The Norwegian National Budget for 2025

The Government has proposed a minor redistribution of tax burden between those with lower incomes and those with higher incomes. This is proposed to be implemented by increasing the standard personal deduction from NOK 88,250 to NOK 108,550, and by reducing the social security tax on salary, social security and other business income by 0.1%, down to 7.7% and 10.9%, respectively. The bracket tax rates for brackets 1 and 2 remain unchanged, while the bracket tax rates for brackets 3-5 are increased by 0.1% – together with the reduction in the social security tax rate, the marginal tax rate for salary earners in steps 3-5 is kept unchanged. The maximum marginal tax rate for salaries will from 2025 apply to wages above NOK 1,410,750.

Certain minor adjustments to other deduction amounts, thresholds, etc. have also been proposed by the Government.

It is proposed to expand the beneficial share option tax scheme for companies in the start-up and growth phase. One of the thresholds for qualifying under the scheme (maximum number of employees) is proposed increased from a maximum of 50 to a maximum of 150 employees. It is further proposed that the threshold related to a company's maximum age is increased from ten to twelve years in the allocation year and that the threshold related to the balance sheet sum is increased from NOK 80 million to NOK 200 million. Other terms, such as that the company's operating revenue cannot exceed NOK 80 million in the financial year before granting the option, remains unchanged.

Only a few changes are proposed in the National Budget for 2025 related to wealth tax. The threshold for wealth tax is increased from NOK 1.7 million to NOK 1.76 million, and the threshold for increased wealth tax is increased from NOK 20 million to NOK 20.7 million.

Furthermore, it is informed in the National Budget for 2025 that the Ministry of Finance will submit a proposal on hearing for an arrangement to postpone the payment of wealth tax against payment of a market-based interest rate. Such a scheme is thought to be permanent, unlike previously introduced temporary schemes for the deferment of wealth tax payment. The scheme shall have effect from 2026. It can therefore be expected that a consultation paper will be published in 2025 with further information on proposals for the scheme.

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, as set out in our newsletter dated 10 January 2023. The rate thus increased from 14.1 to 19.1% for salary income above NOK 750,000. In the National Budget for 2024, see our newsletter from last year, the Government raised the threshold for increased employer’s national insurance contribution from NOK 750,000 to NOK 850,000. In the Revised National Budget for 2024, it was announced that the additional temporary employer's national insurance contribution will be removed completely from 1 January 2025, as mentioned in our newsletter of 5 July 2024.

In the National Budget for 2025, a proposal is made that the additional employer’s national insurance contribution shall be removed from 1 January 2025, in line with what was communicated under the Revised National Budget for 2024.

On 20 March 2024, the Government proposed further tightening of the exit tax rules. You can read more about this in our newsletter of 15 April 2024. The proposal sparked strong reactions and several parties, including Schjødt, submitted comments on the proposed bill. A summary of Schjødt’s consultation comments can be found in our newsletter of 29 May 2024.

In the 2025 National Budget, the proposal is essentially upheld, and new rules shall have effect from 20 March 2024 (excluding for inheritance, see below).

The proposal that the exit tax must be paid no later than 12 years after emigration is upheld. The tax can be paid immediately upon emigration, through interest-free instalments over 12 years, or at the end of the 12-year deadline with the addition of accrued interests. The exit tax will be waived if the taxpayer become tax resident in Norway within the 12 year-period.

In the National Budget for 2025, a new proposal is presented, which entails a significant tightening compared to the proposed bill. This shall apply to emigrations and transfers occurring on or after 7 October 2024. The proposal involves that a share of any dividend distribution received during the 12-year period on an asset that is covered by the exit tax shall lead to a proportional maturity of the exit tax. The Ministry proposes that 70% of dividend distributions shall be paid as instalments on the exit tax. In the event of a dividend distribution of NOK 100, NOK 70 of the exit tax is due for payment. The tax authorities in the country in which the taxpayer lives, will consider the entire distribution as dividend distributions and calculate tax on the NOK 100.

Obligatory instalment payments shall apply both to taxpayers who choose to postpone the entire tax claim for 12 years with the addition of accrued interests, and to those who choose a postponement in the form of rate payments. All dividend distributions are covered, except repayment of paid-in capital. If the taxpayer has chosen a rate payment, the remaining rate amount must be corrected proportionately. In the event of immigration back to Norway, the taxpayer's input value on the shares shall be increased by the proportion of the exit tax finally settled as a result of the dividend distributions received. In other words, the proposal is significant, and involves that it is not possible to postpone payment for 12 years, unless no dividend distributions are needed after relocation from Norway.

