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How does income tax in Norway compare to the rest of the Nordics?

How different is the Norwegian income tax system from that in countries with similar models – and is it more expensive?

How does income tax in Norway compare to the rest of the Nordics?
Photo: Darya Tryfanava on Unsplash

Norway is known for having one of the world’s highest income tax rates, but how does the system break down and compare to the other Nordic nations?

Norway’s general income tax (skatt på alminnelig intekt) has a flat rate of 22 percent. This covers not only income from employment, but also from business and capital. Tax allowances, expenses, and certain losses are deductible.

The general income tax in Norway is divided by three recipients: county tax, municipal tax and state tax.

READ ALSO: Taxes in Norway: Everything you need to know about how much tax people pay

In addition to the flat rate general income tax, bracket tax (trinnskatt) is added for personal income of higher earners.

In 2020 (as in 2019), personal income between 180,800-254,500 Norwegian kroner (16,700-23,480 euros) is subject to a bracket tax of 1.9 percent. This increases to 4.2 percent for income of 254,500-639,750 kroner (23,480-59,000 euros); 13.2 percent for 639,750-999,550 kroner (59,000-92,200 euros) and 16.2 percent for person income above this upper limit.

Benefits in kind and pensions, as well as income from employment, are liable to personal income tax.

Wage earners in Norway are also required to pay social security contributions, together with income tax. This is currently (2019) 11.4 percent for self-employed people and 8.2 percent for employees. Income under 54,650 kroner is exempt, and people under the age of 17 and over 69 pay a lower rate of 5.1 percent.

Foreigners – particularly EEA nationals – who live in Norway may be exempt or partly exempt from the Norwegian social security payments, depending on arrangements in their home country.

The country in introduced in 2019 a PAYE (pay as you earn) reporting system familiar to taxpayers in countries such as the United Kingdom for non-residents who work in the country and are liable to pay tax (except for offshore workers below a certain salary bracket). The aim of this is to simplify the system for non-resident workers, so they don’t need to file individual tax returns. Deductions are not applicable for PAYE taxpayers, who be able to elect a flat tax rate of 25 percent.

Income tax in Denmark is divided into a number of components, of which the most important are the two state taxes, basic and top tax (bundskat and topskat); municipal tax and labour market tax (AM-bidrag).

The simplest of these, the labour market tax, comprises 8 percent of the person income.

The state taxes consist of the basic tax of 12.14 percent (in 2020), which is applied to personal income plus net capital income. Earnings over the topskat threshold of 531,000 Danish kroner (72,300 euros) are taxed at a rate of 15 percent. The maximum overall tax rate for this top margin of income cannot exceed 52.06 percent (in 2020).

Municipal tax is the personal income tax which covers municipal services. The amount paid by individuals is dependent on the municipality in which they live and municipalities generally decide their own rates within limits set by the government. As a result, the municipal tax rate can range between about 22 and 27 percent depending on address. The average municipal tax rate in 2019 was 24.93 percent.

Denmark also has a small church tax, which is applied at a flat rate. The exact rate depends on the municipality, but averages at 0.674 percent. Only members of the Church of Denmark (Folkekirken) pay this tax, so foreigners who have moved to the country in adulthood (as well as people of other religions) generally won’t see it on their tax slips.

READ ALSO: MAP: These 15 Danish municipalities are set to increase taxes

Municipal tax is added to two other basic taxes, AM-bidrag and bundskat, as well as topskat for high earners, to calculate an individual’s overall income tax payment.

As well as income from employment, other types of personal income are included in the tax calculation. These can include pension distributions, social security benefits, property earnings, remuneration for advisory assistance and dividends from Danish companies.

A complex list and system of deductions (fradrag) is used by the Danish tax model, with deductions applicable to the various types of income or tax base.

A key deduction is for employment expenses. Up to 10.50 percent of employment income up to a limit of 39,400 kroner (in 2020) can be dudected from the taxable income. Other deductions can be given for charitable contributions, child support maintenance and union and a-kasse membership fees. Losses on debt are not generally deductible.

Social security contributions in Denmark are financed primarily through ordinary tax revenue.

In Sweden, national tax of 32 percent is only paid on annual income over a certain amount – this was 490,700 Swedish kronor (47,400 euros) in 2019. If you earn less than this, the national tax is not applicable.

