Key changes to taxes and duties – 2020 state budget

Among the changes, the following are mentioned:

• Taxes:
  • Most basic amounts and points of impact are index or wage-adjusted.
  • The personal allowance is wage-adjusted and has been reduced as a result of the restructuring of the NRK TV license.
• Capital:
  • The capital rules for shares in newly formed and merged businesses have been adjusted to be in line with other businesses.
  • The capital base from commercial property in businesses has been changed from 75% to 100%.
• Property taxes
  • The maximum rate for property tax has been adjusted from 7 to 5 per mille.
• R&D
  • The maximum hourly rate for R&D costs has been increased from NOK 600 to NOK 700 and the maximum allowance has been set at NOK 25 million per entity, with the deductible rate set to a flat rate of 19%.

Read more about the details below.

TAX

Personal tax

No changes are proposed for the tax rate on ordinary income in 2020. Furthermore, it is proposed that the rates are kept unchanged in all brackets for 2020, i.e. 1.9% in bracket 1, 4.2% in bracket 2, 13.2% in bracket 3 (11.2% in the action zone in Troms and Finnmark county) and 16.2% in bracket 4. It is proposed that the points of impact be adjusted to account for expected wage growth, to NOK 180,800 in bracket 1, NOK 254,500 in bracket 2, NOK 639,750 in bracket 3 and NOK 999,550 in bracket 4.

The government proposes to adjust the upper limit for the minimum deduction in wages and social security by estimated wage growth, to NOK 104,450.

The personal allowance will be wage-adjusted, while also being reduced as part of the restructuring of the NRK financing.

Tax liability and the right to deduct expenses for entertainment contributions will be removed.

Capital gains tax

The government proposes changes to the capital gains tax regulations to remove unintended adjustment opportunities. It will no longer be possible to reduce the capital value of unlisted businesses using the special valuation rules applicable to newly formed businesses. A proposal is also made to correct a bias in the valuation of indirectly owned commercial property.

The government proposes repealing the special valuation rule for newly formed businesses. The proposal will result in all unlisted shares in Norwegian limited companies and public limited companies being valued at the shares’ proportion of the business’ taxable capital.

It is also proposed that unlisted shares in businesses that have been the acquiring business in two specific mergers must be valued on 1 January of the tax assessment year and not 1 January of the fiscal year as before. The proposal will result in capital transfers resulting from such mergers being captured in the capital assessment for the fiscal year concerned, regardless of whether a change in capital is carried out at the time of the merger.

The government proposes to correct a bias in the capital valuation of commercial property owned through unlisted limited companies or shared liability partnerships. Such businesses that own commercial property valued using the safety valve in Section 4-10(1) of the Tax Act must no longer use 75% but 100% of the documented market value as the basis. The changes mean that commercial property owned through an unlisted company or a shared liability partnership cannot receive a reduced valuation twice in cases where the safety valve is used.

Property taxes

From 2020, the maximum property tax rate for residential property and leisure property will be reduced from 7 to 5 per mille. The government intends to reduce the maximum property tax rate for residential and leisure property from 5 to 4 per mille from 2021 and will get back to this as part of a comprehensive scheme for local government finances in connection with the 2021 local government proposition.

Financial activity tax

The government proposes to continue the financial activity tax at the same level as in 2019.

Tax rebate scheme

The government has proposed changes to the tax rebate scheme.

It is proposed that the maximum hourly rate for internal R&D be increased from NOK 600 to NOK 700 and that this rate will also apply to R&D purchased from related parties. It is proposed that the allowance basis for internal and purchased R&D be set to a maximum of NOK 25 million per taxpayer and that the deductible percentage be set to a flat rate of 19% for all businesses, regardless of size. Changes are also proposed to prevent misuse of the scheme, including limiting the deductible to apply to the purchase of R&D services from countries within the EEA and other countries with which Norway has a tax treaty or information exchange treaty.

With regard to beleaguered businesses, there has been considerable uncertainty with regard to whether previously allocated support in contravention of the EEA rules is at risk of having to be repaid and what will apply going forward. In this regard, it has been stated that the government will carefully monitor the considerations made by the EU and will return to the question if necessary.

DUTIES

Value-added tax

No changes are proposed concerning the general rates for value-added tax (25%, 15%, 12%) or scope other than the discontinuation of the general tax exemption for the import of goods with a value below NOK 350.

Employer’s national insurance contributions

Remain unchanged.

Excise duties

The rates on excise duties will be adjusted to a large extent.

With regard to carbon tax, this will increase further. For 2020, it is proposed that carbon tax be increased by 5 per cent above the price adjustment. In order to counteract increased pump prices for fuel, a corresponding reduction in the road use tax on petrol and diesel is also proposed.

There is also mention of the tax on electricity, for which it is proposed that the reduced rate for industry, etc. be increased from 0.50 øre to 0.505 øre per kWh due to the weak Norwegian krone.

No stamp duty changes are proposed for 2020.

Other duties

The TV license will be removed from 1 January 2020 and NRK will be financed from the state budget from the same time by reducing the personal allowance for income tax.