Five things foreigners should know about income tax in Norway
Moving to a new country means moving to a new tax system. Scandinavian countries are known for having a high tax on their wages and Norway is no exception.
It can take some time (years even!) to fully understand Norway’s tax rules. Here a few key points to go from.
Who pays taxes?
As a resident of Norway, you are taxed on the income you have earned in a calendar year. This includes the income that you have earned from interest, property, and shares.
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.
The general income tax in Norway is divided by three recipients: county tax, municipal tax and state tax.
The tax is calculated on your total income after permitted deductions have been deducted. How much you pay is dependent on your income.
“Income tax is a step tax, which is a progressive tax. So the more you make, the more you are taxed. It starts at 22 percent and can increase up to a maximum of 57 percent,” state authorised public accountant Petter Andreassen toldThe Local.
An exemption card or frikort can enable taxpayers to make up to 55,000 kroner tax-free within a one year period.
Everyone is entitled to a frikort, but it is necessary to apply first if it is relevant to use it.
"Ordinary workers have already included it via other deductions. You have a minimum deduction and personal deduction that takes this into account,” Andreasson explained.
The exemption was set up mostly for students and younger workers who have a part time job, he added.
Other types of tax
There are other types of taxes in addition to income tax.
In addition to the flat rate general income tax, bracket tax (trinnskatt) is added for personal income of higher earners. Bracket taxes are based on your gross income and will be calculated before deductions have been permitted.
National insurance contributions are a part of the National Insurance Scheme, or folketrygden.
National insurance contributions contribute to benefits residents receive from the Norwegian Labour and Welfare Administration (NAV) and health services.
If you are a member of the National Insurance Scheme (which happens automatically after you become a legal resident), then you must contribute. Like bracket tax, national insurance contributions are based on your gross income and will be calculated before deductions have been permitted.
In 2020, the rates for the National Insurance contribution are 8.2 percent for residents who are between 17 and 69 years. For those younger than 17 and older then 69 the rate is 5.1 percent. If you are retired, the payment rate is 5.1 percent.
You don't have to pay national insurance contributions if your income is below 54,650 kroner.
You can pay a lower tax percentage the first year you live and work here
The PAYE scheme (which stands for Pay As You Earn) is a tax scheme for foreign workers. This is for people who have stayed for short periods and work in Norway and for the first year that you are a resident for tax purposes in this country. It is a voluntary scheme and you have to meet a certain criteria.
When you take part in the scheme, you will not receive a tax return but instead will receive a receipt which shows how much salary and tax your employer has reported.
For more information about the PAYE scheme, and the eligibility criteria, check here.
Your tax return is public
It’s true. How much you make for the year, and how much you pay in taxes is open information for the public to find out. Norway brings transparency to a new level when it comes to personal finances.
Sverre Solberg, general manager at Trondheim co-working space Work-Work explained the reasoning for this to Forbes saying, “as a social democracy we don’t want there to be a huge gap between the rich and the poor. An open tax return policy shows everyone how big that gap is, making it easier to discuss and address.”
You pay half the amount of tax in December
Well, kind of. Andreassen explains why residents pay less tax for the month of December:
“This is because one should be able to afford Christmas presents and have a little extra during the Christmas period. Technically, you do not pay half tax in December. It’s more like you pay a little more for all the other months in order to cover that half not paid in December,” he says.
Advice from a professional
The best advice Andreassen has to offer is to “save money on taxes when you are young. For example, in a BSU account.”
A BSU account, also known as Young People’s Housing Savings, is available to those under the age of 34. Using the account, you can save up to 25,000 kroner a year and deduct up to 5,000 kroner a year from your tax.
You can use the savings in your BSU account for purchases such as a new home for your own use; a garage for the home; or as a payment on the interest or loan instalments of existing residential property that was established after the BSU account.
Andreassen also said was worth knowing for anyone new to Norway that when it comes to tax returns, you don’t have to do much on your own.
“As long as you are not self-employed, your employer will mostly fix the correct tax return for you,” he says.
“They are responsible for sending in your salary etc. So you don’t have to think too much about it. It’s a little more work when you're self-employed,” he adds.