Tax liability, social security liability, withholding tax for wages, and employer's/contractor's reporting obligations.
Tax liability
A person can be liable to pay tax in Norway on their global income as a tax resident or have a limited tax liability to Norway according to Norwegian tax law.
Tax residency
According to the Tax Act § 2-1, a person who stays in Norway for a period exceeding 183 days during a 12-month period or 270 days during a 36-month period will be considered a tax resident in Norway.
The person will be liable to pay tax on their global income to Norway from January 1st of the income year in which they exceed one of the mentioned limits. As a global tax resident in Norway, the person will be liable to pay tax to Norway on their total income and wealth from both Norway and abroad.
Limited tax liability to Norway according to Norwegian tax law
If a person stays in Norway for less than 183 days during a 12-month period, or less than 270 days during a 36-month period, they will have limited tax liability to Norway according to the Tax Act § 2-3. The same applies to persons who are hired out to Norwegian companies.
As a person with limited tax liability, the individual is only liable to pay tax to Norway on income sourced from Norway. In practice, this mainly consists of wages from Norwegian employers/wages from foreign employers who have a permanent establishment in Norway and income from real estate.
Tax liability to Norway according to tax treaties
Both as a global tax resident in Norway and as a person with limited tax liability to Norway, Norway will have the right to tax income earned from work performed in Norway according to Norwegian domestic law. If Norway has entered into a tax treaty with the person's home country, the right to tax the employee may be limited when they stay in Norway for less than 183 days either during an income year or during a 12-month period, depending on the wording of the tax treaty. The foreign employee will, in any case, become liable to pay tax to Norway even for work stays under 183 days in the country if:
- The person is hired by a Norwegian company to perform work in Norway (Norwegian authorities have interpreted this into all tax treaties)
- The costs for the employee are charged to a permanent establishment in Norway, and/or if the costs are charged via a management fee between their employer abroad and a Norwegian permanent establishment
- The person works for a Norwegian employer in Norway
This means that in cases of hired labor, the person is liable to pay tax to Norway from the first day according to the Tax Act § 2-3 (2) and the tax treaty.
It is therefore important to assess the employee's tax liability to Norway before sending an employee to Norway.
Social Security
The main rule is that persons who take paid work in Norway or on the Norwegian continental shelf are mandatory members of the National Insurance Scheme from the first day of work in Norway.
Through the EU Council Regulation No. 883/2004 and through social security agreements with numerous countries, Norway has opened up the possibility for posted foreign workers from countries with which we have social security agreements (including all EU/EEA countries) to maintain membership in their home country's social security system during work stays in Norway. Similarly, citizens from certain countries outside the EU/EEA with which Norway has entered into social security agreements can also maintain membership in their home country's social security scheme. By obtaining an A1 form (or equivalent confirmation) from the home country's social security authorities, the employee will be exempted from the obligation to pay social security contributions or get reduced social security contributions in Norway. The employer's social security contribution obligation will normally be eliminated or correspondingly reduced.
Tax-free allowances
A foreign employee who works in Norway and has their residence in an EEA country is considered a commuter. From the income year 2014, persons who have their residence outside the EEA can also be considered commuters. As a commuter in the tax sense, one has the right to claim deductions for additional expenses for food, lodging, and home trips during the work stay in Norway.
If the employee gets these additional expenses for food, lodging, and home trips covered by the employer, this will in principle be taxable income. However, the employee who is entitled to deductions for additional expenses can be assessed according to the so-called net method, which means that the employer's coverage of the benefits is considered tax-free for the employee. The prerequisite for the employer's coverage of the expenses to be considered tax-free is that the employee is considered a commuter.
Standard deduction is eliminated
Previously, foreign workers who had a temporary work stay in Norway could claim a standard deduction of 10% of their income, limited to NOK 40,000 per income year. The rules about this were removed as of 01.01.2019, and foreign workers with a temporary work stay can now use the rules on withholding tax on wages "Pay-As-You-Earn" (PAYE) scheme that was introduced from 2019. However, offshore workers and foreign sailors cannot be included in the new withholding tax scheme and therefore get to keep the standard deduction.
ID control
For several years, there has been a requirement that foreign workers must appear in person at the local tax office to confirm their identity and submit an application for a tax card and, if applicable, a notification of moving.
Based on this, the local tax office has issued tax cards and D-numbers / Norwegian personal numbers to the employee. The employee will not be assigned a tax card or D-number / Norwegian personal number without first having undergone such an ID check.
The rules for carrying out the ID check were changed for third-country nationals from February 2019. The ID check for third-country nationals is now carried out by the police when the employee effectuates their residence permit.
The employee must then wait a few days before they receive a letter from the tax authorities with their Norwegian ID number. Only when this is received can they create an electronic user with the tax authorities and apply for a tax card electronically.
The form to be used for applying for a tax card is RF-1209.
