What foreigners need to know about Norway's PAYE tax system
Norway has a streamlined 'Pay As You Earn' tax system for new arrivals in the country. Here's how the scheme works and how much you will be expected to pay.
Any talk of the healthy salaries offered in Norway normally comes with warnings of high taxes and a steep cost of living.
Norway has a mix of both flat and progressive taxes.
While this sounds complicated, most wage earners are taxed at a flat rate of 22 percent regardless of their income. After that, they are taxed progressively on their income. This is called the bracket tax.
READ ALSO: Does Norway really have some of the highest taxes in the world?
Those with higher incomes pay more bracket tax the more they earn. The bracket tax ranges between 1.7 and 17.5 percent.
Most new arrivals in Norway will not need to worry about which bracket they will occupy, though.
That is because Norway has a tax scheme aimed at foreigners in the country. Most new foreign workers in Norway will automatically be part of the voluntary PAYE (Pay As You Earn) tax scheme.
This means that new arrivals in Norway will be taxed a fixed percentage, which is automatically deducted from their salaries.
The tax rate for the PAYE scheme is 25 percent. However, in some cases, it may be set to 17.2 percent, such as if you are exempt from paying national insurance.
There is no bracket tax for those in the PAYE scheme. This means that, in some cases, you will pay lower taxes if you are in the PAYE scheme—but not always.
The PAYE scheme is also voluntary. This means you can opt out if you prefer to be on the regular scheme.
More information on how to drop out of the PAYE scheme can be found on the Norwegian Tax Administration website.
When is it better to be in the PAYE scheme?
If you earn between 279,150 and 670,000 kroner during your first tax year in Norway, you will pay less tax in the PAYE scheme. If you earn less than 279,149 kroner, the combined bracket and income tax will be lower than the flat 25 percent of the PAYE scheme.
Those who earn between 279,150 kroner and 642,949 kroner pay a bracket tax of 4 percent. This means a tax rate of 26 percent.
Finally, those who make between 642,950 and 926,799 kroner pay 13.5 percent bracket tax. However, the PAYE scheme has a limit of 670,000 kroner.
Anyone who makes more than this is no longer eligible for the scheme. This means that if you earn over 670,001 kroner, you should be admitted into the general tax system.
One thing to remember is that national insurance contributions are also deducted from one's salary.
In many cases, adding those to the PAYE scheme can make it more expensive to be part of the Pay As You Earn system than the general tax system.
However, higher earners below the PAYE limit will pay less in tax and national insurance than those who use the regular scheme.
The Norwegian Tax Administration has a calculator that allows you to determine how much tax you will be expected to pay after deductions. This can help you decide which scheme is best for you.
Other important differences between the PAYE scheme and the general tax system
The Pay As You Earn scheme is also more simplified than the regular tax system. For starters, you won't need to file a tax return. Instead, you will receive a tax receipt which shows how much money you have paid for the year.
However, there are some downsides to this. Without a tax return, you are unable to make deductions. Deductions in Norway come in a number of forms, such as having children in childcare, being a union member, having commuter expenses, or paying interest on loans and debts.
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Any talk of the healthy salaries offered in Norway normally comes with warnings of high taxes and a steep cost of living.
Norway has a mix of both flat and progressive taxes.
While this sounds complicated, most wage earners are taxed at a flat rate of 22 percent regardless of their income. After that, they are taxed progressively on their income. This is called the bracket tax.
READ ALSO: Does Norway really have some of the highest taxes in the world?
Those with higher incomes pay more bracket tax the more they earn. The bracket tax ranges between 1.7 and 17.5 percent.
Most new arrivals in Norway will not need to worry about which bracket they will occupy, though.
That is because Norway has a tax scheme aimed at foreigners in the country. Most new foreign workers in Norway will automatically be part of the voluntary PAYE (Pay As You Earn) tax scheme.
This means that new arrivals in Norway will be taxed a fixed percentage, which is automatically deducted from their salaries.
The tax rate for the PAYE scheme is 25 percent. However, in some cases, it may be set to 17.2 percent, such as if you are exempt from paying national insurance.
There is no bracket tax for those in the PAYE scheme. This means that, in some cases, you will pay lower taxes if you are in the PAYE scheme—but not always.
The PAYE scheme is also voluntary. This means you can opt out if you prefer to be on the regular scheme.
More information on how to drop out of the PAYE scheme can be found on the Norwegian Tax Administration website.
When is it better to be in the PAYE scheme?
If you earn between 279,150 and 670,000 kroner during your first tax year in Norway, you will pay less tax in the PAYE scheme. If you earn less than 279,149 kroner, the combined bracket and income tax will be lower than the flat 25 percent of the PAYE scheme.
Those who earn between 279,150 kroner and 642,949 kroner pay a bracket tax of 4 percent. This means a tax rate of 26 percent.
Finally, those who make between 642,950 and 926,799 kroner pay 13.5 percent bracket tax. However, the PAYE scheme has a limit of 670,000 kroner.
Anyone who makes more than this is no longer eligible for the scheme. This means that if you earn over 670,001 kroner, you should be admitted into the general tax system.
One thing to remember is that national insurance contributions are also deducted from one's salary.
In many cases, adding those to the PAYE scheme can make it more expensive to be part of the Pay As You Earn system than the general tax system.
However, higher earners below the PAYE limit will pay less in tax and national insurance than those who use the regular scheme.
The Norwegian Tax Administration has a calculator that allows you to determine how much tax you will be expected to pay after deductions. This can help you decide which scheme is best for you.
Other important differences between the PAYE scheme and the general tax system
The Pay As You Earn scheme is also more simplified than the regular tax system. For starters, you won't need to file a tax return. Instead, you will receive a tax receipt which shows how much money you have paid for the year.
However, there are some downsides to this. Without a tax return, you are unable to make deductions. Deductions in Norway come in a number of forms, such as having children in childcare, being a union member, having commuter expenses, or paying interest on loans and debts.
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