Tax on Investments and Capital Gains in Norway: A Short Guide

In Norway, there are significant differences in the taxation of investments, depending on whether they are made as a Private Individual or through a Holding Company. For example, the tax rate on income from shares is as high as 37.84% for individuals, while the same income is generally tax-exempt in the case of a Private Holding Company — Aksjeselskap (AS) with Limited Liability.

The so-called Tax Exemption Method allows for the deferral of taxes on income from shares if they are invested through private holding companies until the income is used for private purposes.

Private Ownership — Privat eierskap

Income from privately owned shares, profits from holding (Gevinst), and dividends (Utbytte) is taxed at a rate of 37.84% (the shareholder model). However, this rate can be reduced by the so-called shielding deduction, which lowers the taxable income from shares.

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The shielding amount is granted to the shareholder as of December 31 and is calculated based on the original value, increased by unused shielding amounts from previous years, multiplied by the shielding rate (3.2% for 2023).

In the case of securities funds (Fond) and fund accounts, the 80/20 rule applies from January 1 when calculating the shareholding for protective deductions (see below). Other capital income, such as interest earnings (Rentegevinst), is taxed at a rate of 22%.

Using a Holding Company — Holdingselskap

Income from shares is generally Tax-Exempt in the case of a holding company (AS) under the "Tax Exemption Method". This tax exemption primarily applies to income from companies, shares in investment funds, equity certificates, and cooperatives within the European Economic Area (EEA) and The European Free Trade Association (EFTA). Dividends from shares are taxed at a low rate of 0.66%. However, dividends are entirely Tax-Free if an external company holds more than 90% of the shares in the company paying the dividend.

Income (profits and dividends) from companies and funds outside the EEA is typically not covered by the exemption method and is subject to a 22% tax rate. The same applies to interest income from bank deposits and interest shares in a fund, regardless of whether the company or fund is based within or outside the EEA.

Using a holding company can yield a higher return, as nearly all income from shares can be reinvested without taxation if the investment falls under the "Tax Exemption Method". However, it is important to note that if the investment is not covered by this method, investing through a holding company may increase the tax on returns.

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Securities Funds

Profits and dividends from funds are taxed according to the share in the fund. Shareholding is measured annually on January 1.

The 80/20 Pareto Rule:

• If the equity share in the fund is above 80%, profits and dividends are taxed as share income: 37.84% for individuals and 0–0.66% for holding companies.

• If the share is below 20%, profits and dividends are taxed as interest income (22% for both private individuals and companies).

• If the share is between 20% and 80%, profits and dividends are taxed proportionally as shares and interest income.

From a tax perspective, it is more advantageous to hold accumulating private funds rather than funds paying dividends, as dividend payments cause continuous taxation, thereby reducing liquidity in the case of reinvestment.

To avoid triggering taxes when exchanging funds as a private individual, one should use an AS company account, an AKSJESPAREKONTO (AKS), or a fund account within an INDIVIDUELL PENSJON SPARING (IPS).

Individual Pension Savings Account (IPS)

IPS provides a private individual with a tax deduction on annual savings up to NOK 15,000, with a deduction of 22% of the savings amount, up to NOK 3,300 per year. With IPS, you can reinvest equity, mixed, and bond funds Tax-Free. Withdrawals are taxed as interest income (22%), regardless of the shares held. It is also important to note that all savings in IPS funds are "locked". They can only be withdrawn at the earliest at the age of 62 and gradually until at least the age of 80.

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Savings Account - Aksjeparekonto (AKS)

With an Aksjeparekonto (AKS) savings account, a private individual can buy and sell funds with more than 80% equity holdings within the EEA and publicly traded shares without incurring taxes. Dividends are also tax-free. An AKS account offers similar benefits to a holding company, but the fund or company must be based within the EEA. Taxes are only paid when profits or dividends are withdrawn from the AKS, which are taxed at a rate of 37.84%.

Transferring directly owned assets or shares to an AKS triggers a tax liability.

Wealth Tax — Formueskatt

As a private individual, you receive a 20% discount on the valuation of shareholdings and actual shares in the fund/AKS/fund account. IPS is exempt from the wealth tax.

IPS Fund Account

On a fund account, both private individuals and companies can buy and sell equity, interest, and mixed funds without taxation. Similar to AKS, any tax liabilities arise only at the time of withdrawal or account closure. Taxable withdrawals are divided into share income and interest income (see the 80/20 rule), based on the average annual shareholding on January 1.

Benefits for AS Company

The shareholder model is not geographically limited, but the tax exemption method initially does not apply to investments outside the EEA. However, investments in companies and shares in funds outside the EEA will be Tax-Free for AS, both in the case of reinvestment and withdrawal from the fund account. Profits from the direct ownership of such assets in AS are subject to a 22% tax.

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Using a holding company is particularly important for investments in shares and mutual funds, while interest investments should be made privately to avoid double taxation (22% tax in AS + 37.84% tax on dividends privately).

The above content has been provided by Financial and Wealth Management Advisors from SJØLYST INVESTORS AS and B2 CAPITAL AS. It is intended for general informational purposes only, is not exhaustive, and does not replace individual advice. We recommend consulting directly with these firms, a Lawyer, or a Tax Advisor for specific matters.