Last updated on 7 de April de 2023
Norway is one of the richest countries in the world and a very interesting destination. We analyze the most important taxes in Norway in an easy-to-understand way.
- Taxes on Earned Income
- Capital Income Taxes
- Corporate Tax
- Real Estate Transfer Tax
- Inheritance and Gift Taxes
- Public Debt in Norway
When we think of the richest countries in the world, Norway always comes to mind. Together with Switzerland, Ireland and Luxembourg, Norway stands out for its high level of economic development and prosperity. Its real GDP per capita hovers around $70,000 per year, according to the IMF.
In addition to that, Norway is also famous for its enormous sovereign wealth fund. The Scandinavian country has vast oil and natural gas reserves.
Instead of spending the revenue from fossil fuel exports, the country is building its sovereign wealth fund to ensure the prosperity and wellbeing of its citizens for many decades to come.
When it comes to prices, the cost of living in Norway is about 25% higher than in the United States and 15% higher than in the United Kingdom, according to the comparison website WorldData.info.
Norway has its own currency, the Norwegian Krone (NOK). So that we can understand the level of progressiveness in Norway’s tax system, we will use an approximate exchange rate of $1 = €1 = NOK 11.
Taxes on Earned Income
Let us kick off our analysis by looking at how labor income is taxed in Norway.
Both employers and employees must make contributions to the Norwegian social security system. However, these payments are somewhat less onerous than in other developed countries.
When it comes to employers, they must pay the equivalent of 14.1% of the employee gross salary in social security contributions. Such payment is not capped, meaning it will be calculated on the gross salary of the employee, regardless of how high that is.
For their part, workers must pay 7.9% of their gross salary to the social security in Norway. Such amount is calculated on their entire gross salary.
Thus, the combined rate for social security contributions is 22%.
Self-employed people must contribute the equivalent of 11.1% of their gross income to the Norwegian social security.
In addition to social security contributions, labor income is also subject to income tax.
The amount payable in income taxes in Norway is not calculated on the entire gross salary, but on the tax base. The tax base is equivalent to the gross salary less several deductions.
The most common deductions are as follows:
- Standard deduction: NOK 104,450 ($9,495/€9,495) or 46% of gross salary, whichever is lower.
- Personal deduction: NOK 79,600 ($7,236/€7,236)
- Childcare, sports activities or babysitting costs: NOK 25,000 ($2,273/€2,273) for the first child, and NOK 15,000 ($1,364/€1,364) for each subsequent child.
- Interest expenses, regardless of whether they are from a mortgage, credit card debt, etc.
Once the tax base has been calculated, taxes will be based on it.
There is a fixed income tax rate applicable to the entire tax base, and a progressive portion whose rates increase with the level of income.
The flat rate of income tax in Norway is 22%. In addition to that, for those whose tax base exceeds NOK 190,350 ($17,305/€17,305) per year, the following progressive rates will also be applied.
The progressive rates on income tax are as follows:
- From 0 to 190,350 NOK ($17,305/€17,305): 0%
- From 190,350 to 267,900 NOK ($17,305-$24,355/€17,305-€24,355): 1,7%
- From 267,900 to 643,800 NOK ($24,355-$58,527/€24,355-€58,527): 4%
- From 643,800 to 969,200 NOK ($58,527-$88,109/€58,527-€88,109): 13.4%
- From 969,200 to 2,000,000 NOK ($88,109-$181,819/€88,109-€181,819): 16.4%
- More than 2,000,000 NOK ($181,819/€181,819): 17.4%
Thus, the highest marginal rate on income tax in Norway is 39.4%. It will be applicable to the portion of our tax base in excess of 2,000,000 Kroner.
Total Tax Burden on Earned Income
To find out what the total level of taxation on labor income, we will compare how much the company spends to employ a person with their net salary. Total employment costs include the employee’s gross salary as well as social security contributions paid for by the employer.
