Brexit for British businesses and employees – important information

The United Kingdom officially left the EU on 31 January 2020. A withdrawal agreement with Norway until 31 December 2020 has secured that much has remained the same, but from 1 January 2021 special regulations applicable only for EU/EEA citizens and businesses will in general no longer apply for British citizens and businesses operating in Norway. Here is important information relevant to British businesses or individuals operating and working in Norway.

Immigration

The freedom of movement for EU/EEA citizens to the UK, and UK citizens within EU/EEA, ends from 1 January 2021.

British citizens and their family members who want to live, work, or study in Norway after 31 December 2021 must apply for a residence permit under the ordinary immigration regulations applicable for nationals from countries outside the EU/EEA.

British citizens who are temporarily posted workers to Norway by their UK employer (service provider) will lose their rights to work in Norway from 31 December 2020 and must have a valid residence permit to continue the assignment from 1 January 2020.  This also applies to workers who started their work assignment in Norway before 1 January 2021, and the assignment cannot be continued until a residence permit has been issued. They can stay in Norway until they have received an answer to the application but cannot work.

The requirements for obtaining a residence permit for non-EU/EEA citizens include minimum requirements for both wages and the employees’ skilled competence.

The current waiting time for processing the application is indicated to 8 weeks.

Exemptions:

British citizens and their family members who already have a right of residence in Norway as an EU/EEA citizen before 1 January 2021 will uphold the right after the transition period has ended.

British citizens employed by and working for a Norwegian employer, while commuting between the workplace in Norway and the place of residency in the UK (frontier workers), will retain the right of residence under the EU/EEA regulations scheme also after the transition period ends if the right were established by 31 December 2020.

A new type of residence permit will be issued for these individuals, and a portal for registering for the new resident permit will open on 4 January 2021. The application must be submitted by 31 December 2021. Meanwhile, they can continue to stay and work in Norway.

British citizens employed by an employer in another EU/EEA state can still work in Norway under the simplified EU/EEA scheme if they have a valid resident permit/ work permit in the EU/EEA state where they are employed.

For some specific work activities, the requirements for a work permit may be lifted. This depends on the nature of the work and how long the employee stays in Norway each time. For instance, if specific requirements are met, a residence permit may not be necessary for offshore workers.

British citizens will be able to travel for holidays and other short trips for up to 90 days within a 180 day period without a residence permit or visa. Work is in general not allowed during such visits.

Please note that various restrictions upon entering Norway are currently in place due to Covid-19.

Employer payroll reporting obligations

Brexit does not have any impact on British’ employers payroll reporting obligations for their workers in Norway, these remain the same after the transition period ends.

Social security

The EU / EEA rules and regulations for coordination of social security will not apply for cross border work between Norway and the UK from 1 January 2021.

An exemption has been agreed for employees already posted to Norway or the UK before 1 January 2021. A1 forms issued for these individuals will be valid until their end dates and can be prolonged within the current EU /EEA regulations. This requires that no significant change to the employees’ contract or other circumstances relevant for the initial issuance of the A1 form occurs.

For employees posted after 31 December 2020, Norway and Britain have agreed upon a temporary agreement on social security. This is mostly based on the old social security agreement from 1990, and have provisions regulating which of the two countries’ social security scheme a cross border employee should be covered by. Employees who are posted by their employer in the UK can through this agreement apply for the continuance of UK social security, and thereby be exempt from paying social security contributions to Norway, for assignments up to 3 years maximum.

Further clarification on specific details for the application processes is not yet in place.

Income tax

Income tax is not part of the EU/EEA agreement but rather regulated by the state’s domestic tax regulations. The tax treaty between Norway and the UK is not affected by Brexit. There are, however, several provisions of the domestic tax law that allows more beneficial taxation for citizens or corporations resident within the EU/EEA states. Once the transfer period ends on 31 December 2020, the following changes are likely unless any exemptions are granted:

Corporate tax:

  • Dividends paid from Norwegian companies to UK companies will be subject to withholding tax.
  • The temporary payment deferral of exit tax for cross border transfer of assets and liabilities will no longer apply. Losses related to exit to the UK will no longer be deductible, and tax credits in Norway will not be granted.
  • UK resident companies may not render and receive group contributions with tax effect.
  • Companies resident in the UK will be treated as third-country when applying the Norwegian CFC rules.
  • Upon cessation of tax liability to Norway, UK companies will have to settle their tax depreciation accounts. This also applies to UK resident companies that merge or demerge with a Norwegian company.

