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The center-right majority coalition government presented their national budget for 2020 to the Norwegian parliament earlier today.
After several years with corporate income tax rate reductions, the tax rate is now kept at the current level of 22%. The budget did not contain any surprises in the area of tax and VAT legislation, and most changes are minor fixes of a technical nature.
There are relatively few corporate income tax changes that will affect the taxation of inbound investments but we have summarized some of the relevant proposals below.
As the current coalition government controls a majority in parliament, the proposals are expected to be adapted without significant changes.
As part of the larger effort to curb aggressive international tax planning the current government has repeatedly confirmed their intention to introduce a withholding tax on Norwegian sourced interest and royalty payments made to non-resident recipients. However, no legislative proposals have been published to date. In the budget documents the government stated – as it did last year – that a consultation paper will be released this fall and, following a consultation period, a legislative proposal will be presented to parliament in 2020.
A non-resident’s sale of goods to Norwegian customers, both B2B and B2C, have been exempt from Norwegian VAT, customs and any special duties as long as the total value of the shipment – including freight costs – have been lower than NOK 350 (appr. EUR 35). The exemption has been very unpopular amongst Norwegian retailers and the government now proposes to eliminate the VAT exemption. As regards customs duties, however, the government proposes to increase the exemption to NOK 3,000 (appr. EUR 300). The proposals are intended to have effect as of 1 January, 2020, i.e. one year before the new EU rules will take effect.
The Norwegian R&D tax incentive programme is – simply put – a mechanism where qualifying taxpayers may get a cash refund for R&D expenditure on pre-approved projects.
The government now proposes to reduce the maximum basis for the refund from NOK 50m til NOK 25. The purpose is to treat R&D carried out in-house (which is already capped at NOK 25m) and R&D carried out externally the same.
The government explicitly states that it will not propose any unilateral tax on digital activities (“Google tax”) in Norway, at least not until the efforts currently undertaken by the OECD/International Framework umbrella fails.
Norway is not bound by the EU’s secondary legislation pertaining to taxation. However, as a signatory to the Agreement on the European Economic Area Norwegian tax legislation have to conform to the EU treaty freedoms and staid aid rules. Thus, the Norwegian Tax Act frequently distinguishes between residents and transactions to and from EU/EEA member states and third states. If the UK leaves the EU without a deal, the UK will instantly be treated as a third country for Norwegian tax purposes. This will have significant impact on how investments from Norway into the UK are taxed. Further, it would also affect UK individuals working in Norway.
In order to remedy the most immediate consequences to a hard Brexit on 31 October, the government indicates that it will unilaterally extend the favorable corporate income tax treatment of EU/EEA residents/investments to include UK resident/investments also after a hard Brexit, at least for the remaining of the 2019 calendar year.