Tax for Americans in Norway

Why are Americans in a special position?

There are several factors that make Americans in a special position. American tax law is based on the principle of citizenship. This means that Americans who emigrate to, for example, Norway remain liable to pay tax to the United States if they maintain their citizenship. This means that the taxpayer must submit both Norwegian and US tax returns.

In the United States, there are also special rules that mean that you can choose whether a company should be taxed as a separate tax entity or whether the taxation should take place on the owner's behalf. Such a right to vote does not exist in Norway. Ownership taxation in Norway may therefore be different from that in the US.

There is also a completely different pension system in the United States, which can make it challenging for an American who moves to Norway if they do not prepare for a Norwegian tax regime.

From a legal point of view, this is a tax law challenge because  the tax treaty is older and is overripe for an audit. Here you can read about the status of the new tax treaty: A new tax treaty with the United States is still up in the air. 

Although there are challenges, there are also opportunities and it is important to plan an emigration to Norway. Here are some points to think through.

1. The tax treaty

Norway and the United States have entered into a tax treaty with the aim of avoiding double taxation. If a US citizen, who is tax resident in Norway, experiences that an income is taxed to both states, the warning lights must be flashing. In principle, this should not happen.

Most tax treaties are based on the credit method. In practice, this means that a person who is resident in Norway under Norwegian tax rules and under the tax treaty is entitled to a deduction from Norwegian tax for the tax paid abroad (withholding tax) on the same income.

The US tax treaty is special because it is based on the distribution method (the exemption method). The starting point is therefore that if a US citizen is resident in Norway according to Norwegian rules and the tax treaty, Norway must exempt the foreign income from taxation in Norway in the event of double taxation. The US will then have exclusive taxation rights.

Furthermore, there are exceptions to the main rule about the exemption method that are very difficult to access in the agreement, and here we see that many people make mistakes. However, the Ministry of Finance has clarified some of the ambiguity in connection with tax on dividends. If the American receives dividends from US companies, Norway will provide a credit for US tax.

Exceptions to the allocation method beyond this are, in our view, highly unclear.

Another special rule in the Norwegian-American tax treaty is that the United States can tax its citizens as if the treaty had not entered into force. Norway does not have a similar right. In practice, this means that you must have local American clarification of the tax consequences in the US in order to make a final decision on taxation in Norway.

2. Pension

The pension system in the US is completely different from that in Norway, where individual pension savings are central. It is quite common for Americans to set aside money for a so-called IRA (Individual Retirement Account). This is a tax-incentivized retirement savings scheme offered by approved investment firms in the United States according to specific rules.

The problem with IRAs is that in some cases, the Norwegian tax authorities have concluded that the IRA is a capital investment that should be included in the wealth, and that the return should be taxed on an ongoing basis as capital. We believe this is wrong because the American can then be double taxed in violation of the tax treaty. In the United States, withdrawals from the IRA account can be taxed as a pension according to American rules. If these funds are already taxed as capital income in Norway, the funds will be taxed twice and this is in violation of the tax treaty. In our view, this would also be discrimination against Americans in violation of the tax treaty.

3. Wealth tax

In contrast to many more recent tax treaties, the tax treaty between Norway and the United States includes wealth tax. For many Americans, this is an important rule because many people own real estate in the United States. As a state of residence, Norway has accepted that real property in the United States will be exempt from Norwegian wealth tax.

4. The Tax Commission

The Tax Commission has proposed changes to the exit tax that may have an impact on foreign nationals who move to Norway. If, for example, a US citizen moves to Norway and becomes globally liable to pay global tax here, he will risk full exit tax on financial investments at a later date. Such taxation will prevent mobility within working life. An American who wants to move to Norway for the sake of the labor market may risk a significant exit tax if he or she later moves back to the United States. The Commission proposes that exit tax should not apply to persons who have only been temporarily resident in Norway. An exemption from the tax is proposed if the taxpayer has only been resident in Norway for up to 7 of the last 10 years. This corresponds to the same scheme as in Denmark.

The Commission also proposes that a rule on upward adjustment of input values at the time of occupancy be investigated. If an American moves to Norway with shares acquired before the move, he will be able to claim the input value set at market value at the time of moving in, according to such a rule. This means that only the increase in value in Norway will be taxed.

Part of the challenge for Americans, however, is the wealth tax. Wealth created in the United States will be taxed in Norway according to the wealth tax rules upon immigration, and no changes are proposed to these rules.

5. Routines for tax returns

It is particularly important for Americans to coordinate their reporting to Norway and the United States. This is particularly true to ensure that double taxation is avoided. It is also an advantage to have coordination before moving to Norway. In many cases, it is possible to take measures in advance to avoid tax risk and inconvenience when moving in.