Country - Norway
Corporate Vehicles
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A. DIRECT INVESTMENT
There are two ways to effect direct investments in real estate in the Norwegian system: either with or without a permanent establishment (fast driftssted) in Norway.
A permanent establishment for these purposes should not be confused with a permanent establishment from a fiscal point of view.
1. Investment without a permanent establishment
Minimum capital
Not applicable.
Set-up costs
No set-up costs as such. However, stamp duty is payable in Norway on the acquisition of real estate situated in Norway whether it is commercial, residential or industrial property (2.5% of the sale value). In addition a minor Registration Fee of approximately EUR 196 is payable in respect of the purchase deed. Lastly, legal costs will be payable.
Time required to become operative
Not applicable.
Costs per annum for corporate and accounting compliance
Not applicable.
Corporate governance
Not applicable.
Regulatory control
Not applicable.
Taxation of current income in Norway
Net current income from real estate situated in Norway is subject to general corporate income tax at a rate of 28%.
On 1 January 2006, a new tax model was adopted. This new tax model (foretaksmodellen) involves an extra tax for private investors. Non-resident individuals are subject to national and municipal taxes on current income from real estate in Norway. The current income tax rate applying to non-residents is the same as for residents. The marginal rate of taxation for private investors may be as high as 50%.
Property tax may be imposed by the relevant municipal council. This property tax will, in general, be at a rate of 0.2% to 0.7%, usually calculated on 25% to 30% of the fair market value.
Taxation of distribution of current income to investors
Payment of taxed rental income to foreign owners is not subject to any additional withholding of tax in Norway.
Taxation of capital gains
Profit on the sale of Norwegian property as such is subject to tax at 28%. If the activities related to the property are considered to constitute a business activity (being 500 or more square metres of business premises or at least five apartments for rent), the tax may be as high as 50%. This applies both to resident and non-resident sellers. This principle is also applied in Norway's tax treaties.
A system where capital gains and losses are transferred to a "profit and loss account" means that only 20% of the balance on such an account must be included in taxable income (or can be deductible) on an annual basis.
2. Investment through a permanent establishment
Minimum capital
Not applicable.
Set-up costs
The fee for registration in The Register of Business Enterprises is approximately EUR 313. In addition to the registration fee, legal costs will be incurred.
Time required to become operative
Approximately one month from the time The Register of Business Enterprise has received all the necessary documents.
Costs per annum for corporate and accounting compliance
The branch office must file an extract of accounts relating to the main company, and file a yearly tax return.
If the branch office conducts business subject to VAT, a form detailing the sales/turnover must be submitted every other month to the tax collection office.
If the branch office has a turnover exceeding around EUR 625,000 annually, the annual financial accounts must be audited by a certified auditor.
Annual costs amount to approximately EUR 2,500.
Corporate governance
Not applicable.
Regulatory control
Not applicable.
Taxation of current income in Norway
Net rental income from real estate situated in Norway is subject to general corporate income tax at a rate of 28%.
On 1 January 2006, a new tax model was adopted. This new tax model (foretaksmodellen) involves an extra tax for private investors. Non-resident individuals are subject to national and municipal income taxes applicable to real estate property in Norway. The income tax rate applying to non-residents is the same as that for residents. The marginal rate of taxation for private investors may be as high as 50%.
Property tax may be imposed by the relevant municipal council. This property tax will, in general, be at a rate of 0.2% to 0.7%, usually calculated on 25% to 30% of the fair market value.
Taxation of distribution of current income to investors
Payment of taxed rental income to foreign owners is not subject to any additional withholding of tax in Norway.
Taxation of capital gains
Profit on the sale of Norwegian property as such is subject to tax at 28%. If the activities related to the property are considered to constitute a business activity (being 500 or more square metres of business premises or at least five apartments for rent), the tax may be as high as 50%. This applies both to resident and non-resident sellers. This principle is also applied in Norway's tax treaties.
A system where capital gains and losses are transferred to a "profit and loss account" means that only 20% of the balance on such an account must be included in taxable income (or can be deductible) on an annual basis.
B. INDIRECT INVESTMENT THROUGH CORPORATE VEHICLES
Indirect investments through corporate vehicles in Norway may be accomplished using limited liability corporate vehicles or partnerships. Investments through limited liability corporate vehicles are dealt with in this section (section B) whilst partnerships are dealt with in section C.
