The Norwegian parliament approved the revised budget for 2016 on Friday 17 June 2016. The tax changes affecting private investors were limited.
Furthermore, a loan from a partnership to a partner will be treated as dividend income (same as for loans from a shareholder). Also, minor specifications related to the taxation of investments in funds were approved.
Parliament approval of tax reform
The Norwegian parliament also approved the tax reform proposal by the government (Innst. 273S - Innstilling til Stortinget fra finanskomiteen) on 31 May 2016.
The implementation of the tax reform will continue in conjunction with the budget for 2017.
Continue reading to understand the key changes regarding investors.
The corporate tax rate and the tax on ordinary income will be reduced to 23% by 2018. There may be further tax relief depending on the developments in the economic situation of Europe and especially of the neighbouring countries.
The total tax burden on shareholder income will remain at the current level. With a corporate tax rate of 23% this means that tax on “ownership income” will need to be increased to 31% by 2018. Depending on the developments in the neighbouring countries, further tax increases are possible.
The risk free interest will be increased to better reflect the risk free return. The government is to revert with a proposal in conjunction with the budget for 2017.
The government will propose a new regime to further encourage long-term savings enabling taxpayers to defer capital gains taxation in conjunction with the realisation of shares and investment funds.
For wealth tax purposes, there will be a 20% discount on the valuation of shares and business assets.
The valuation of second homes will also be reviewed as they are currently undervalued.
The government will examine wealth tax issues related to companies subject to financial losses, who are unable to distribute dividends, as well as a temporary wealth-tax relief for founders doing an IPO. Any relief will be in force as of the 2016 tax year and the details will be set out in the budget proposal for 2017.
Measures concerning tax planning of multinational companies
The limitations on deducting interest should be extended to include external debt, but without affecting ordinary corporate financing. For such purpose, there is no concrete proposal yet.
The Norwegian tax system will be reviewed to evaluate how well it can tackle complex financial instruments and corporate structures used by multinational corporations.
A committee will be established to further review limitations to the secrecy obligation of tax experts and lawyers concerning corporate structures and the rationale behind clients’ financial transactions.
The OECD BEPS (Base Erosion and Profit Shifting)* measures will be implemented as soon as possible.
There will be a public ownership register for Norwegian companies.
Impact on wealth structuring with life assurance
The decisions taken by the Norwegian parliament are positive for investors using life assurance for long-term wealth management and further support the benefits that life assurance receives from the standard income tax rate.
The introduction of a new savings regime is positive for Norwegian residents, who previously had to set up corporate structures to benefit from tax deferral on their investments in shares.
The use of life assurance for long-term savings and succession planning will continue to be attractive for Norwegian residents investing in such products. Life assurance offers tax deferral for all asset classes and can take advantage of the lower ordinary income tax rates.
If you have any questions or require further information, please contact Marjanne Olesen, Country Manager Norway.
*Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.