Norway

1. Personal income tax system

The personal income tax has two tax bases: personal income and ordinary income. Personal income is defined as income from labour and pensions. Personal income is a gross income base from which no deductions are made. Ordinary income includes all types of taxable income from labour, pensions, business and capital. Certain costs and expenses, including interest paid on debt, are deductible in the computation of ordinary income.

2. Social security contributions

3. Universal cash transfers

4. Main changes in tax/benefit systems since 2002

• Most important changes related to wage taxation in 2016:

  • The general tax rate on ordinary income was reduced from 27% to 25%.

  • A bracket tax with on personal income with 4 tax brackets was introduced and replaced the former surtax on personal income.

• Most important changes related to wage taxation in 2015:

  • The threshold in surtax bracket 1 was increased by NOK 5 750.

  • The upper limit of the basic allowance for wage income/social security benefits was increased by NOK 2 100.

  • The lower threshold for the payment of employee’s social security contributions was increased from NOK 39 600 to NOK 49 650.

• Most important changes related to wage taxation in 2014:

  • The general tax rate on ordinary income was reduced from 28% to 27%.

  • The employee’s social security contributions were increased by 0.4 percentage points.

  • The rate in the basic allowance against wage income was increased to 43%.

  • Tax class 2 for married couples was reduced.

• Most important changes in 2013:

  • The personal allowance for labour income was increased for low income earners (below NOK 213 950) by 2 percentage points from 38% to 40% of their labour income.

  • The taxable value of second homes and commercial property for the purposes of net wealth tax was increased from 40% to 50% of estimated market value.

  • The basic allowance in the net wealth tax was increased from NOK 750 000 to NOK 870 000. Married couples will thus have a total basic allowance of NOK 1 740 000.

  • The current class 2 for sole providers was replaced by a special allowance for ordinary income which provides an equivalent tax benefit.

  • The maximum deduction for labour union fees was increased from NOK 3 750 to NOK 3 850.

• Most important changes in 2012:

  • The personal allowance for labour income was increased for low income earners (below NOK 217 000) by 2 percentage points from 36% to 38% of their labour income.

  • For self-employed the wage allowance was abolished to eliminate residual discrimination between sole proprietorships with employees and limited companies.

  • In the deduction for travel expenses for travels between home and work the deduction rate per kilometre was increased for tax payers travelling between 35 000 km and 50 000 km per year.

  • The maximum deduction for labour union fees was increased by NOK 90 to NOK 3 750.

• In 2011 changes to the tax system was made to provide better incentives for people to work when drawing a pension. The tax limitation rule for early-retirement and old-age pensioners was replaced by a new tax allowance for pension income. The allowance ensures that people who only receive the minimum pension will continue not to pay income tax. The allowance is scaled down against pension income, so that the marginal tax on earned income is reduced to the same level as for wage earners. The marginal tax on capital for low-income pensioners is also reduced to the same level as for other taxpayers. The new tax allowance is determined regardless of the spouse’s income and married early-retirement and old-age pensioners will each have their own allowance. In addition, the pension income social security contribution is increased and the special allowance for age is discontinued.

• In 2010 a new formula-based system for determining the tax-assessed value of homes was introduced. The new tax-assessed value will be determined by multiplying the floor space of the dwelling by a square metre price based on the geographical location (neighbourhood, municipality, sparsely populated vs. densely populated area), size, age and type (detached, semi-detached, terraced, flat) of the property. For primary homes (owner-occupied), the per square metre rate will be set at 25% of the estimated sale price per square metre, whereas the rate for second homes, i.e. any other dwellings in addition to the primary home that are not defined as business or recreational properties, will be set at 40% of the estimated sale price per square metre. The current “safety valve” system is being continued so that taxpayers can appeal and have the tax-assessed value reduced to 30% of the documented fair market value (60% for second homes). In addition, the tax-assessed values of recreational properties are increased by 10%.

• Most important changes in 2009 were the abolition of the 80% rule, which primarily reduced the wealth tax of the richest. The wealth tax on equities for those who fall within the scope of the 80% rule has been more than doubled since 2005.

• The home savings scheme (BSU) was expanded in 2009 by increasing the annual savings amount to NOK 20 000 and the maximum aggregate savings amount to NOK 150 000.

• The rates of the inheritance tax were reduced and the exempted amount was increased in 2009. The instalment scheme for family businesses was expanded through the abolition of the upper limit, and the payment period was increased from 7 to 12 years.

Other changes in the personal tax base in 2009:

• The fishermen’s allowance was increased from NOK 115 000 to NOK 150 000.

• The reindeer husbandry allowance was increased to the same level as the agriculture allowance.

• The allowance for labour union fees was increased by NOK 450 to NOK 3 600.

• The rate of the travel allowance was increased from NOK 1.40 per km to NOK 1.50 per km.

• The tax-free net income thresholds under the tax limitation rule were increased such as to ensure that singles and couples who receive the minimum state pension will still not be paying tax following the favourable social security settlement they benefited from in 2008.

• A tax favoured contributions to individual pension agreement schemes was reintroduced as of 2008.

• From 1 January, 2008 the employees’ SSC rate for self-employed was increased from 10.7% to 11.0%.

• The upper threshold in the surtax schedule was substantially reduced from 2006 to 2007.

• The surtax rates were reduced in 2005 and 2006, as part of a reform of the dual income tax system. The basic allowance has been substantially increased.

• From 1 January, 2006 the supplementary employer’s social security contribution at 12.5% for gross wage income that exceeds 16 times “G” (average “G” is estimated to be NOK 74 721 in 2010) was removed.

• From 1 January, 2006 the class 2 in the surtax was removed.

• From 1 January, 2005 the ceiling in the parent allowance for two and more children was removed, and the maximum allowance was increased with NOK 5 000 for each child after the first. From 2008 the maximum allowance will be increased with NOK 15 000 for each child after the first.

• The additional child support of NOK 7 884 for children aged 1 and 2 years was abolished as of August 1, 2003.

• An allowance of maximum NOK 6 000 for donations to voluntary organisations was introduced as of 1 January, 2003. Previously this allowance was coordinated with the allowance for labour union fees (with a combined maximum allowance). The allowance was increased to NOK 12 000 as of 1 January, 2005.

• As of 1 July, 2002 the employer’s social security contribution rates for employees aged 62 years or older were reduced by 4 percentage points, although not below 0%. From 2007 the reduction was abolished.

5. Memorandum items