Tax deduction for share contributions in start-up companies - the tax incentive scheme

Conditions for the start-up company

The start-up company must be a Norwegian limited company. In addition, the scheme applies to similar companies within the EEA that have limited tax liability to Norway. Detailed and strict requirements are set for the start-up company’s activities and organization. The conditions follow from the Norwegian Tax Act section 6-53. Among other things, the following applies:

• The start-up company cannot be listed on a Norwegian or foreign stock exchange.
• The scheme does not apply to share contributions in companies where public bodies, alone or together with other public bodies, control more than 24% of the capital or voting rights.
• The start-up company cannot be older than six years, including the year of incorporation, the year the capital increase is registered in the Register of Business Enterprises. The capital increase must therefore be registered in the Register of Business Enterprises by the end of the sixth year, including the year of incorporation.
• The start-up company must primarily engage in activities other than passive capital management. As a rule, activities related to passive capital management must not exceed 10 % of the company’s total activities.
• The start-up company cannot be in financial difficulties.
• The start-up company’s total operating income and balance sheet total must, at the end of the year that the company or the capital increase is registered in the Register of Business Enterprises, be less than NOK 40 million. If the company is part of a group according to the Norwegian Companies Act section 1-3, it is the total operating income and balance sheet total of the group that is decisive.
• The start-up company’s average number of employees at the end of the year that the company or the capital increase is registered in the Register of Business Enterprises must be less than 25 full-time equivalents. If the company is part of a group according to the Companies Act § 1-3, it is the average number of full-time equivalents in the group that is decisive.
• The start-up company must have an annual payroll cost of at least NOK 400,000.

Maximum Share Contribution per Year

• To qualify for a deduction, the capital contribution must be made in the form of a share contribution in connection with the company’s incorporation or through a later capital increase by subscribing for new shares. The capital contribution can be made as share capital and/or paid-in premium.
• The start-up company cannot receive more than a total of NOK 5 million annually in deductible share contributions.
• If share contributions exceed the maximum amount, the company must specify which amount applies to deductible share contributions and which investors have made payments of at least NOK 30,000.

Reporting Requirements

• The share capital increase must occur in connection with the company aiming to raise capital through the tax incentive scheme. An investor cannot unilaterally make share contributions in one or more companies and unilaterally claim a deduction.
• The start-up company must provide the tax authorities with information about which investors have made deductible share contributions.
• The reporting is done in the start-up company’s shareholder register statement. When the investment is made by an intermediate holding company, the holding company must provide corresponding information in its shareholder register statement. If this is reported correctly, the investor will have the deductible contributions pre-filled in the tax return.

 

Investor Terms

The Deduction is Personal

The right to deduction applies to personal investors. Public companies/holding companies cannot obtain deductions. The same applies to participating companies. Deductions can only be given for share deposits once in one company.

Personal deduction for investments through a company

The personal investor may receive deductions for share deposits in a start-up company made by a company in which they own shares. The intermediate company must be a limited liability company and may be owned in whole or in part by the personal investor. There is no right of deduction if there is more than one company between the personal investor and the start-up company. If the limited company that makes share deposits has several shareholders, the individual shareholder is given deductions based on their ownership interest in the company.

Share deposit size – max. NOK 1 million per year

At a minimum, the share deposit must amount to NOK 30,000 in the individual company. The personal investor can invest in as many companies as they want, but the total deduction cannot exceed NOK 1 million per year.

Independence requirements between company and investor

• The investor may not be or have been a shareholder of the company or other group company. The same goes for the investor’s relatives.
• The investor may also not be or have been employed by the start-up company or by other group companies. The same goes for the investor’s relatives. In a temporary arrangement for 2020 and 2021, employees and employees’ relatives will still be able to invest.
• Note that board members aren´t considered employees in this context.
• Furthermore, it is a condition that the investor will not be employed by the company or another group company during the binding period of three years.

Binding period of three years

• The right to deduction is conditional on the investor retaining all shares for at least three calendar years after the end of the calendar year in which the limited company or the capital increase is registered in the Register of Business Enterprises.
• If the share investment is made by an intermediate company, the same binding period applies to this company. The same binding period also applies to the investor’s ownership interest in the intermediate company.
• If one or more of the shares that formed the basis for the right to deduction are transferred before the end of the ownership period, the investor loses the right to the entire deduction. The tax assessment must then be changed for the year the deduction was given, either by the investor themselves through self-correction or by the tax office.
• If shares are transferred as a gift or gift sale, the shares are considered no longer retained. This applies even if continuity applies to the transfer.
• If shares in the company are transferred during the three-year period and the investor or the intermediate company has made contributions with the right to deduction and contributions without the right to deduction, the shares that do not give the right to deduction are considered to be realized first.

Investor Cannot Receive Dividends for a Three-Year Period

The right to deduction is conditional on the investor or the investor’s related parties not receiving dividends from the start-up company for at least three calendar years after the end of the calendar year in which the limited company or the capital increase is registered in the Register of Business Enterprises. Loans to the shareholder that are taxed as dividends are also considered dividends. The same applies to payments in connection with capital reduction in the start-up company.