There are two types of limited liability corporate vehicles which may be used for investments in real estate in Norway. These are the private limited company (Aksjeselskap) and the public limited company (Almennaksjeselskap).
1. Private limited company (Aksjeselskap/AS)
Minimum capital
EUR 12,500 (NOK 100,000).
Set-up costs
The fee for registration in The Register of Business Enterprises is approximately EUR 750. In addition to the registration fee, legal costs will be incurred.
Time required to become operative
Approximately one month from the time The Register of Business Enterprises has received all the necessary documents.
It is possible to obtain a company which is already established at a cost of approximately EUR 15,700. The approximate time then required to become operative is around two days.
Costs per annum for corporate and accounting compliance
A limited liability company is subject to the Norwegian regulations regarding accounting and auditing. For each financial year (normally the calendar year), the company must complete and submit annual financial reports and tax returns.
If the company conducts business subject to VAT, a form detailing the sales/turnover must be submitted every other month to the tax collection office.
Annual costs amount to approximately EUR 3,750 as a minimum.
Corporate governance
The general meeting is the supreme authority of the company. The board of directors is elected by the general meeting. The company has the option of whether or not to have a managing director unless the share capital exceeds EUR 375,000, when it is compulsory. The managing director is obliged to report to the board of directors every third month.
The company has an obligation to keep its own accounts and to have an elected certified auditor. The company is obliged to submit its annual accounts, including the auditor's report to the Register of Accounts.
If the company conducts a business which is liable for VAT, the company must also be registered in the VAT Register. The letting out of real estate is not subject to VAT. However, a voluntary registration model has been introduced for lessors who rent out business premises for use in activities that are liable for VAT. This gives the lessor the opportunity to deduct input VAT on purchases of goods and services used in the business of letting real property.
The company may pay out dividends to the shareholder(s). The equity of the company must constitute at least 10% of the balance sheet total before a dividend can be distributed.
Regulatory control
Not applicable.
Taxation of current income in Norway
Net rental income from real estate situated in Norway is subject to general corporate income tax at a rate of 28%.
Taxation of distribution of current income to investors
Dividends distributed to non-resident corporate investors are subject to a withholding tax of 25%, unless (a) the recipient is protected by a tax treaty or (b) the holding company is resident in the European Economic Area (EEA). For corporate investors resident in the EEA no withholding tax applies. For corporate investors resident outside the EEA, the withholding rate is usually reduced to 15% or a lower level depending on the size of the holding in the Norwegian company and the relevant tax treaty.
Taxation of capital gains
Profits from the sale of shares in a Norwegian limited company are not taxable in Norway as long as the investor is not resident in Norway. The same regulation applies to both foreign companies and private individuals. The fact that gain derived from the sale of shares in companies is tax free in Norway implies that most foreign based real estate investments in Norway take place through the use of a Norwegian (limited liability) company.
Other income, including that from sale of assets, interest income, income from real estate etc is still taxable as ordinary income (at 28%). Costs connected to such income are deductible.
2. Public limited company (Almennaksjeselskap/ASA)
Minimum capital
EUR 125,000 (NOK 1,000,000).
Set-up costs
The fee for registration in The Register of Business Enterprises is approximately EUR 750. In addition to the registration fee, legal costs will be incurred.
Time required to become operative
Approximately one month from the time The Register of Business Enterprises has received all the necessary documents.
Costs per annum for corporate and accounting compliance
A limited liability company is subject to the Norwegian regulations regarding accounting and auditing. For each financial year (normally the calendar year), the company must complete and submit annual financial reports and tax returns.
If the company conducts business subject to VAT, a form detailing the sales/turnover must be submitted every other month to the tax collection office.
Annual costs amount to approximately EUR 5,000 as a minimum.
Corporate governance
The general meeting is the supreme authority of the company. The board of directors is elected by the general meeting. The board of directors appoints a managing director who is responsible for the day-to-day management of the company's activities. The managing director is obliged to report to the board of directors every month.
The company has an obligation to keep its own accounts and to have an elected certified auditor. The company is obliged to submit its annual accounts, including the auditor's report to the Register of Accounts.
If the company conducts a business which is liable for VAT, the company must also be registered in the VAT Register. The letting out of real estate is not subject to VAT. However, a voluntary registration model has been introduced for lessors who rent out business premises for use in activities that are liable for VAT. This gives the lessor the opportunity to deduct input VAT on purchases of goods and services used in the business of letting real property.