For EU/EEA citizens and third-country nationals who are exempt from the requirement for a residence permit, the 'old scheme' applies. They must pre-book an appointment at the local tax office or at the Service Center for Foreign Workers (SUA) to carry out ID control and submit an application for a tax card. Booking of appointments is done at skatteetaten.no.
The form can be downloaded directly from the Tax Administration's website. The employees must fill out this form themselves before they meet at the tax office.
The employee must bring the following documents to the ID control at the tax office:
- Valid passport (original) or national ID card approved as a travel document in the Schengen area
- Application for tax card on form RF-1209 (completed)
- Copy of employment contract or confirmation of work assignment in Norway
- Third-country nationals who are exempt from the requirement for a residence permit should also bring documentation explaining that they are practicing an exemption provision
It is important that the employees prioritize getting the ID control carried out as soon as possible after arrival in Norway, as it may take some time before the tax office can issue a tax card and D-number / Norwegian personal number. The employee will be notified of their D-number / Norwegian personal number in the form of a tax deduction notice.
Booking of appointments is done at www.skatteetaten.no
Tax Card
The employer downloads the tax card electronically for all employees via their payroll system. The employee will receive a letter (tax deduction notice) from the Tax Office in December of the year before the income year. If the employee is registered as an e-user, this letter will be sent electronically to the message box in Altinn. This letter will show what is the basis for calculating the tax deduction. If the employee sees that the basis is incorrect, they can, as before, apply for a corrected tax card. The employer will then receive a message that the employee has changed their tax card.
The employer must be aware of the differences in the special deduction tables for foreign workers. Among other things, there are variations with deduction obligation for 10.5 months and deduction obligation for 12 months, as well as whether social security contributions are included or not. Ensuring a correct tax card will be of great importance for the employee and employer.
Reference is also made to a separate article on withholding tax on wages in this context.
Client's and Contractor's/Employer's Reporting Obligation
A new Tax Administration Act came into force on January 1, 2017. The rules on reporting obligations that were previously enshrined in the Tax Assessment Act § 5-6 are now enshrined in the Tax Administration Act § 7-6. This provision imposes reporting obligations on both clients and contractors/employers who have foreign contractors or employees on assignments in Norway.
According to the reporting obligation, information about assignments/contracts and employees used to perform an assignment in Norway or on the continental shelf must be provided as soon as possible, and no later than 14 days after the work has begun. Similarly, it must be reported within 14 days when an assignment/employment relationship has ended.
The client shall report the assignment on RF-1199 and the contractor shall report the employees on RF-1198. The reporting is done in the Assignment and Employment Register (OAR) or on the paper version of RF-1198 and RF-1199. To access OAR, you must log in with an electronic ID.
To be able to see what has been reported in the register, you must have read access to the service RF-1199/RF-1198 in Altinn for the organization number registered on the assignment. If you are to report information, you must have write access. The accesses are assigned in Altinn.
The purpose of the rules is to get an overview of foreign contractors and employees in Norway and on the continental shelf, as well as form the basis for the tax roll of the Central Tax Office for Foreign Affairs (SFU). As a result of criticism from ESA, changes were made to the reporting rules in 2018. Among other things, it can be mentioned that the previous exception for assignments carried out at a place not under the client's control was repealed, limitations were introduced that one is only obliged to report one link up and two links down in the contract chain, and the limit for reportable assignments was raised from NOK 10,000 to NOK 20,000.
Sanctions for Missing or Late Reporting on RF1198 and/or RF1199 Failure to comply with the reporting obligation may result in sanctions.
Coercive Fine (Tax Administration Act § 14-1)
To enforce the submission of mandatory information, the tax authorities can, according to current regulations, impose a daily running coercive fine on those who have an obligation to provide information when the information is not provided within the set deadlines. The same applies when there are obvious errors in the information provided.
The total coercive fine according to the first paragraph, first and second sentences, cannot exceed 50 times the court fee (NOK 62,150 in 2023). The court fee is adjusted annually and is proposed to increase to NOK 1,243 from January 1, 2023.
The tax authorities can in "special cases" reduce or waive accrued fines. Coercive fines do not accrue if fulfillment is impossible due to circumstances not attributable to the responsible party.
Violation Fee (Tax Administration Act § 14-7)
If a coercive fine is not imposed, the tax authorities can impose a violation fee on information obligors who do not comply with their obligations to report.
The violation fee shall amount to 10 court fees (NOK 12,430 for 2023).
In case of repeated violations within twelve months of the imposition of a violation fee, the fee shall amount to 20 court fees (NOK 24,860 for 2023).
An additional fee of up to two court fees (NOK 2,486 for 2023) can be imposed for each person or company for which information has not been submitted.
A violation fee is not imposed on a third party who has been imposed a coercive fine for the same information failure. A violation fee is also not imposed if fulfillment is impossible due to circumstances not attributable to the responsible party.
For the sake of order, we would like to point out that the employer also has a number of other registration and reporting obligations related to foreign workers in Norway. However, these are not discussed further in this article.