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Country - Norway
Taxes
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A. AVAILABLE INVESTMENT STRUCTURES
Which legal structures are available for an investment in real estate in Norway?
Asset deals:
- direct acquisition from abroad;
- direct acquisition from abroad through a local permanent establishment;
- indirect acquisition through a local company.
Share deals:
- direct acquisition from abroad;
- direct acquisition from abroad through a local permanent establishment;
- indirect acquisition through a local holding company.
B. TRANSFER TAXES, NOTARY FEES AND OTHER ACQUISITION COSTS
How is the purchase of a real estate asset taxed?
Stamp duty (Dokumentavgift)
Stamp duty at 2.5% of the sales value is normally payable on the acquisition of real estate in Norway, whether commercial, residential or industrial property. Normal arm's-length conditions apply to the calculation of the sales value. The transfer of shares in limited liability companies ("AS"/"ASA") or partnerships ("ANS"/ "DA"/"KS") that own real estate is not subject to stamp duty. The transfer of real estate through mergers and demergers of companies is also normally exempted.
This, together with the Tax Exemption Model (see below), provides an incentive to buy and sell real estate companies rather than properties as a direct asset deal. For the same reasons, office buildings are often held in SPVs. Since many potential buyers would not normally want to have to acquire shares in a foreign company in order to acquire real estate in Norway, the most appropriate solution is often for them to acquire property through a Norwegian entity.
Registration fee (Tinglysningsgebyr)
A small registration fee of approximately EUR 196 is payable to obtain legal protection of ownership.
Do any specific rules for transfer taxes apply if the asset is a shopping centre or another asset used for retail activities?
No.
How is the purchase of shares in an SPV holding real estate taxed?
No taxation, registration fee or stamp duty applies to the purchase of shares in an SPV.
Who normally pays the transfer taxes, the buyer or the seller?
The buyer.
Are notary fees determined by law or should they be negotiated?
There are no notary fees involved in a real estate transaction. Except the registration fee and the stamp duty, no other fee applies.
Are there any other costs related to the purchase of real estate assets or SPVs?
Other costs include professional advisors and the cost of setting up companies or holding companies.
C. TAXATION OF RUNNING INCOME
How is income generated from the letting of real estate taxed in Norway?
The basis for calculating annual taxable income is the property's gross rental income excluding VAT. As a general rule all expenses connected with a taxpayer's business are deductible, including financial and operating expenses, such as insurance, maintenance, heating, consultancy fees, employee costs, service costs and travel expenses. The following exceptions apply:
- Maintenance and repairs must be separated from improvements leading to an increase in the value of the property (upgrades). Improvement costs are not deductible in the year these costs are met, but will become part of the assets book value and be deductible through yearly depreciations.
- Any decrease in property value due to wear and tear is compensated through yearly depreciations.
(a) Direct investment through a permanent establishment
Net rental income from real estate in Norway is subject to tax at 28%.
With effect from 1 January 2006, a new tax model was adopted. This new model (foretaksmodellen) introduced an extra tax for private investors. Non-resident individuals are subject to national and municipal income taxes in relation to Norwegian property. The 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%.
(b) Direct investment without a permanent establishment
As above.
(c) Indirect investment through a corporate entity
Net rental income from real estate in Norway is subject to general corporate income tax at 28%.
(d) Indirect investment through a partnership
Partnerships (ANS, DA, KS) are regarded as transparent for tax purposes. The net profits or losses, as well as the net value of the assets, are therefore attributed to the individual partners, either in proportion to their contribution to the partnership, or according to their participation in the profits as agreed by the partnership. There is a limit to the deductibility of losses based on the investment of the individual partner.
Net rental income is subject to income tax at 28%, unless the investor is a private investor (see above (a)).
How can income generated by investment be transferred to a foreign investor?
(a) Direct investment through a permanent establishment
Payment of rental income to foreign owners is not subject to any withholding tax in Norway. Rental income is taxed as described above.
(b) Direct investment without a permanent establishment
As above.
(c) Indirect investment through a corporate entity
Dividends distributed to non-resident corporate investors are subject to withholding tax at 25%, unless the recipient is protected by a tax treaty or the holding company is resident in the 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 less depending on the proportion of the Norwegian company owned by the investor and the relevant tax treaty.
(d) Indirect investment through a partnership entity
If the investment is made through a general partnership, the partners of a partnership are taxed at the rate of 28% on the net income from real estate investments.