The company may pay out dividends to the shareholder(s). The equity of the company must constitute at least 10% of the balance sheet total before a dividend may be distributed.
Regulatory control
Not applicable.
Taxation of current income in Norway
Net rental income from real estate situated in Norway is subject to general corporate income tax at a rate of 28%.
Taxation of distribution of current income to investors
Dividends distributed to non-resident corporate investors are subject to a withholding tax of 25%, unless (a) the recipient is protected by a tax treaty or (b) the holding company is resident in the European Economic Area (EEA). For corporate investors resident in the EEA no withholding tax applies. For corporate investors resident outside the EEA, the withholding rate is usually reduced to 15% or a lower level depending on the size of the holding in the Norwegian company and the relevant tax treaty.
Taxation of capital gains
Profits from the sale of shares in a Norwegian limited company is not taxable in Norway as long as the investor is not resident in Norway. The investor may however, be either a foreign company or a private individual. The fact that gain derived from the sale of shares in companies is tax free in Norway implies that most foreign-based real estate investments in Norway take place through the use of a Norwegian (limited liability) company.
Other income, including that from the sale of assets, interest income, income from real estate etc. is still taxable as ordinary income (28% tax rate). Costs connected to such income are deductible.
C. INDIRECT INVESTMENT THROUGH PARTNERSHIPS
1. The only partnership under Norwegian law which offers limited liability to partners is the limited partnership (Kommandittselskap/KS). A limited partnership presupposes that at least one of the partners has unlimited liability. There is no limit on the number of partners with limited liability.
Minimum capital
EUR 2,750 (NOK 22,000).
Set-up costs
The fee for registration in The Register of Business Enterprises is approximately EUR 750.
Normally the general partner is a Norwegian private limited company (Aksjeselskap). The cost of incorporation will then additionally include the establishment of this company.
In addition to the registration fee, expenses for legal services will accrue.
Time required to become operative
Approximately one month from the time The Register of Business Enterprises receives the necessary documents.
Costs per annum for corporate and accounting compliance
A limited partnership is subject to the Norwegian regulations regarding accounting and auditing. However, there is an exception from this if the limited partnership's total sales revenue is less than EUR 265,000 and it has fewer than five employees, the number of partners is fewer than five and none of the partners is a corporate body.
If the limited partnership conducts business which is subject to VAT, a form detailing the sales/turnover must be submitted every other month to the tax collection office.
Annual costs amount to approximately EUR 5,000 as a minimum.
Corporate governance
Limited partnerships have considerable flexibility to agree on corporate governance through by-laws.
Voting and profit participation rights are freely allocable.
The unlimited partner (komplementar) is by law the managing partner. Limited partners (kommandittister) may have certain limited approval rights as regards management decisions.
A board of directors is optional.
If the partnership conducts business which is liable for VAT, the partnership must also be registered in the VAT Register. The letting out of real estate is not subject to VAT. However, a voluntary registration model has been introduced for lessors who rent out business premises for use in activities that are liable for VAT. This gives the lessor the opportunity to deduct input VAT on purchases of goods and services used in the business of letting real property.
Regulatory control
Not applicable.
Taxation of current income in Norway
Net current rental income from real estate situated in Norway is subject to general corporate income tax at a rate of 28%.
Taxation of distribution of current income to investors
If the investment is made through a limited partnership, the partnership will be taxed on its net income derived from the investment. The tax rate is 28%.
On 1 January 2006, a new tax model was adopted. This new tax model (deltakermodellen) involves an extra tax on distributions from the limited partnership to private investors. The tax rate on distributions is 28%, imposing an effective extra tax at 20.16% on the business's net rental income. The marginal rate of taxation is therefore 48.16%. There is, however, no such extra taxation on distributions from a limited partnership if the participant is a limited liability company resident in the EEA.
Taxation of capital gains
Corporate partners are exempted from tax on capital gains and distributions from investments in the European Union/European Economic Area (EU/EEA). The investor company still has a right to deduct interest expenses from its liability to tax–as well as interest expenses connected to (tax free) investments. On the other hand, losses on investments and costs connected to this (tax free) investment income are not deductible.
Other income, including from sale of assets, interest income, income from real estate etc is still taxable as ordinary income (28% tax rate). Costs connected to such income are deductible.
2. Another type of partnership frequently used in Norway for investment in real estate which does not offer limited liability to its partners, is the general partnership (Ansvarlig selskap/ANS and DA). All partners in an ANS have unlimited liability whilst the partners in a DA have a pro rata liability.
