Moving to Norway?

Tax residence upon immigration 

The public debate on wealth tax and exit tax has largely focused on Norwegian founders, investors and business owners who move abroad. Less attention has been given to the position of foreign nationals who move to Norway, or who stay in Norway for extended periods. From a tax perspective, Norway may become less attractive both for investors with substantial capital and for individuals who wish to establish or develop businesses. 

Foreign nationals staying in Norway risk becoming tax resident under the Norwegian Tax Act’s immigration rules. A person who stays in Norway for more than 183 days during any 12-month period will generally be regarded as tax resident in Norway. The same applies where the person stays in Norway for more than 270 days during any 36-month period. 

Once a person becomes tax resident in Norway, the main rule under Norwegian domestic law is the global tax principle. This means that the person must report, and may be taxed in Norway on, income and wealth regardless of where the income is earned or where the assets are located. 

For many foreign nationals, an applicable tax treaty between Norway and their home country may reduce or limit the Norwegian tax liability, provided the relevant treaty conditions are met. However, not all tax treaties contain provisions on wealth tax. Where the treaty does not limit Norway’s right to levy wealth tax, a stay in Norway may, depending on the circumstances, result in Norwegian wealth tax on assets located outside Norway. 

 

Taxation of values created outside Norway 

One important consequence of becoming liable to Norwegian wealth tax is that assets and values created outside Norway may become taxable in Norway. For business owners and investors, this can be particularly challenging. 

If a taxpayer holds shares in a foreign company, Norwegian wealth tax may create a need to extract dividends from the company to finance the tax. If the individual is also tax resident in Norway under an applicable tax treaty, those dividends may be taxable in Norway. The effective Norwegian tax rate on dividends is 37.84 percent, meaning that additional value may have to be distributed from the company simply to cover the tax cost. 

Foreign nationals may move to, or spend time in, Norway for many different reasons. The purpose of the stay may be relevant when assessing tax residence under a tax treaty. However, under the Norwegian Tax Act’s domestic immigration rules, the decisive factor is the number of days spent in Norway. 

 

Returning home may become costly 

If a foreign national has become tax resident in Norway, the termination of Norwegian tax residence is governed by the emigration rules. In this context, the Norwegian exit tax rules may come as a surprise. The Tax Act contains a provision that may allow the taxpayer to step up the tax basis of certain assets to market value at the time of immigration. Even so, the latent gain upon emigration may still be significant if the relevant shares or other assets have increased in value during the period of Norwegian tax residence. Under rules requiring exit tax to become payable within 12 years, moving out of Norway may therefore create a tax cost that forces the taxpayer to sell shares or extract funds from a company to finance the tax. 

 

The three-year waiting period 

For foreign nationals who have lived in Norway for a longer period, the emigration rules may create an additional challenge. If a person has been tax resident in Norway for more than 10 years, Norwegian tax residence does not cease immediately upon moving abroad. Instead, residence may continue until the end of the third income year after the year in which the person took up permanent residence abroad. This is subject to the conditions that the taxpayer does not have a dwelling available in Norway and does not stay in Norway for more than 61 days in each of those three income years. This can make emigration particularly costly from a wealth tax perspective. For example, a person who originally moved to Norway from Sweden, and whose wealth exceeds the tax-free allowance, may remain liable to Norwegian wealth tax for three years after moving back to Sweden, even if the person no longer owns assets located in Norway. 

 

Moving to Norway may become very costly 

The Norwegian wealth tax is particularly challenging in a tax system that also imposes a high tax on dividends. A shareholder who needs dividends to finance wealth tax must also finance the dividend tax triggered by those distributions. This can significantly increase the total cash requirement. For foreign nationals in an immigration situation, the combined tax burden may become so high that moving to Norway is no longer attractive. In some cases, the individual may decide to move back to their country of origin. The reason for leaving Norway may be tax-related, but it may also be entirely personal, such as relationship breakdown, dissatisfaction, or termination of employment. Regardless of the reason, emigration may trigger exit tax. 

The combined effect of wealth tax, dividend tax and exit tax means that, in some cases, the best professional tax advice may be not to move to Norway at all. For entrepreneurs and investors, it may also be preferable, depending on the circumstances, to establish and hold business interests outside Norway rather than in Norway.