The financial activity tax is determined and calculated at the level of the individual legal entity, not at the level of sub-entities or departments that are not distinct legal entities.
Who must pay financial activity tax?
In principle, the financial activity tax applies to all employers which carry on activities within industry main area K - Financing and insurance activity - in Statistics Norway's Standard Industrial Classification (SN2007).
Industry main area K encompasses the following industry codes:
- 64 Financing activity
- 65 Insurance activity and pension funds, except National Insurance schemes under public sector management
- 66 Services linked to financing and insurance activity
A more detailed description of the industry codes under industry main area K is available at ssb.no. In addition to the electronic list at ssb.no, there is also a PDF version of the industry codes. This is not kept up-to-date. It is the descriptions given in the electronic version that must be used to assess whether the activity is encompassed by industry main area K.
Enterprises without employees will not be subject to the financial activity tax, in respect of either wages or profit.
Companies that perform investment activities, including passive capital investments in shares etc., with at least one employee, may be subject to the financial activity tax (see in particular industry code 64.308), provided that wages linked to the K activity exceed 30 per cent of the company's total wage costs.
In the case of hired labour, a question may arise as to who is to be considered the employer. As concerns the financial activity tax, in the case of hired labour, it will be the entity that pays the wages or other remuneration that is considered to be the employer.
Exemptions and limitations to the financial activity tax
There are two exemptions and one limitation to the financial activity tax.
- There is an exemption from financial activity tax liability for enterprises where the wage costs linked to the employer's financial activities do not exceed 30 per cent of the enterprise's total declarable wage costs.
- There is an exemption from tax liability for enterprises where the wage costs linked to VATable financial activity exceed 70 per cent of the enterprise's total declarable wage costs. What comprises VATable financial activity must be assessed on the basis of the nature of the service. For example, it is irrelevant that the activity is exempt from VAT because it concerns export of services. This is still considered as a VATable financial activity.
- Enterprises that carry on non-economic activity, as defined in EEA law, may limit the tax base for the financial activity tax on wages to that proportion of the wage costs linked to economic activity.
It is the actual activity performed that determines whether an enterprise is subject to financial activity tax.
The company itself must evaluate each individual activity carried on in the enterprise and determine whether one or more of these are classified under industry main area K. The decisive factor will be whether the activity in isolation comes under the description in one of the applicable industry codes or whether the activity is more naturally classified under a different industry code. It should be noted that the industry code under which the company is registered in the Register of Legal Entities does not determine financial activity tax liability.
In assessing whether the enterprise's wage costs linked to financial activities exceed 30 per cent of its total wage costs, the employer's national insurance contributions for the preceding year shall, in principle, be used as the basis.
It is assumed that many enterprises do not have a sufficient overview of the distribution of wage costs between wages linked to activities, respectively, within and outside of industry main area K for income year 2016. For income year 2017, the enterprises may alternatively use as a basis for assessing financial activity tax liability wages etc. included in the employer's national insurance contributions for the month of January 2017. For enterprises established after January 2017, wages for the first complete declarable calendar month must be used as the basis for assessing financial activity tax liability.
For the distribution of wage costs between the enterprise's financial activities and non-financial activities, both direct and indirect wage costs must be distributed, such as, for example, wage costs linked to administrative shared services.
Equivalent principles must be applied when assessing whether the wage costs linked to the enterprise's VATable financial activities exceed 70 per cent of the enterprise's total declarable wage costs.
Financial activity tax on wages
For enterprises liable to financial activity tax in accordance with the above criteria, the financial activity tax is assessed on the basis of the enterprise's total wage costs etc. that are liable to employer's national insurance contributions.
This entails that the wage costs of all employees are included in the calculation basis even if the enterprise also has employees who are not linked to the financial activity in the enterprise.
Enterprises that carry on non-economic activity, as defined in EEA law, may limit the tax base for the financial activity tax on wages to that proportion of the wage costs linked to economic activity. It is a condition of such limitation that the employer establishes an accounting distinction between declarable wage costs linked to economic and non-economic activities respectively.
The distinction between economic and non-economic activity is formulated on the basis of the conceptual framework in the EEA Agreement relating to the prohibition against state aid. Economic activity in this context means an activity that consists of offering goods and services in a market.
The requirement for an accounting distinction entails that it must be possible to verify how large a proportion of an employer's declarable wage benefits are linked to the different activities. This means that a cost unit must be established for declarable wage benefits for each activity. When allocating the wage costs between the enterprise's economic activity and non-economic activity, wage costs linked to central administrative shared services must also be allocated.
Financial activity tax on surpluses
The financial activity tax on surpluses is included as part of the company's ordinary income tax, but such that the tax rate for companies liable for the financial activity tax is kept unchanged at the 2016 level. This means that enterprises subject to financial activity tax do not receive a reduction in the tax rate on general income from 25 per cent to 24 per cent.
How is financial activity tax on wages reported?
The general rules and procedures for self-assessment, case processing and collection of employer's national insurance contributions also apply to the financial activity tax on wages. This means that the enterprises must report financial activity tax on wages as new information in the a-ordning.
No specific requirements have been set out for how the enterprises should document whether they are subject to the financial activity tax or not. The requirements for documentation therefore follow the general rules in the Tax Administration Act and the Bookkeeping Act.