The Norwegian National Budget for 2024

On 6 October 2023, the Norwegian Government presented its proposed National Budget for 2024. Key features include adjustments in personal income and wealth taxation, a limp phase-out of additional employer's national insurance contribution, as well as a follow-up on the previously proposed changes to the interest deduction rule and resource rent tax on onshore wind power. Surprisingly, proposal on taxation of private consumption in companies and additional changes to the exit tax rules has not been proposed implemented with the National Budget for 2024. Nor will resource rent tax on offshore aquaculture be introduced for now.

The Government has proposed a slight redistribution of the tax burden between those with lower incomes and those with higher incomes. This is done by increasing the personal deduction from NOK 79,600 to NOK 88,250, reducing the social security tax on salary and personal business by 0.1% and at the same time increasing the tax rates for the bracket tax with 0.1% in brackets 3-5, thus leaving the marginal tax for wage earners in brackets 3-5 unchanged and the maximum marginal tax rate on salary unchanged at 47.4%. The maximum marginal tax rate for salaries will from 2024 apply to wages exceeding NOK 1,573,500.

Other than that, the Government only proposes small adjustments to other deductible amounts and thresholds, etc.

As of 1 January 2023, the Government implemented an additional temporary employer's national insurance contribution of 5% for salary income above NOK 750,000. The rate thereby increased from 14.1% to 19.1% for wages above NOK 750,000. Read our article from last year regarding this implementation here.

Instead of removing the additional temporary employer's national insurance contribution, as originally indicated in the National Budget for 2023, the Government suggests initiating a gradual phase-out. It is therefore proposed that the threshold for the increased employer's tax shall be raised from NOK 750,000 to NOK 850,000. This implies that the rate of 19.1% is now intended to apply for wages above NOK 850,000.

The Government does not propose changes to the threshold for wealth tax (NOK 1,700,000), increased wealth tax (NOK 20,000,000) or increased valuation of primary residences (NOK 10,000,000).

Effective from 2024, the Government propose to change the valuation for commercial properties by increasing the calculation interest used to calculate the fair market value with 1% for properties located outside of the major cities of Oslo, Bergen, Trondheim and Stavanger. The aim is to better the accuracy of the valuation model, as a recent study from NTNU shows that it is flawed. The proposed change is expected to reduce the calculated value of the relevant properties by approximately 10%.

In April 12 this year, the Government issued a consultation paper for a proposal to expand the definition of "interests" in the rules on limitation of interest deduction in groups and between related parties, to include costs related to financial lease-agreements. See our newsletter from this summer here. Based on the feedback from the consultation, the Government does not proceed with a bill now, but will continue to work on a proposal to calculate an interest-element for leasing.

The Government proposes changes to the rules regarding limitation of interest deduction. The object of the proposals is to limit unwanted adaptions to the rules that are contrary to the object of the rules. The Government points out that under the current rules, companies within a group can circumvent the so-called EBITDA-rule by moving debt, which factually is debt owed to a closely related party outside the group, to an intermediate company between the debtor and a closely related lender. This way interests paid to a closely related party outside the group can appear as interests to a closely related party in the same group. In short, the new rule will involve that net group interest income shall not be included when assessing net interest costs when the EBITDA-rule between closely related parties is applicable for group companies. Such new rule will only have effect for companies within a group that have interest costs to a closely related company which is not part of the group.

Also, the Government suggests giving the Ministry of Finance the ability to draft new regulations with regards to what kind of income that can be included as ordinary income and annual losses, when assessing the limit for tax-deductible interests, cf. The Tax Act Section 6-41 (3). The purpose is to implement regulations with the object to avoid that group companies that applies different methods for assessing the limit for interest deductions are able to increase the limit for deductions for some companies without decreasing it for others by way of distributing group contributions.

The changes are suggested to have effect from and including the income year of 2024.

The Government propose to implement tax exemptions on i) cross-border mergers of UCITS funds, ii) tax-free mergers and demergers of savings banks, and iii) conversion of merger and demerger receivables.

The proposed changes are mainly in line with the proposals in the Government's consultation paper of 27 February 2023. See our newsletter on the consultation paper here.

The changes are suggested to have effect from and including the income year of 2023 – opposed to the income year of 2024, as stated in the consultation paper.

The Government propose to implement the much-discussed resource rent tax on onshore wind power as of 1 January 2024. See our newsletter from last year on this matter here. The effective tax rate is proposed lowered to 35%, as opposed to 40% as proposed in the consultation paper. The tax is structured as a cash flow tax with immediate deduction of investment costs.

As the main rule, power production income is valued at spot market price. For agreements concluded before 28 September 2022, the contract price shall be applied. A temporary exemption is introduced for standard fixed-price agreements, as well as for long-term physical power purchase agreements between independent parties for new projects established during the period 2024-2030.