In addition to national tax, local or municipal tax must be paid. This consists of two parts: the tax you pay to the municipality (kommun) where you live and the region (landsting). So if you for example live in Malmö, your taxes go to Malmö City Council and are used to fund, for example, schools, and Region Skåne, which is responsible for healthcare.

The average municipal tax rate in Sweden is 32 percent, but it can reach as high as 35 percent depending on where you live.

READ ALSO: MAP: Here’s how much tax you’ll have to pay in Sweden in 2020

Deduction rules you can enable you to reduce your overall tax rate by earning a fair bit more than the 490,700 kronor limit without actually having to pay the national tax.

Expenses incurred during fulfilment of employment can generally be deducted from the income on which you are taxed. These include things like travel expenses, car expenses, living allowances on business trips, necessary literature and tools of the trade. For travel between home and work, expenses must exceed 11,000 kronor to be deductible.

A number of deductions can be applied to the income against which tax is calculated. These include the personal deduction (personfradrag) of 51,300 kroner; and a minimum deduction (minstefradrag) designed to cover standard expenses connected to employment. Other costs like charity and union contributions are also deductible.

Sources: PWC (1) (2) (3), SCB, Regjeringen, Skat

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For members


What changes about tax in Norway in 2022?

Next year will see changes in the taxes you pay on your income in Norway, increases to the cost of several everyday items and new rules for how much you can deduct from your annual bill.

Pictured is two people making calculations.
These are the changes to tax you need to know about that. Pictured is two people making calculations. Photo by Scott Graham on Unsplash

Lower income tax for the majority

Most wage earners in Norway will pay lower taxes in the new year. Those who earn less than 750,000 kroner per year will pay less in taxes. According to the government, around 82 percent will pay less or the same in taxes.

In addition, those aged between 17 and 29 who earn less than 535,000 kroner will receive a tax credit of up to 5,170 kroner.

Residents of Norway pay an income tax of 22 percent, in addition to a bracketed tax that is calculated based on your income.

Increased bracket tax for higher earners

Norway’s bracket tax, an incremental tax paid based on your earnings and paid alongside the flat rate, will be raised for higher earners. In general, income tax will become higher for those who earn more than 643,800 kroner a year and the entry points for steps three and four for the incremental tax will be lowered. In addition, a fifth step for the highest earners, who make more than 2 million kroner, will be introduced.

READ ALSO: What changes about life in Norway in 2022? 

Petrol to cost more

The cost of fuel will go up considerably due to hiked taxes on petrol and diesel. Petrol tax is set to rise to 1.60 kroner per litre, and diesel tax will increase to 1.87 kroner per litre.

Wealth tax increases and changes

The wealth tax will be increased to 0.95 percent of personal assets, and for those who have assets of more than 20 million kroner (40 million for spouses), a rate of 1.1 percent will apply.

Houses with a valuation of more than 10 million kroner will receive an increase in taxation. Primary homes are currently valued at 25 percent of market value. The portion of a house valued above 10 million kroner (for example, five million kroner if the property is worth 15 million), will be taxed at 50 percent of market value.

The valuation of shares and fixed assets will increase from 55 percent to 75 percent from the income year 2022.

Union deductibles to increase

People who are members of a trade union will receive a tax deduction of 5,800 kroner. The union deductible was previously 3,850 kroner. In 2023 the deduction will increase to 7,700 kroner.

Deduction for gifts and donations to voluntary organisations will be reduced

The maximum tax deduction you can claim for donations to voluntary organisations will be halved from 50,000 kroner to 25,000 kroner.

Duty-free rules change

The duty-free quota rules will be changed from January 1st, meaning it will no longer be possible to replace the tobacco quota with 1.5 litres of wine or beer. This will come as a blow to those who don’t smoke but like to grab a discount at duty-free.

Tobacco will become more expensive 

The tobacco tax will increase by five percent above the regular price adjustment. For example, the tax on a pack of twenty cigarettes will increase to 59 kroner. For snus, the tax increases from 85 kroner per 100 grams to 90 kroner per 100 grams.

CO2 tax to increase

The CO2 tax will also be increased, but road and motor insurance tax will be slashed. The travel deduction for commuters will change too. As of the income year 2022, the current two rates for travel deductions will be replaced by one common kilometre rate of NOK 1.65 per kilometre.

Electricity tax to change

Electricity tax will see a slight decrease of 8 øre (an øre is a hundredth of a krone) per kilowatt-hour during the winter and 1.5 øre during the rest of the year.