The capital city of Norway, Oslo, is known for being one of the most expensive to live in around the world. This high standard of living does not deter American expats from making Norway their new home, as residents are not subject to the highest taxes. These US expats who are considering Norway have sent a number of questions to our firm regarding the Norwegian tax system, social security benefits and methods of minimizing their US expat taxes. They are also concerned about being able to receive tax assistance from a reliable US expat tax service provider while living in Norway. The following summary answers these questions along with a number of others in regards to US expat tax obligations while living in Norway.
Guide to Filing US Expat Taxes for Americans Living in Norway
Does Your Firm Provide US Expat Tax Services to Americans Living in Norway?
Yes, our firm has the extensive expertise needed for American expats who are working and living in Norway.
Are American Expats Living in Norway Required to File US Expatriate Tax Returns?
A US expat is under obligation to file taxes with the Internal Revenue Service (IRS) each year even while living in Norway. The tax return must include the income earned from any foreign employment, even if it has already been taxed by the Norwegian government. There is a possibility of reducing those foreign earnings for a US expat by using certain tax credits and deductions.
How Can Americans Living in Norway Minimize US Expat Taxes and Avoid Double Taxation?
The IRS does provide some provisions for Americans in Norway that can be used to avoid double taxation on income earned. These include:
- Foreign Earned Income Exclusion (FEIE)
- Foreign Housing Exclusion or Deduction
- Foreign Tax Credit
With FEIE, a US expat in Norway decreases their total income earned by excluding the first $101,300 for the 2016 tax year and $100,800 for the 2015 tax year. An American expat will have to meet the physical presence test or bona fide residence test first before qualifying for FEIE.
The foreign housing exclusion or deduction can be used to exclude certain housing expenses, but only if the expat is also eligible for FEIE.
The foreign tax credit or deduction is used by an American expat for the income taxes that were paid to the Norwegian government.
Who is Considered a Resident of Norway for Tax Purposes?
Individuals are considered to be residents of Norway for the purpose of taxation if they are able to meet either of the following requirements:
- The individual is in Norway for more than 183 days during a 12 month period. The residency status will start from the income year in which the requirement was fulfilled.
- The individual spends one or more periods of at least 270 days in Norway during any 36 month time frame. Residency status will start from the income year in which the requirement is fulfilled.
Is Foreign Income Subject to Taxation in Norway?
Norwegian residents are taxed on any earned income globally unless it is exempt under the provisions of a treaty between Norway and the nation the income was garnered from.
Unless deemed exempt under provisions laid out in a treaty, non-residents are subject to income taxation on money earned in the following ways:
- Payment received from employment in Norway for work that was conducted for a Norwegian source.
- Payments made to a resident abroad employee who was hired out to a Norwegian source to carry out work in Norway.
- Earned income from business activity carried out in Norway.
- Income earned as a result of being a managing director or member of the board of directors in a Norway based company.
- Income that was earned from real estate or a movable assets in Norway.
- Earned income from the sale of shares, options or any financial instrument if they are an asset related to business activity that was carried out in Norway.
- Dividends that were received from a Norway based company.
What are Personal Income Tax Rates in Norway?
In Norway, there are two bases of income where an individual may be taxed. The primary is a net base where the tax on ordinary income is at 27%.
There is also a personal income base tax in Norway, which is based on gross earnings. The top tax and contributions to social security for employees are derived from the personal income tax base.
The top tax rates in Norway for 2014 are:
- 9 percent – for earnings between NOK 527,400 to NOK 857,300.
- 12 percent – for earning above NOK 857,300.
The employee’s contribution to the Norwegian social security system is 8.2% of their gross income.
The tax system in Norway is divided into distinct tax classes. This will have an effect on the amount of certain deductions. For a tax year 2014, resident taxpayers will be allowed a personal tax-free amount depending on which class they fall under:
- Class 1: the tax-free amount is NOK 48,800.