Personal income tax:

  • The 90% rule will no longer be applicable for UK individuals with limited tax liabilities to Norway.
  • Employees who are commuters for tax purposes must expect an increased frequency of home trips to the UK to maintain the commuter status. Unmarried employees who do not live with children they support in the UK must expect to have on average a home trip every three weeks. If the frequency of home trips and other requirements for commuter status is not met, the employee will not be able to claim a tax deduction for accommodation and home trips, or alternatively, if this is paid by the employer, it will be taxable.
  • Payments of capital insurance from an insurance company in the UK will be taxable for tax residents in Norway.
  • Individuals moving from Norway to the UK with latent taxable gains on shares subject to exit tax must furnish adequate security for the tax amount upon cessation of Norwegian tax residency.
  • Personal taxpayers living in the UK will not be able to open a Share Savings Account in Norway after 31 December 2020. Furthermore, it will no longer be possible to invest in British shares through the Share Savings Account after 31 December 2020. Existing investments in British shares can remain on the account.

VAT

On 18 December 2020 Norway adopted a Regulation on VAT registration by representative to prevent negative consequences for businesses established in the United Kingdom as a result of Brexit. The regulation entered into force with immediate effect.

In effect the regulation treats businesses established in the United Kingdom, with no place of business in Norway, but required to be VAT registered in Norway, on equal footing with businesses established in the EU/EEA also after the transitional period ending on 31 December 2020. The implications of this are that there is no requirement for such businesses to change their current registration. Neither will Norwegian VAT representatives be jointly and severally liable for VAT amounts or meeting VAT related bookkeeping requirements.

The regulation applies only to businesses established in the United Kingdom and already VAT registered in Norway either directly or through a VAT representative on 31 December 2020. From 1 January 2021, businesses established in the United Kingdom with no place of business in Norway, will therefore have to register through a Norwegian VAT representative who will be jointly and severally liable for the VAT amounts and meeting VAT related bookkeeping requirements. The Ministry of Finance has, however, announced that they will initiate work with a view to further change the relevant VAT legislation in this area. Bearing in mind the “reciprocity principle”, and that the United Kingdom is not requiring Norwegian established businesses to register through a VAT representative in the United Kingdom, we would not be surprised if such upcoming changes would mean that Norwegian VAT representative requirements for businesses established in the United Kingdom would be abolished also for such businesses registering after 31 December 2020. We would welcome such changes as soon as possible.

Other

It is a requirement that the general manager and at least half of the board members in private limited companies, public limited companies and cooperatives registered in Norway is either resident in Norway or both citizens of and resident in an EU/EEA State. From 1 January 2021 British citizens resident in the EEA or the United Kingdom and EU/EEA citizens resident in the United Kingdom will not meet the legal requirements mentioned above. Those affected may however apply for an exemption from the rules. The Ministry of Trade, Industries and Fisheries has prepared a standardized application form, which may be sent by e-mail to the Ministry postmottak@nfd.dep.no.

The ministry will seek to process all applications before 31 December 2020. Depending on the outcome of the free trade agreement negotiations, the government will also consider amending the legislation to extend EU/EEA treatment to the UK.

Please contact us if you need further advice or have any questions:

MAREN MIKKELSEN
Lawyer, VAT
mikkelsen@braekhus.no
(+47) 416 45 200

HJØRDIS LARSEN
Senior Tax Manager, global mobility
larsen@braekhus.no
(+47) 901 10 411

ANTONIO HOLSTAD
Lawyer/Partner, international tax
holstad@braekhus.no
(+47) 982 06 169