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?
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.
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.
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.
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.