Deduction of historical investments is made by declining-balance depreciation of input value, as opposed to remaining tax value as proposed in the consultation paper. The input value is calculated in accordance with ordinary declining-balance depreciation rules for existing wind farms. In addition, a compensation (deferment interest) shall be provided.

Negative resource rent income will be carried forward with an interest supplement, and the tax value of any negative resource rent income shall be paid to the taxpayer upon discontinuation of operations.

The production tax is proposed increased from NOK 0.02 per kWh to NOK 0.023 per kWh, and the proposal to implement a natural resource tax is abandoned.

Host municipalities may also opt for levying property tax on wind farms.

The government has also proposed to abandon the high-price contribution on hydro- and wind power introduced in 2023, with retroactive effect as of 1 October 2023.

The Government propose to expand the industrial power exception in the resource rent tax on hydropower for energy-intensive industries, so that the exception also applies to agreements entered into for a term of between three and seven years as of 1 January 2024.

The Government propose that financial hedging contracts are included in resource rent income, with effect from 1 January 2024.

During summer 2023, the Government released a consultation paper regarding implementation of global minimum taxation in Norway, based on OECD Pillar Two Model Rules (also referred to as the "GloBE" rules). Read our article from this summer regarding the proposal here.

In the National Budget for 2024, the Government informs that they are working on a proposal to the Norwegian Parliament based on consultation responses, and that the proposal is expected to be published later this fall.

Based on an expectation of increased activity in the 200-mile zones and on the Norwegian continental shelf, the Government proposes to introduce a taxation provision for foreign individuals and companies, as such a legal basis does not currently exist. The activities that are expected to increase include the extraction of minerals deposits, the utilisation of renewable energy resources (including inter alia offshore wind, solar energy, etc.), and management of CO2.

The proposed provisions will be structured following the pattern of the Norwegian Petroleum Tax Act, which means that the tax liability also will encompass with associated activities, not just the core activities. Even if a company doesn’t receive permission or a license for exploration, exploitation, or extraction on the continental shelf, work performed as a contractor or subcontractor will also be covered by the proposed provision. In addition, the proposal implies that various forms of sea transport, supply services, and service activities related to core activities will be included. However, it is proposed that the Ministry is to be given the authority to exempt certain types of ship transport from taxation.

In accordance with current tax provisions, if a purchase expense exceeds NOK 15,000, the purchase expense must be recorded in the balance sheet and deduct according to the reducing balance method of depreciation.

The Government is now proposing to increase the threshold from NOK 15,000 to NOK 30,000.

In the National Budget for 2024, no changes of rates for VAT are proposed. All excise duties have generally been adjusted upwards by 3.8% to take into account anticipated inflation.

The Government proposes minor changes in VAT exemption for electronic newspapers. The VAT exemption encompass newspapers that predominantly contain text and still images. The proposal means that newspapers can use more sound and live images without triggering an obligation to pay VAT.

Many expected the Government to present further proposals for direct and indirect taxes. However, many of these proposals have not been put forward.

Private consumption
The previously announced rules for taxation of private consumption in companies, commonly referred to as the "monster tax", has been postponed. In the National Budget for 2023, it was announced that an adjusted proposal would be presented in 2023, with the aim of entering into force from 2024. You can read more about taxation of private consumption in companies in our newsletter of 12 August 2022.

In the National Budget for 2024, the Government points out that it is important, but demanding, to find a good balance between the conflicting interests. The Government therefore needs more time to work on an adjusted proposal and aim to present it in 2024, effective from 2025. The control of private consumption remains a priority for the tax authorities.

Resource rent tax on offshore aquaculture
Offshore aquaculture is still at an early stage, but there have been speculations as to whether the Government would nevertheless introduce a resource rent tax on offshore aquaculture in the National Budget for 2024. However, the Government states in the budget documents that a resource rent tax on offshore aquaculture will not be introduced for now.

Tourist tax deferred
The Norwegian Parliament has asked the Government to put forward a proposal for a municipal/state tourist tax no later than in connection with the National Budget for 2024.

The Ministry of Finance needs more time to investigate before presenting a proposal and announces a follow-up of the request later.

Tonnage tax regime
The Norwegian Parliament has asked the Government to consider whether companies qualifying for tonnage tax regime also can perform ordinary business activities, and such activities not qualifying for tonnage tax regime treatment but to be ordinarily taxed.

Such amendment would ease some of the strict requirements in the Norwegian tonnage tax system and make the system more in line with tonnage tax regimes of certain other countries. Unfortunately, the Ministry of Finance has decided not to propose any such amendments to the tonnage tax regime, due to the need to notify ESA on amendments of the regime.