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Five things foreigners should know about income tax in Norway

Moving to a new country means moving to a new tax system. Scandinavian countries are known for having a high tax on their wages and Norway is no exception.

Five things foreigners should know about income tax in Norway
Photo: Charles Deluvio on Unsplash

It can take some time (years even!) to fully understand Norway’s tax rules. Here a few key points to go from.    

Who pays taxes?

As a resident of Norway, you are taxed on the income you have earned in a calendar year. This includes the income that you have earned from interest, property, and shares.

Norway's general income tax (skatt på alminnelig intekt) has a flat rate of 22 percent. This covers not only income from employment, but also from business and capital.

The general income tax in Norway is divided by three recipients: county tax, municipal tax and state tax.

READ ALSO: How does income tax in Norway compare to the rest of the Nordics?

The tax is calculated on your total income after permitted deductions have been deducted. How much you pay is dependent on your income.

“Income tax is a step tax, which is a progressive tax. So the more you make, the more you are taxed. It starts at 22 percent and can increase up to a maximum of 57 percent,” state authorised public accountant Petter Andreassen toldThe Local.

An exemption card or frikort can enable taxpayers to make up to 55,000 kroner tax-free within a one year period.

Everyone is entitled to a frikort, but it is necessary to apply first if it is relevant to use it.

“Ordinary workers have already included it via other deductions. You have a minimum deduction and personal deduction that takes this into account,” Andreasson explained.

The exemption was set up mostly for students and younger workers who have a part time job, he added.

Other types of tax

There are other types of taxes in addition to income tax. 

In addition to the flat rate general income tax, bracket tax (trinnskatt) is added for personal income of higher earners. Bracket taxes are based on your gross income and will be calculated before deductions have been permitted. 

National insurance contributions are a part of the National Insurance Scheme, or folketrygden.

National insurance contributions contribute to benefits residents receive from the Norwegian Labour and Welfare Administration (NAV) and health services.

If you are a member of the National Insurance Scheme (which happens automatically after you become a legal resident), then you must contribute. Like bracket tax, national insurance contributions are based on your gross income and will be calculated before deductions have been permitted. 

In 2020, the rates for the National Insurance contribution are 8.2 percent for residents who are between 17 and 69 years. For those younger than 17 and older then 69 the rate is 5.1 percent. If you are retired, the payment rate is 5.1 percent.

You don't have to pay national insurance contributions if your income is below 54,650 kroner.

You can pay a lower tax percentage the first year you live and work here

The PAYE scheme (which stands for Pay As You Earn) is a tax scheme for foreign workers. This is for people who have stayed for short periods and work in Norway and for the first year that you are a resident for tax purposes in this country. It is a voluntary scheme and you have to meet a certain criteria. 

When you take part in the scheme, you will not receive a tax return but instead will receive a receipt which shows how much salary and tax your employer has reported. 

For more information about the PAYE scheme, and the eligibility criteria, check here.

Your tax return is public

It’s true. How much you make for the year, and how much you pay in taxes is open information for the public to find out. Norway brings transparency to a new level when it comes to personal finances.

Sverre Solberg, general manager at Trondheim co-working space Work-Work explained the reasoning for this to Forbes saying, “as a social democracy we don’t want there to be a huge gap between the rich and the poor. An open tax return policy shows everyone how big that gap is, making it easier to discuss and address.”

READ ALSO: Taxes in Norway: Everything you need to know about how much tax people pay

You pay half the amount of tax in December

Well, kind of. Andreassen explains why residents pay less tax for the month of December:

“This is because one should be able to afford Christmas presents and have a little extra during the Christmas period. Technically, you do not pay half tax in December. It’s more like you pay a little more for all the other months in order to cover that half not paid in December,” he says.

Advice from a professional 

The best advice Andreassen has to offer is to “save money on taxes when you are young. For example, in a BSU account.”