Minimum capital
Not applicable.
Set-up costs
The fee for registration in The Register of Business Enterprises is approximately EUR 750. In addition legal costs will be incurred.
Time required to become operative
Approximately one month from the time The Register of Business Enterprises receives the necessary documents.
Costs per annum for corporate and accounting compliance
A general partnership is subject to the Norwegian regulations regarding accounting and auditing. However, there is an exception from this if the partnership's total sales revenue is less than EUR 625,000 and it has fewer than five employees, the number of partners is fewer than five and none of the partners are a corporate body.
If the limited partnership conducts business subject to VAT, a form detailing the sales/turnover must be submitted every other month to the tax collection office. Annual costs amount to approximately EUR 3,750 as a minimum.
Corporate governance
The partnership has considerable flexibility to agree on its corporate governance through by-laws.
All partners are jointly and severally liable for the general partnership's liabilities. Responsibility as between partners, voting and profit participation rights are freely allocable.
A board of directors is optional.
If the partnership conducts business which is liable for VAT, the company must also be registered in the VAT Register. The letting out of real estate is not subject to VAT. However, a voluntary registration model has been introduced for lessors who rent out business premises for use in activities that are liable for VAT. This gives the lessor the opportunity to deduct input VAT on purchases of goods and services used in the business of letting real property.
Regulatory control
Not applicable.
Taxation of current income in Norway
Net current rental income from real estate situated in Norway is subject to general corporate income tax at a rate of 28%.
Taxation of distribution of current income to investors
If the investment is made through a general partnership, the partnership will be taxed on its net income derived from the investment. The tax rate is 28%.
On 1 January 2006, a new tax model was adopted. This new tax model (deltakermodellen) involves an extra tax on distributions from the general partnership to private investors. The tax rate on distributions is 28%, imposing an effective extra tax at a rate of 20.16% on the business's net rental income. The marginal rate of taxation is therefore 48.16%.
There is, however, no such extra taxation on distributions from a general partnership if the participant is a limited liability company resident in the European Economic Area (EEA).
Taxation of capital gains
Corporate partners are exempted from tax on capital gains and distributions from investments in the EU/EEA. The investor company still has a right to deduct interest expenses from its liability to tax–as well as interest expenses connected to (tax free) investments. On the other hand, losses on investments and costs connected to this (tax free) investment income are not deductible.
Other income, including from the sale of assets, interest income, income from real estate etc is still taxable as ordinary income (28% tax rate). Costs connected to such income are deductible.
D. INDIRECT INVESTMENT THROUGH COLLECTIVE INVESTMENT VEHICLES
Norwegian law does not recognise any specific legal entity which can be called a collective investment vehicle. A real estate fund may be set up using any of the corporate vehicles mentioned in sections B and C above.
Management company
Not applicable.
Minimum capital
Depends on the chosen corporate vehicle, see above.
Set-up costs
Depends on the chosen corporate vehicle, see above.
Time required to become operative
Depends on the chosen corporate vehicle, see above.
Costs per annum for corporate and accounting compliance
Depends on the chosen corporate vehicle, see above.
Corporate governance
Depends on the chosen corporate vehicle, see above.
Regulatory control
Not applicable.
Taxation of current income in Norway
Depends on the chosen corporate vehicle, see above.
Taxation of distribution of current income to investors
Depends on the chosen corporate vehicle, see above.
A real estate fund may also be set up as a simple joint ownership between the investors, without using any corporate vehicle. By organising the fund in this way it is possible for the investors to classify their part of the investment as real estate and not as shares. For some investors, i.e. insurance companies (whose investment activities are regulated by statute), this may be very significant.
A real estate fund set up on the basis of joint ownership will be taxed as a general partnership, as to which see section C above.
E. RULES ON LEVERAGE
1. Thin capitalisation rules
For a Norwegian resident interest payments are always deductible, notwithstanding the purpose of the financing. This also applies to investments through a Norwegian subsidiary.
In order to deduct the interest payments foreign investors must use the financing only in activities which concern the company's business. It is important that the company keeps proper written records as to the use of the financing.
There are no relevant formal thin capitalisation regulations in Norway. However, a ratio of 1:5 (equity to debt) is commonly accepted as a guideline as to what is genuine and deductible.
2. Withholding tax on interest
Norway does not apply withholding taxes on interest paid to a foreign financing bank or to a foreign shareholder.
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