We will perform the calculations for a worker who is unmarried, has no children and does not use any of the optional income tax deductions.
The following table indicates the total level of taxation for various income levels:
The calculations indicate to us that the system is indeed progressive. The total tax burden is higher for those with higher incomes.
As we can see, the lowest incomes face a real taxation of approximately 25%. This percentage exceeds 30% for the middle-income people. Those with the highest incomes must face a total effective taxation level of more than 50%.
Capital Income Taxes
Income from savings and investments is also subject to the payment of taxes in Norway. However, the applicable rates vary according to the source of that income.
Interest income from bank deposits or fixed income investments is subject to a flat rate of 22%. This rate is applied regardless of how much interest income we have received.
Real estate income is also subject to the 22% rate. Obviously, taxes are only paid on net rental income. This means all costs associated with the ownership, upkeep and financing of the property are tax-deductible.
When it comes to realized capital gains from real estate transactions, those are also subject to a 22% tax rate. The exception here is capital gains from our main residence as long as we had lived there for at least one year prior to the transaction. If those circumstances apply, capital gains will be tax exempt.
Finally, income from dividends or capital gains from financial investments are taxed more heavily. In this case we apply a multiplier of 1.44 to the flat 22% tax rate. This means the effective tax rate for these types of capital income is 31.68%.
The general corporate tax rate in Norway is 22%. This rate puts Norway below the largest countries on the European continent, whose rates range from 25% to over 30%.
This makes the Scandinavian country a more attractive jurisdiction to establish a business.
However, different rates apply to certain types of companies. Certain types of financial companies operating in Norway are subject to a corporate tax rate of 25%.
Additionally, corporations who produce and export oil and natural gas will be subject to a whopping 78% rate.
The consumption of goods and services in Norway is subject to Value Added Taxes (VAT). VAT has 5 different rates:
The general VAT rate in Norway is 25% and applies to all goods and services that are not subject to one of the reduced rates.
The first reduced rate is 15% and used for most types of foods and beverages. The exception is raw fish which is subject to a lower rate of only 11.1%. Recall that Norway is one of the largest producers of salmon in the world.
The third reduced VAT rate, at 6%, is used for hotels, cultural and sports activities, as well as public transport.
Finally, some products are exempt from VAT. In this category we would find press, books and e-books, health services and products, and education services.
Real Estate Transfer Tax
The purchase of a home in Norway is also subject to taxes. However, these are not very onerous.
All those who buy a property in Norway must pay 2.5% of the purchase price in taxes.
Inheritance and Gift Taxes
In Norway the inheritance and gift tax rate is 0%. Or, to be more precise, the inheritance and gift tax does not exist since its abolition in 2014.
This means that, regardless of the relationship between donor and recipient, no tax will have to be paid to the tax authorities.
It should be noted that this tax was already very low even before it was completely scrapped.
Public Debt in Norway
Now that we have discussed the most important taxes in Norway, it is interesting to look at the state of its public finances. This will indicate the level of sustainability in the current tax system and spending patterns.
With that goal in mind, we will look at the historical level of public debt relative to the size of its economy:
As we can see, the public debt in Norway is fully under control. Debt to GDP is low, at around 40%, and has been stable for a long time.
Over the past four decades, the level of public debt in Norway has fluctuated between 30% and 50% of its GDP, reflecting a high level of budgetary discipline.
On top of that, remember that Norway has a sovereign wealth fund several times larger than its public debt. To put things in perspective, the Norwegian sovereign wealth fund holds assets in excess of $100,000 for every person living in the country.
Norway is not only one of the most prosperous countries in the world, but also enjoys one of the most attractive tax regimes in Western Europe.
Taxes in Norway are certainly not low, but neither are they extremely high. Additionally, the country’s public finances are well managed, and the rule of law is very strong.
All these arguments make the case for being optimistic about the future of Norway.
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And if you want to read about taxes in another Nordic country, check out this link:
Taxes in Sweden – A Complete Guide
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