Questions related to inheritance of shares subject to the exit tax received a lot of attention in the consultation comments. This has led to some adaptations and new proposals. A change of the provision is proposed, to make it clear that the transfer by inheritance in the sense of transfer in the event of death shall trigger exit tax when the heir is domiciled or resident outside Norway for tax purposes. In the past, there has been doubt if this only was the situation for gifts. The exit tax shall be triggered when distributing the shares to the recipient abroad. Such distribution means that the recipient undertake responsibility for the remittance tax claim and the reporting obligations under the Tax Act. The recipient will also take over other tax positions belonging to the shares received. If the recipient who has received the shares with continuity, is a resident in Norway within the 12-year period, the exit tax will lapse. Since the rules have been unclear, the Ministry proposes that these rules shall apply to distributions from the decent estate on or after 1 January 2025.

The consultation comments shows that there has also been uncertainty regarding what happens to a prescribed exit tax claim if the taxpayer dies. In the National Budget for 2025, the Ministry agrees with the consultation comments that this proposal may have unfortunate effects. Considering the overall purpose of the amendments, to ensure taxation of values accrued in Norway, no immediate payment will be necessary if the heirs are tax residents in Norway. The Ministry therefore proposes that the transfer tax lapses if the transfer occurs to heirs which are tax resident in Norway at the time of distribution, and the heirs receive the shares with full continuity, including with the equivalent input value on the shares. For heirs residing abroad, it is proposed that foreign-resident heirs may also be entitled to deferral by taking over the deceased's tax positions relevant for the exit tax. The Ministry proposes that this shall apply on the condition that one or more heirs assume responsibility for the deceased's obligations under Section 10-70 of the Tax Act, and that these meet the terms for deferral. For successors residing abroad, it will entail an opportunity to assume the taxpayer's right to deferred payment, limited to the remaining part of the successors' postponement period. The exit tax may lapse if the successor chooses to move to Norway before the expiry of the 12-year deadline.

In addition, the following is specified:

• The current rules on exit tax apply only when the total gain for all taxable shares, less deductible losses, amounts to more than NOK 500,000. It is now proposed that the threshold for establishing exit tax upon emigration should be set to a basic deduction, and that this deduction is set at NOK 3 million. It is emphasised that such a leap will largely remedy several of the challenges highlighted by the consultation comments, and for various groups of taxpayers and companies. Such an amendment implies a relief for taxpayers emigrating with net latent gains. Similarly, for taxpayers emigrating with a net latent loss, only deductions are given for losses that exceed the basic deduction of NOK 3 million.
  
• Exit tax is triggered by transfer to recipient residing outside of Norway. The proposal to introduce a new annual amount limit of NOK 100,000 for transfers to a recipient residing abroad is upheld. The reason why this threshold is lower than the threshold for emigration is mainly due to the risk for what the Ministry considers unfortunate adjustments.
  
• In the proposed bill, the Ministry proposed expanding the scope of the exit tax rules, so that share savings accounts and capital insurance, where the insurance element is small, are covered as an object under the exit tax rules. The proposal is upheld and justified by the need for neutrality in the tax system and the intention of the rules.
  
• Several consultation comments requested clarifications and possible exceptions for share options in employment relationships. The Ministry agrees that there may be considerable uncertainty regarding the future value of such options, and that it may be demanding to set the market value at the time of emigration but believes this is not distinct for only such options. Reference is made to the fact that there are many different forms of incentive schemes for employees where future value development is affected by, among other things, the price development of shares, etc., and where exercise period and other terms and restrictions may apply. The Ministry therefore believes that options, both inside and outside employment relationships, should still be covered by the exit tax.

The Top-up Tax Act (No. "Suppleringsskatteloven") was implemented in Norway with effect for the financial year of 2024, as discussed in our newsletter of 9 January 2024. The purpose of the Top-up Tax Act is to counteract tax competition and surplus relocation under the Global Minimum Taxation Regulations (pillar 2), by ensuring a minimum rate of 15% for multinational enterprises, irrespective of their geographical operations.

The Government also proposes in the National Budget for 2025 to implement the tax allocation rule (No. "skattefordelingsregelen") and the associated simplification rule in Norwegian law. The tax allocation rule shall capture undertaxed income in the group, in situations where the main rule on tax inclusion (undertaxed income in a group entity is taxed with the top parent company in the group, possibly with an intermediate parent company) does not cover. Under the tax allocation rule, any group entity in a jurisdiction that has implemented a qualified tax allocation rule may be liable for tax. This is contrary to the income inclusion rule (No. "skatteinkludingsregelen"), where the tax liability is only imposed on the parent company.

By the implementation of the Top-up Tax Act, it was informed that the tax allocation rule should be introduced at a later date, and the proposal from the Government is thus not unexpected. The introduction of the tax allocation rule in Norway will result in several group entities receiving top-up tax liability to Norway, and thus the obligation to submit tax returns for top-up tax. At the same time, the Government opens for that adjustments will be made to the NOKUS rules and other regulations related to low-tax countries due to the Top-up Tax Act.

