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TAXES

EXPLAINED: How does Norway’s bracket tax for income work?

Norway has a progressive tax on gross salary and other personal income, commonly known as the bracket tax. But what are the rates, and how much will you have to pay in the country known for its steep taxes?

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Norway's bracket tax consists of five steps. Photo by Tyler Franta / Unsplash

While many are familair with the concept of income tax, bracket tax may be a confusing concept for many. 

The bracket tax in Norway is calculated based on the individual’s gross salary income and other corresponding incomes, such as sick pay, work assessment allowance, disability benefit, and pension. Essentially it is a tax on one’s income after income tax. 

The country’s bracket tax consists of five steps, ranging from 1.7 percent bracket tax for the 1st step to 17.4 percent for the 5th step.

Note that, according to the rules in force for 2022, you do not pay any bracket tax on the first ca. 190,000 kroner of your personal income.

The bracket steps for 2022 are as follows:

No bracket tax
Income between NOK 0 – 190,349: No bracket tax

Step 1
Income between NOK 190,350 – 267,899: 1.7 percent bracket tax

Step 2
Income between NOK 267,900 – 643,799: 4.0 percent bracket tax

Step 3
Income between NOK 643,800 – 969,199: 13.4 percent bracket tax (residents of Finnmark and Nord-Troms pay 11.4 percent due to a special reduction in the surtax rate for the region)

Step 4
Income between NOK 969 200 – 1 999 999: 16.4 percent bracket tax

Step 5
Income over NOK 2,000,000:  17.4 percent bracket tax

Other taxes and contributions to keep in mind

Income tax: Remember that the bracket tax is calculated on your personal income and comes on top of the income tax, which is paid at the rate of 22 percent.

Personal income is defined as your salary or other similar money which replace a salary, such as sickness benefits, work assessment allowance, disability benefits, and pension.

As the Tax Administration points out, bracket tax is calculated on gross income, so any deductions you might be entitled to won’t be deducted before bracket tax is calculated.

Wealth tax: The wealth tax in Norway is paid on the wealth one has as of December 31st each calendar year. Wealth is usually defined to include bank deposits, shares, cars, and property.

The wealth tax is paid to both the municipality you live in and the Norwegian state. It is calculated based on your net wealth – the wealth left over after deductible debt has been deducted.

You can find more information on the wealth tax brackets that apply here.

Note that if you’re a tax resident in Norway, you’ll be liable to pay tax to Norway on all your income that’s earned in Norway or abroad.

Provisions in tax treaties with other countries can limit the amount of tax that must be paid to Norway but make sure to check the rules that apply to wealth abroad here.

National Insurance: Don’t forget that you are also liable for National Insurance contributions, which finance the country’s National Insurance scheme.

These are calculated on personal income, and the rates for 2022 can be found here

You can find more information on Norway’s National Insurance scheme in general on the Norwegian Labour and Welfare Administration’s (NAV) site.

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TAXES

Who will be affected by Norway’s new exit tax and how will it work?

Norway's government is moving forward with plans to enact stricter tax regulations for people leaving the country. The Local contacted the Ministry of Finance to find out the details.

Who will be affected by Norway's new exit tax and how will it work?

A new exit tax is in the works, the Norwegian government announced recently. 

READ MORE: What we know so far about Norway’s plans for an exit tax

The proposed changes aim to close loopholes within the existing tax system, particularly concerning the taxation of gains made on shares while residing in Norway and moving assets abroad.

Under the proposed regulations, those who have left Norway after March 20th, 2024, would be subject to taxes on gains of more than 500,000 kroner that they have accrued while in Norway. 

This move comes as part of the government’s efforts to address a recent outflow of wealth from the country, with Switzerland being a popular destination for tax exiles from Norway.

READ MORE: Why Norway has continued to see an exodus of wealthy residents

Who would be affected – and how would it work?

The new tax would affect both foreigners and locals – as long as they’re tax resident in the country, State Secretary Erlend Grimstad at the Ministry of Finance told The Local.

“The Norwegian exit tax rules, both the current ones and the ones being proposed, would affect natural persons who are tax residents in Norway,” he said.

The tax settlement process upon departure from Norway would require people to address their tax obligations related to gains exceeding 500,000 kroner on shares acquired during their time in Norway.

Emigrants would have several options for fulfilling this tax obligation, including immediate payment, interest-free instalments spread over 12 years, or deferred payment with accrued interest.

“Exit tax on shares will be imposed on individuals who terminate their tax residence in Norway, either according to Norwegian tax law or the applicable tax treaty.

“The rules also apply when an owner resident in Norway transfers shares as a gift to a person resident outside Norway,” Grimstad said, further noting that the new rules would only apply if the deemed net gain at the time of departure or transfer exceeded 500,000 kroner.

When could the new rules enter into force?

The consultation period for the new exit tax proposal began on March 20th and will last until May 21st, 2024. Thus, stakeholders and the public will have the opportunity to provide feedback and insights for the next two months.

Following this period, the proposal will undergo review and potential adoption by the Norwegian parliament (Storting), with the government needing majority support for implementation.

READ MORE: Does Norway really have some of the highest taxes in the world?

However, if the rules are passed, they will apply from March 20th, 2024, Grimstad told The Local.

“This is necessary to counteract tax adaptations in the time between publication of the proposal and adoption of the changes in the Storting,” he said.

The reasoning behind the new exit tax

Commenting on the exit tax developments last week, Norwegian Finance Minister Trygve Slagsvold Vedum said that it was important to uphold the principle of fairness in the taxation process, noting that people should contribute taxes on assets accumulated in Norway.

However, the proposed regulations also include provisions for those intending to return to Norway within the 12-year timeframe, ensuring that their tax liability would be adjusted accordingly.

“When you relocate, it’s only fair that you contribute taxes on what you’ve earned or gained in Norway. However, this process must be reasonable, hence the 12-year rule. Some people may wish to reside abroad temporarily and eventually return home,” Vedum said at the time, according to the Norwegian Broadcasting Corporation (NRK).

The proposed exit tax would extend beyond shares to include gains from share savings accounts and fund accounts. Additionally, transfers of shares with subsequent gains to people residing abroad, such as relatives, would trigger the tax if gains exceed 100,000 kroner, a reduction from the previous threshold of 500,000 kroner.

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