Employees on net pay agreements

  • Print

A ‘net pay agreement’ is an agreement under which an employer covers the tax that is payable on the employee's agreed salary/remuneration. Net pay agreements are used in connection with cross-border employment relationships.

It is gross salary which is used as a basis for calculating the tax, National Insurance contributions and employer’s National Insurance contributions. Under a net pay agreement, the employee's net pay must therefore be converted to gross salary (grossing-up) in order to determine the basis to be used to calculate the tax, etc. 
In the case of foreign employees in Norway, the grossing-up must be carried out using Norwegian tax rates and the Norwegian rate for National Insurance contributions (unless the employee is exempt from National Insurance contributions.

As regards Norwegian employees abroad, different methods apply to grossing-up. The method that must be used in each case is determined on the basis of how the net pay will be taxed in Norway.

When a taxpayer meets the conditions for a tax reduction according to the alternative allocation method, either under the one-year rule in Section 2-1 tenth paragraph of the Tax Act or under a tax treaty, the grossing-up must be carried out by grossing up the sum of net pay (including payments in kind) and the tax that the employer pays for employees in the country of employment, by the the Norwegian National Insurance contributions rate. This also applies when a taxpayer meets the conditions for exemption either with our without progression reservation.

When double taxation is remedied through a credit deduction for the foreign tax that has been paid, the net pay must be grossed up with tax calculated according to Norwegian rates and using the Norwegian rate for National Insurance contributions. If the final tax which an employer pays on behalf of an employee abroad exceeds the calculated Norwegian tax, the foreign added tax must be added as a taxable benefit. The gross benefit of the foreign added tax is determined by grossing up the added tax by the Norwegian National Insurance contributions rate.

You can obtain more information about how the grossing-up should be performed from the tax offices. See also the Directorate of Taxes’ statement of 20 December 2016 and the comment on a judgement dated 1 July 2016 for more information on grossing up net pay.

The employer is responsible for correctly grossing-up amounts and for reporting gross pay via the a-melding. See the guidance to the a-ordning scheme for information on how tax (including calculated Norwegian tax and paid foreign tax) and National Insurance contributions must be reported via the a-ordning scheme, as well as information on reporting net pay via the a-ordning generally.

Note that a net pay agreement is an agreement under civil law and does not exempt the employee from their responsibility to submit tax returns and pay assessed tax to the tax authorities.

Did you find what you were looking for?

Maks 255 tegn. Kun tall og bokstaver.