15 May 2018, the Norwegian Government submitted a Revised 2018 National Budget. There are no substantial changes or major surprises, but some minor changes are proposed. We will give you a short summary of the most important changes:
Announced changes in documentation requirements for reduced withholding tax on dividends to foreign shareholders
Under section 10-13 of the Taxation Act, foreign shareholders who receive dividends from a Norwegian limited company must pay withholding tax. As a general rule the withholding tax rate is 25%. The rate is to be reduced if this results from a tax agreement or the exemption method.
The tax is determined by the issuing company notifying the tax authorities about deducting the tax. The issuing company has an obligation to make and pay deductions and can be held responsible for incorrect payment. The foreign shareholder for his or her part can apply for a refund of the tax if the deduction is incorrect.
The issuing company is only able to deduct reduced withholding tax when the company is aware that the actual owner of the dividend received is entitled to such a reduced rate.
At the introduction of the Tax Administration Act, new documentation requirements were proposed for a foreign shareholder to be entitled to a lower withholding tax deduction. This was primarily based on the shareholder having to document in advance his or her residence and that the person in question was the actual owner of the dividend received. For legal entities, there was also a requirement for prior approval by Norwegian tax authorities. Out of concern for resources, both for the authorities and some shareholders, the implementation of these rules was postponed to 1 January 2019.
After a new resource and expense assessment, the Ministry has decided that additional changes are needed in the documentation rules. The Ministry is signalling that the rules on reduced withholding tax should be based on a principle that the documentation must be available before distribution of the dividend takes place. The Tax Directorate has already been given the task of proposing changes in the documentation rules. According to the schedule, the proposal will be sent for consultation in June 2018.
Simpler rules for foreign employees
The purpose is to introduce simpler rules for taxing persons who reside abroad but work in Norway. The scheme will primarily apply to foreign employees with short stays in Norway. The proposal is based on:
• Wage income is taxed according to a gross method at a fixed rate. It has been proposed that the rate be set at 25% in 2019.
• A taxpayer does not get deductions from the tax basis or the calculated tax.
• The tax is determined continuously through the employer’s tax deductions and subsequent report to the Tax Authority.
• A taxpayer need not submit a tax report for income covered by the scheme.
• Gross employment income (wage income and taxable benefit income) is a separate tax basis and will not be coordinated with other bases.
• A taxpayer who becomes a resident of Norway will be able to be taxed according to this scheme for the rest of that year.
• Persons with business income cannot be included in the scheme.
• A taxpayer who has annual income greater than Bracket 3 in the bracket tax will not be able to be covered by the scheme. Those with earnings above this ceiling will be taxed according to regular rules.
• The scheme is voluntary, so that a taxpayer can choose to be taxed according to the regular rules.
The new rules will make the taxation of this group simpler. The Tax Authority has pointed out that many errors are made in connection with this taxation and the work demands a great deal of resources.
The Ministry is proposing that the amendments to the Taxation Act, the Tax Administration Act and the Tax Payment Act enter into force immediately, with effect from the 2019 income year.