With effect from 1 January 2006, a new tax model was adopted (deltakermodellen). This introduced an extra tax on distributions by a partnership to private investors. The new tax rate on distributions is 28%, which effectively adds tax at 20.16% on the net rental income. The marginal rate of taxation is therefore 48.16%.
There is no extra taxation on distributions by a general partnership if the participant is a limited liability company resident in the EEA.
Are there local taxes on the possession of real estate assets?
Property tax may be imposed by the municipal council at a rate of between 0.2% and 0.7%, and is usually calculated on 25% to 30% of the market value.
D. DEPRECIATION
What are the basic rules for the depreciation of real estate assets?
Taxable depreciation is calculated using the reducing balance method. The maximum depreciation rate on industrial buildings is 4%. For commercial buildings it is 2%. Some of the acquisition cost may, in certain cases, also be eligible for a more favourable rate (for example machinery used in production and underground garages).
Can land be depreciated?
Land cannot be depreciated.
However, according to the Norwegian Accounting Act, fixed assets, such as land, can be the subject of a write-down to fair value if they are permanently reduced in value.
Can a participation in an SPV holding real estate be depreciated?
No.
E. VAT
Is the purchase of real estate assets subject to VAT?
Value added tax/VAT (Merverdiavgift)
- VAT is not payable on the purchase price of real estate or on the purchase of shares in an SPV holding real estate.
- Please note, however, that construction work is subject to VAT. Hence, if a new property is built in Norway or construction work is performed on an existing building purchase from the construction company is subject to VAT.
The standard rate of VAT in Norway is 25%.
How can VAT paid on the purchase price be recovered?
- The recovery of VAT does not apply since the purchase of real estate is VAT exempt. The same applies on the purchase of shares in an SPV holding real estate.
- If a new property is built in Norway or construction work is performed on an existing building then VAT levied by the construction company can be recovered if the real estate is purchased for use in the investor's business, the business is liable to VAT and the investor is VAT registered in Norway. Foreign businesses that are not VAT registered in Norway can, in certain circumstances, apply for a refund of the VAT.
F. LEVERAGE, THIN CAPITALISATION RULES
If interest payments are to be tax deductible, is it necessary for the financing to be taken out simultaneously with the purchase of the asset?
For a Norwegian resident, interest payments are always tax-deductible, whatever the purpose of the financing. This also applies to investments made through a Norwegian subsidiary.
To obtain a deduction of interest payments, foreign investors must only use the loan for activities relating to the company's business. It is important for this to be clearly documented.
Are there rules which limit the deductibility of interest for third party (bank) financing?
No.
Are there thin capitalisation regulations in Norway and if so, how do they work?
There are no relevant thin capitalisation regulations in Norway. However, a ratio of 5:1 (debt to equity) is commonly accepted as a guideline.
Does Norway apply any withholding taxes on interest paid to foreign financing banks or to foreign shareholders?
No.
G. TAXATION OF CAPITAL GAINS
How are capital gains deriving from the sale of real estate assets taxed in Norway?
(a) Real estate assets held by foreign investors directly without a permanent establishment in Norway
Capital gains on the sale of Norwegian property are subject to tax at 28%. 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" allows only 20% of the balance on such an account to be treated as taxable income or to be tax deductible annually.
(b) Real estate assets held by foreign investors through a permanent establishment in Norway
See below.
How are capital gains deriving from the sale of shares/interests in property companies/partnerships taxed in Norway?
See below.
Are there any rules regarding participation exemptions in Norway?
Corporate shareholders (AS and ASA) in the EU/EEA are exempt from tax on capital gains and dividends. The investor company has a right to deduct interest, including interest connected to (tax free) investments in shares. However, losses on shares and the costs connected to the (tax free) investment income are not deductible.
Other income, including income from the sale of assets, interest and income from real estate, is taxable as ordinary income at 28%. Costs connected to such income are tax deductible.
Qualifying companies include:
- All Norwegian AS (private limited companies) and ASA (public limited companies), and organisations considered equivalent to such companies.
- Foreign corporations (or the equivalent) resident in any EEA state.
There is no Norwegian withholding tax on dividends paid to an EEA corporate shareholder.
Foreign companies are not otherwise liable to tax in Norway on capital gains from Norwegian private and public limited companies.
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