The Norwegian national budget for 2023

The government proposes to increase the tax rate on share income from 35.2% to 37.84%, and the changes will take effect immediately. Looking at the company and the shareholders together, the overall taxation will increase from 49.5% to 51.5%, i.e., by 2%. This increases the arbitrage between capital income from the investments in shares and other types of capital income which are taxed at 22%, such as investments in real estate, financial instruments, etc. Taking into account the wealth tax, the effective tax rate is up to 70%, provided an annual return of approx. 5%.

The government has proposed reducing the tax burden for income below NOK 750,000. This will be done by increasing the personal deduction by NOK 14,850 from NOK 58,250 to NOK 73,100, and by reducing the social security tax by 0.1%. Furthermore, the bracket tax will be adjusted upwards by 0.1 % for brackets 3-5, thus leaving the marginal tax for wage earners in steps 3-5 unchanged.

The government has proposed introducing an additional employer's tax of 5% for salary income above NOK 750,000. In zone I, the rate is thereby increased from 14.1% to 19.1% for wages above NOK 750,000, and for financial companies, the rate is increased from 19.1% to 24.1% for wages above NOK 750,000. The government believes this will help reduce the pressure in the labor market by reducing the demand for labor. The proposal will not impact self-employed persons, pensioners, etc.

The biggest surprise of the budget settlement was the introduction of immediate changes to the exit tax rules, which previously stated that tax on latent gains derived from shares and certain other securities would expire if they were not actually realized within 5 years following the taxpayer becoming a resident abroad. The budget settlement thus means that the tax on latent gains will not expire at all, and that the taxpayer will have to pay the latent tax when the gains are realized, regardless of the number of years that have passed since the taxpayer moved abroad.

The changes to the exit tax rules will have extensive effects on both taxpayers and the tax administration, as annual confirmations of non-realization of gains will have to be submitted every year until it is either realized or the taxpayer moves back to Norway. It will also complicate matters with international mobility as the rules will also affect both Norwegian and foreign businesses with cross-border activities and employees who move between Norway and other jurisdictions. Furthermore, the exit tax rules are expanded to affect transfers to family members who reside abroad, whereas the previous rules only affected transfers to a spouse abroad.

The government announced that it wants to strengthen the wealth tax's redistributive role and fairness. Hence, an increased tax on wealth is proposed by reducing the valuation discount for shares and commercial property from 25% to 20%. The wealth tax rate for assets up to NOK 20 million is increased from 0.95% to 1%. The national budget is perceived as a clear signal that it is desirable to increase the taxation of high-net worth individuals in particular. The government's further work with changes to wealth tax will take place in light of the recommendation from the tax committee.

With regards to petroleum tax, the government proposes to decrease the rate for exempt income in the special tax for investments covered by the tax package adopted in June 2020. This applies to projects covered by development plans submitted to the authorities before the end of 2022 and approved before the end of 2023. The rate was originally 24% of accrued investments but was reduced to 17.69% as a result of the special tax rate is increased from 56% to 71.8% in 2022. It is now proposed a further reduction of the rate to 12.4% for investments accrued in 2023.

In 2016, a reduced electricity tax for data centers was introduced, the purpose of which was to make it more attractive to locate large data centers in Norway. The government now proposes to abolish the reduced rate, and data centers will thus be taxed the same as other industries. In 2022, the general rate was 8.91 øre per kWh from 1 January to 31 March, and 15.41 øre per kWh from 1 April to 31 December.

Section 11-11 of the Tax Act permits tax-free cross-border reorganization of companies. Reorganization can be carried out in certain forms of international mergers, demergers, and share exchanges. The rules on cross-border reorganization have, in addition to conditions on fiscal continuity in Norway, conditions on fiscal continuity abroad. The Ministry of Finance has proposed to remove the condition of fiscal continuity abroad in § 11-11 fourth, fifth and sixth paragraphs of the Tax Act.

The government proposes that electric cars for purchase amounts above NOK 500,000 shall be subject to value-added tax. The excess amount shall be covered by the general VAT rate of 25%.

The parties have agreed to increase the valuation of primary residencies. The value of a primary residence exceeding NOK 10M was previously valued at 50% of market value, but will now be valued at 70%. Otherwise, primary residencies will be valued at 25% of market value. For secondary residencies, the valuation will be 100 % instead of the previously proposed 95% of market value. The changes suggest that the valuation of total wealth for many taxpayers will be increased, thus resulting in a higher wealth tax.