Taxation of non-resident employees – change in Norwegian legislation as from 1 January 2019

The intention is to simplify the rules for foreign employees performing short-term work in Norway. If the intention will be fulfilled remains to see.

From 2019, employees being nonresidents in Norway according to domestic rules can opt for a flat-rate taxation of 25% of their gross income, withheld by their employers. The benefit of such a choice is that they do not need to file a personal tax return in the year after the income year. The short-stay employee is not entitled to any deductions.

In order to be in line with the EEA Agreement and to avoid discrimination the new scheme is optional. Accordingly, the employers have to apply different sets of rules for their foreign employees, were some may choose the ordinary rules and some the new scheme.

In the new scheme, taxation is determined on a continuing basis as the employer calculates and pays the tax and the employee is no longer obliged to file an individual tax return.

The main reason for the new regime is that taxation of foreign workers due to complex regulations often is incorrect and in consequently very resource demanding for the Norwegian Tax Authorities.

Today’s rules

According to the current rules, the tax authorities will produce a preliminary tax return based on reported income. Foreign employees must always confirm or correct the tax return and send it to the tax office. This includes adding deductions or income not reported correctly, or merely a statement saying that the employee due to a tax treaty is not taxable.

The new scheme – Easier for the employer and employee?

The intention of the new scheme is to simplify the tax return process but there are some challenges.

If an employee works in Norway for more than 183 days in a 12 months period or more than 270 days in a period of 36 months, he becomes tax resident according to domestic legislation and cannot use the new scheme.

If his annual salary exceeds NOK 598 050 (2018) he cannot use the new scheme.

One must consider relevant tax treaties in each case, because an employee not being tax liable due to tax treaty obviously cannot use the scheme.

A more solid information base and better compliance?

According to the Ministry of Finance, one of the challenges with today’s rules is to assess whether the deductions listed in the tax reports are correct. They argue that this will no longer be an issue with the new arrangement. One could add that the same applies to income.

Another challenge is that Norway does not have any efficient system to monitor days in Norway in order to know if an employee is resident or not. Days filed in the Form RF-1198 is only indicative. The new scheme is dependent on registration of number of days in Norway, something that for the time being is not in place.

Whichever arrangement the foreign employee / employer chooses the Norwegian tax authorities must rely on the choice made by the employee. If and how the new arrangement makes more foreign workers comply with their obligations to report and pay taxes in Norway is an open question.

This remains unchanged

Any foreign employee working in Norway must meet at the tax office for ID check and to apply for a Norwegian tax card and ID number (D-number). The employer must, among other things, report salary and pay advance payments to the tax collector in the same way as Norwegian employers.

If you have any questions regarding this new legislation, please address that to the contact persons below.