Do you have assets abroad?

Income and assets abroad

The pre-filled tax return often does not contain information about income and assets abroad, and many people forget to state this. Many people are also unaware of the existence of tax treaties that can reduce the taxation of income and assets abroad.

The global tax principle

Taxation in Norway is based on the global tax principle. This means that taxpayers who are resident in Norway are in principle liable to pay tax to Norway on all income and assets in Norway and abroad. The taxpayer is therefore obliged to declare their global income and assets in their tax return.

Although all income and assets abroad must be declared in the tax return, it's not necessarily the case that the taxpayer has to pay tax to Norway on the income from or assets abroad. Norway has entered into tax treaties with many countries, all of which aim to prevent income and assets from being taxed in both countries, so-called double taxation. However, we see that many taxpayers are not aware that they can receive tax treaty protection, and in other cases the tax treaty may be interpreted incorrectly.  

Avoid double taxation

Double taxation means that income is taxed both in Norway and in another country. This can be avoided through various methods regulated in tax treaties between the countries. The most common is the credit method, which means that a person resident in Norway claims a deduction from Norwegian tax for the tax paid abroad. This is a tax position that does not appear in the pre-filled tax return, and it is therefore important that the taxpayer himself claims such a credit deduction.

If the credit deduction cannot be fully utilized in Norwegian tax, the tax position can be carried forward to later years. A carried forward credit deduction is a tax position that can be included in the pre-filled tax return, but the taxpayer must check this.

Another method of avoiding double taxation is for Norway to exempt income from Norwegian taxation if it is earned abroad. Some tax treaties may have such an exemption method. This applies in particular to older tax treaties.

Different treatment of wealth and income

In the context of tax treaties, wealth and income are two different tax objects. In many tax treaties, wealth is not covered by the tax treaty. A person who is resident in Norway under internal Norwegian rules may therefore be subject to wealth tax even if the taxpayer is resident in another state under the tax treaty. This can prove to be a trap for the taxpayer and can affect both people who are in an immigration situation and people who emigrate from Norway.

Trump and tax treaties

An important tax treaty where the exemption method is the main method is the tax treaty with the USA. The tax treaty dates from 1971 and is currently being renegotiated, but it is uncertain when a new agreement will be ready. The treaty is special in several respects and has different regulations compared with other treaties.

Norway and the US are based on two different principles for taxation. In Norway, the taxpayer will be subject to global taxation if the taxpayer is resident in Norway. This residency principle is common internationally, but the US is based on the citizenship principle. Therefore, a person who is a US citizen will in principle be liable to pay tax to the US even if they are resident in Norway. For Americans, this creates extra challenges because both a US tax return and a Norwegian tax return must be submitted.

The Trump administration has issued a number of so-called "Presidential Actions". On January 20, the White House announced that all commitments entered into by the Biden administration relating to the OECD's "Global Tax Deal" will not have effect in the US. The scope and consequences of this are not entirely clear. In addition, the executive order states that the US will review whether countries comply with US tax treaties or have discriminatory tax policies. The results of the review must be presented to the President within 60 days.

It is unclear what significance this has or may have. There are already rules in the tax treaties that prohibit discrimination. This also applies to the US tax treaty. There are examples from Norwegian tax authorities' practice that mean that Americans in Norway with pension schemes under US rules are taxed in Norway under the capital rule. This can have very unreasonable consequences for the taxpayer. Whether this is affected by Trump's work remains to be seen.

Check the tax treaty

The application of tax treaties is largely left to the taxpayer. Tax positions that the taxpayer has under tax treaties are to a small extent pre-filled. It is therefore up to the taxpayer to consider applicable tax treaties  in order to prevent double tax.