- Class 2: the tax-free amount is NOK 72,000.
These tax rates are applicable for individuals who are deemed a Norwegian resident for tax purposes for a full 12 month calendar year. Resident individuals who are in Norway for a period of less than 12 months during the calendar year, or for those individuals who are not a resident of Norway for tax purposes, the tax-free amounts and tax rate intervals will be reduced in direct correlation with the number of months the individual spent in Norway. This will include the calculation of the personal income tax, municipal and top tax.
When are Tax Returns Due in Norway?
Each spring, US expats will receive a tax return form the Norwegian tax authority. This form must be completed and returned no later than the 30th of April and will reflect income earnings from the previous calendar year.
What is the Tax Year-End for Taxpayers Living in Norway?
As in the United States, the tax year begins on the 1st of January and ends on the 31st of December.
What Income is Considered Taxable Income in Norway?
Any types of monetary payments or benefits received by an individual for services rendered are considered as taxable income in Norway. This is regardless of where the money was paid.
Are Investment Income and Capital Gains Taxed in Norway? If so, How?
For residents of Norway, any income derived globally from an investment or capital gain will be treated as ordinary earned income and taxed at a rate of 27% for 2014. This also applies to any interest earned, dividends and capital gains from the sale of shares. As capital gains are taxable, any losses may also be used as a deduction from ordinary earned income.
What is the Social Security System in Norway?
For most employees living in Norway, there is a requirement that they be covered by the Norwegian National Insurance Scheme (NI-scheme). This includes a national pension and medical plan. An employee is obligated to pay 7.8% of their income earnings to the plan, while a self-employed taxpayer will have to contribute 11%.
An expat may be exempt from paying into the NI-scheme depending on their citizenship and the existence of a social security agreement between their country of origin and Norway. For US expats living in Norway, such an agreement is in effect.
Is There a Social Security Agreement or Tax Treaty Between the USA and Norway?
The United States and Norway do have an agreement in place both in regards to taxation of expats and social security. This is very helpful for US expats in figuring out which country should be paid specific taxes and when those taxes should be paid. The US – Norway tax treaty is a US expats guide towards ensuring that the right taxes are being paid to the appropriate country. If you are unsure of the phrasing of the treaty or have additional questions, an expert expat tax consultant should be consulted to ensure that the correct taxes are being paid to the right country.
Are There Other Taxes Assessed on Expats Living in Norway?
In Norway, there is a value added tax (VAT) of 25% on most goods and services with the exception of food, which is taxed at 15%. With transportation costs, Hotel stays and cinema tickets, the tax is only 8%. Any health related expenses, other entertainment costs and periodicals are exempt from VAT.
Residents in Norway are also required to pay a wealth tax on any assets they own. This is a progressive tax rate based on the net value of the asset and will be anywhere between 0% to 1% depending on the value of the assets.
What are the FBAR and FATCA Requirements for Americans in Norway?
The United States enacted The Foreign Bank Accounts Report (FBAR) which requires that by law, all citizens of the United States are obligated to report their foreign bank account balances to the IRS. A US expat will have to fill out FinCEN form 114 if the balance in their foreign bank account is $10,000 or more. An expat only has until the 30th of June to file this form, otherwise, facing the possibility of large fines in case of late filing.
The Foreign Account Tax Compliance Act (FACTA) was enacted by the US government as a means in trapping its expat citizens who are evading taxes. According to this policy, all US expats filing other than a joint return must report specified foreign financial assets of $200,000 or more at the end of the tax year, or at any point during the year if the balance is $300,000 or more. There are higher thresholds set for married couples. A qualifying US expat will have to fill out a Form 8938 and file it along with their US tax return.
Do You Have Additional Questions About Filing Expatriate Tax Returns?
If you are still seeking answers about the tax system in Norway and the US you should contact expat tax experts. Expat tax CPAs at Artio Partners can provide you with specialized assistance in a number of different personal income tax scenarios.