The amendments to the Tax Act are proposed to come into force immediately and with effect from the financial year of 2024, and the amendments to the Supplementary Tax Act are proposed to come into force immediately and with effect from the financial year of 2025 for financial years starting after 31 December 2024.

With effect from the financial year of 2024, Norwegian tax liability was introduced for foreign companies participating in mineral activities on the Norwegian continental shelf, utilizing renewable energy resources in the 200-mile zones and exercising carbon operations in the 200-mile zones and on the Norwegian continental shelf.

In the National Budget for 2025, the Government proposes a new statutory basis for taxation, as well as adjustments to the tax liability introduced in 2024:

• It is proposed a statutory basis for taxation of the income of foreigners (persons and companies) from the exploration and production of aquatic organisms (aquaculture) and related activities and work, which takes place in the 200-mile zones and on the Norwegian continental shelf. On the continental shelf, taxation rights are limited to production etc. of sedentary species.
   
• It is proposed that foreign workers’ will be liable to tax on income from work related to mineral activities, renewable energy resources and carbon operations in the 200-mile zones and on the Norwegian continental shelf.
   
• It is proposed that foreign persons are liable for wealth tax on wealth they own that is connected to mineral activities on the Norwegian continental shelf, utilizing renewable energy resources in the 200-mile zones, carbon operations in the 200-mile zones and on the Norwegian continental shelf, and production etc. of aquatic organisms.

At the adoption of the National Budget for 2023, a temporary exemption was introduced in the resource rent tax for hydropower plants, which concerned fixed price agreements entered into in 2022, 2023 and 2024. In the National Budget for 2025, the Government proposes to continue this exception. This means that the contract price can still be used as a calculation basis for the resource rent tax, also for standard fixed price agreements entered into after 1 January 2025.

Petroleum companies pay tax on an ongoing basis, through so-called tax in instalments divided into six terms: three in the financial year and three the following year. The company may, at maturity for the second term, pay an addition to the issued tax in instalments if the income is assumed to be higher than when the tax in instalments was discharged, so that the issued tax in instalments is assumed to be insufficient. Similarly, upon maturity for the fifth term, the company may pay additions to the issued tax in instalments.

In the National Budget for 2025, the Government proposes an increase in the number of terms for payment of petroleum tax to ten terms per year. Any additional payments are proposed to be divided into three equal amounts paid jointly with the second, third and fourth term of the financial year, respectively, and corresponding seventh, eighth and ninth term of the year following the financial year.

The Government proposes to price adjust the tax rate on produced farmed fish from NOK 0.935 per kg. to NOK 0.965 per kg., while the tax rate on wild marine resources is proposed to be continued at 0.42 %. The product fee for firsthand sales of fish is proposed to be kept unchanged at 2 % for 2025.

There are few proposed changes in the VAT area in the National Budget for 2025. An exception is the Government’s proposal to reduce the value added tax rate from 25 to 15% for water supply and sewage services.

Many expected the Government to present additional proposals for changes for direct and indirect taxes, but several of these proposals have not been put forward.

Tax on private consumption

The previously notified rules for taxation of private consumption in companies, often referred to as the "monster tax", has been postponed several times. In the National Budget for 2023, it was announced that an adjusted proposal would be submitted in 2023, with the aim of taking effect from 2024, while the National Budget for 2024 announced that an adjusted proposal would be submitted in 2024, effective from 2025. You can read more about taxation of private consumption in companies in our newsletter of 12 August 2022.

The Government states in the National Budget for 2025 that is has assessed adjustments to the proposal but has concluded that a proposal for special rules related to taxation of private consumption in companies should not be submitted now. There is no information in the National Budget for 2025 whether, or when, the Government can be expected to make such a proposal. It may thus seem that the Government has given up the introduction of such an additional tax.

However, it is worth noting that today there are rules on taxation of private consumption, where the tax authorities have the opportunity to tax both companies and shareholders for private use of companies' assets, such as property, cars and boats. As stated in the National Budget for 2025, the Ministry of Finance reminds that private consumption in companies must be reported and taxed in accordance with applicable rules, and that this is still a priority area for the Norwegian Tax Administration.

The cooperative housing model

The cooperative housing model (No. "borettslagsmodellen") has been a common way of structuring development projects for residences, and generally results in the cooperative housing to assume any latent gains on properties etc., instead of such latent gains being realized upon sale of residences to consumers. The model has reduced the cost of housing construction and is important for several residential developers in Norway.

The Minister of Finance stated in Finansavisen on 13 August 2024 that the model should be abolished, as the model has received negative media attention during 2024 due to increased sales of rental homes, as a result of increased tax burden for lessors. Many therefore expected the model to be a topic in the National Budget for 2025.

In the National Budget for 2025, the model is not mentioned. Therefore, it must be assumed that the model can still be implemented, in line with a number of previously issued advance tax rulings.