Norwegian company resident in Norway (or similar company resident in the European Economic Area, or EEA) are 97-percent exempt of tax. The remaining 3 percent are taxed with the ordinary corporate income tax rate of 22 percent. For dividends received from a company resident in in a low-tax jurisdiction with the EEA, the 97-percent exemption applies only if real business activities are conducted in that jurisdiction.

Dividends from group companies within the EEA are 100-percent exempt if more than 90 percent ownership.

Dividends received from a foreign company outside the EEA are 97-percent exempt if both of the criteria below are met:

The Norwegian company has held at least 10 percent of the shares and votes for at least 2 years and
The foreign country is not a low-tax country.

Capital gains

Capital gains derived by a Norwegian company on the realization of shares in another Norwegian (or EEA-resident) company are exempt from taxation. For capital gains derived by a Norwegian company on the realization of shares in an EEA-company resident in a low-tax jurisdiction, the exemption applies only if real business activities are conducted in that jurisdiction.

Capital gains derived by a Norwegian company on the realization of shares in a company resident outside of EEA are exempt from taxation if both of the criteria below are met:

The Norwegian company has held at least 10 percent of the shares and votes for at least 2 years and
The foreign company is not resident in a low-tax jurisdiction.

Capital gain

Please see Participation exemption. If the participation exemption regime does not apply, the capital gain will be taxed at the ordinary corporate tax rate of 22 percent.

Distributions

Please see Participation exemption. If the participation exemption regime does not apply, the dividends will be taxed at the ordinary corporate tax rate of 22 percent.

Loss utilization

Unused losses may be carried forward without limit. Disallowed interest deductions (see Taxable income) can be carried forward for 10 years.

Tax-free reorganizations

Merger and demergers may be carried out without triggering any adverse tax consequences.

Anti-deferral rules

The CFC rules states, if Norwegian resident taxpayers hold or control at least 50 percent of the shares or equity in certain "low taxed" foreign entities, the Norwegian resident taxpayers will be subject to taxation on a current basis for its proportionate share of the foreign entity's profits. A foreign legal entity is considered "low taxed" if the entity is subject to less than 2/3 of the Norwegian tax on the same income (ie, generally 14.67 percent in 2023).

The CFC rules does not apply if Norway has entered into a tax treaty with the relevant country and the income is not of a mainly passive nature. The same applies to entities resident in EEA-countries, provided that real business activities are carried out in the relevant jurisdiction.

Foreign tax credits

Foreign taxes paid on income subject to Norwegian taxation may be credited under the Norwegian tax credit system.

Special rules applicable to real property

Municipal authorities levy real estate tax on the ownership of real estate. Real estate tax applies to the assessed real market value of the real estate at rates ranging between 0.1 percent and 0.7 percent. Some municipalities do not levy real estate tax.

Transfer pricing

The Norwegian transfer pricing rules are based on the arm's-length principle and the OECD guidelines. Documentation requirements apply to cross-border transactions with affiliated companies.

Withholding tax

Dividends, royalties, interest, rents, etc.

Dividends

Under the general rule, a dividend payment to a foreign shareholder will be subject to 25-percent withholding tax.

Dividend payments to corporate shareholders resident in the EEA are exempt from withholding tax, provided that the shareholder conducts a real business activity in the relevant jurisdiction. Otherwise, the rate may be reduced under an applicable tax treaty.

Dividend payments to shareholders resident outside the EEA are subject to 25-percent withholding tax, unless the rate is reduced under an applicable tax treaty.

Documentation requirements apply in order to benefit from exemption from or reduced dividend withholding tax.

Service fees

Royalties, interests, rents, etc.

Interest, royalties and lease payments for certain types of tangible assets (eg, ships, rigs, planes) paid to related parties resident in low-tax jurisdictions outside the European Economic Area (EEA) are subject to a withholding tax of 15 percent.

Royalties, interests and lease payments to corporate shareholders resident in the EEA are exempt from withholding tax, provided that the shareholder conducts a real business activity in the relevant jurisdiction.

Norway does not levy withholding tax on service fees.

Capital duty, stamp duty and transfer tax

The sale or other transfer of real estate is generally subject to 2.5-percent stamp duty, based on the market value of the real estate. Transfer tax is generally not levied.

Employment taxes

Employers are obliged to pay employer's contributions of the total salary. The rate is differentiated regionally and ranges between 0 percent and 14.1 percent. For 2024, the employer’s contribution amounts to 19.1 percent for employee salaries exceeding NOK 850,000 per year.

Employers are further obliged to make tax deductions from the salary payments made to the employees.

Other tax considerations

Foreign employees

Foreign employees who work temporarily in Norway may opt to pay 25-percent salary tax on the gross remuneration received, up to a certain maximum (NOK670,000 in 2023). The 25-percent salary tax is final, and no deductions are allowed. Certain exemptions apply.

Key contacts

Jonas Aartun

Partner DLA Piper [email protected] T +47 95 07 44 47