A BSU account, also known as Young People’s Housing Savings, is available to those under the age of 34. Using the account, you can save up to 25,000 kroner a year and deduct up to 5,000 kroner a year from your tax.

You can use the savings in your BSU account for purchases such as a new home for your own use; a garage for the home; or as a payment on the interest or loan instalments of existing residential property that was established after the BSU account. 

Andreassen also said was worth knowing for anyone new to Norway that when it comes to tax returns, you don’t have to do much on your own.

“As long as you are not self-employed, your employer will mostly fix the correct tax return for you,” he says.

“They are responsible for sending in your salary etc. So you don’t have to think too much about it. It’s a little more work when you're self-employed,” he adds.

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What changes about tax in Norway in 2022?

Next year will see changes in the taxes you pay on your income in Norway, increases to the cost of several everyday items and new rules for how much you can deduct from your annual bill.

Pictured is two people making calculations.
These are the changes to tax you need to know about that. Pictured is two people making calculations. Photo by Scott Graham on Unsplash

Lower income tax for the majority

Most wage earners in Norway will pay lower taxes in the new year. Those who earn less than 750,000 kroner per year will pay less in taxes. According to the government, around 82 percent will pay less or the same in taxes.

In addition, those aged between 17 and 29 who earn less than 535,000 kroner will receive a tax credit of up to 5,170 kroner.

Residents of Norway pay an income tax of 22 percent, in addition to a bracketed tax that is calculated based on your income.

Increased bracket tax for higher earners

Norway’s bracket tax, an incremental tax paid based on your earnings and paid alongside the flat rate, will be raised for higher earners. In general, income tax will become higher for those who earn more than 643,800 kroner a year and the entry points for steps three and four for the incremental tax will be lowered. In addition, a fifth step for the highest earners, who make more than 2 million kroner, will be introduced.

READ ALSO: What changes about life in Norway in 2022? 

Petrol to cost more

The cost of fuel will go up considerably due to hiked taxes on petrol and diesel. Petrol tax is set to rise to 1.60 kroner per litre, and diesel tax will increase to 1.87 kroner per litre.

Wealth tax increases and changes

The wealth tax will be increased to 0.95 percent of personal assets, and for those who have assets of more than 20 million kroner (40 million for spouses), a rate of 1.1 percent will apply.

Houses with a valuation of more than 10 million kroner will receive an increase in taxation. Primary homes are currently valued at 25 percent of market value. The portion of a house valued above 10 million kroner (for example, five million kroner if the property is worth 15 million), will be taxed at 50 percent of market value.

The valuation of shares and fixed assets will increase from 55 percent to 75 percent from the income year 2022.

Union deductibles to increase

People who are members of a trade union will receive a tax deduction of 5,800 kroner. The union deductible was previously 3,850 kroner. In 2023 the deduction will increase to 7,700 kroner.

Deduction for gifts and donations to voluntary organisations will be reduced

The maximum tax deduction you can claim for donations to voluntary organisations will be halved from 50,000 kroner to 25,000 kroner.

Duty-free rules change

The duty-free quota rules will be changed from January 1st, meaning it will no longer be possible to replace the tobacco quota with 1.5 litres of wine or beer. This will come as a blow to those who don’t smoke but like to grab a discount at duty-free.

Tobacco will become more expensive 

The tobacco tax will increase by five percent above the regular price adjustment. For example, the tax on a pack of twenty cigarettes will increase to 59 kroner. For snus, the tax increases from 85 kroner per 100 grams to 90 kroner per 100 grams.

CO2 tax to increase

The CO2 tax will also be increased, but road and motor insurance tax will be slashed. The travel deduction for commuters will change too. As of the income year 2022, the current two rates for travel deductions will be replaced by one common kilometre rate of NOK 1.65 per kilometre.

Electricity tax to change

Electricity tax will see a slight decrease of 8 øre (an øre is a hundredth of a krone) per kilowatt-hour during the winter and 1.5 øre during the rest of the year.

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