How to calculate the basis for withholding tax
How to determine the calculation basis
In order to determine the correct withholding tax, you must first calculate the basis for the deduction and then apply the employee's tax deduction card to this. This is called the ‘calculation basis’. The calculation basis is the sum of all benefits that the employee has received from you, determined according to established valuation rules and, where applicable, after the deduction of certain statutory deductions. Benefits that you pay to your employees can be divided into three categories: cash benefits, payments in kind and expense allowances. The general rule is that you must deduct withholding tax from all taxable benefits that you pay to your employees. However, this is only a general rule and there are exceptions. The obligation to withhold tax which you have as an employer doesn't always correspond with what is taxable for your employees. This could mean that you have to deduct withholding tax from benefits which are tax-free for the employee, or that you shouldn't deduct withholding tax from benefits which are taxable for the employee.
PAYE (Pay As You Earn)
There are special rules for calculating the basis for tax – the calculation basis – under the PAYE scheme.
In summary, you should determine the calculation basis as follows:
- add together all cash benefits
- calculate the value of payments in kind
- calculate the value of expense allowances
- add together the benefits and make any deductions from the calculation basis
Once you have determined the calculation basis, check that the amounts aren't below the minimum thresholds for withholding tax. Then you make the deduction in accordance with the employee's tax deduction card.
Deductions from the basis for calculating tax
First you calculate and add up all benefits that are subject to withholding tax, and then you deduct the amounts as mentioned below. That gives you the final basis from which you deduct withholding tax.. You can only make these deductions from the gross salary before the withholding tax is deducted. This is called ‘deduction from the calculation basis’ and mustn't be confused with income deduction. Income deductions are deductions an employee can claim in their tax return. Such income deductions have already been taken into account through the tax office's choice of deduction table and deduction percentage for each person and will not affect the calculation basis.
You must make deductions from the calculation basis for:
- pension contributions you deduct from salary for which the employee will be entitled to a deduction in connection with their tax assessment
- trade union fees you deduct from salary for which the employee will be entitled to a deduction in connection with their tax assessment
- special allowance for seafarers resident in Norway
Minimum thresholds for withholding tax
If your employees earn less than specific minimum thresholds during the income year, you don't have to deduct withholding tax.
You don't have to deduct withholding tax if there's reason to believe that the total amount deducted for the employee won't exceed NOK 100 during the calendar month.
Nor do you have to deduct withholding tax if there's reason to believe that the total benefits subject to withholding tax for the employee won't exceed NOK 500 during the calendar month.
If you are a private employer and make payments for work done on your own home or holiday home, you don't have to deduct withholding tax if the total salary payment made to a person during the income year doesn't exceed NOK 6,000. The same applies when you make payments for guardianship assignments under the Guardianship Act. If you pay out more than NOK 6,000, the entire amount must be included in the calculation basis for withholding tax.
If you are an employer in the group “tax-free companies, associations and institutions” (defined in Section 2-32 of the Tax Act as charitable foundations, church societies, congregational societies, companies and undertakings that are operated on a non-profit basis), you don't have to deduct withholding tax when the total salary payment to a person during the income year doesn't exceed NOK 10,000. If you pay out more than NOK 10,000, the entire amount must be included in the calculation basis for withholding tax.
Cash benefits are salary and other benefits, as well as pensions, which are paid in the form of money. Cash benefits includes cash, money deposited in an account, gift vouchers/gift cards which can be redeemed in cash, debt certificates, cheques, travellers’ cheques, giros, foreign currency, etc. Cash benefits are included in the calculation basis for withholding tax with the gross amount.
Specific rules also apply to deductions of withholding tax from salaries and other benefits in connection with summer and Christmas holidays. You shouldn't deduct withholding tax from statutory holiday remuneration, ordinary salary during holiday or disability benefits during holiday. In the case of monthly payments, the deduction exemption applies for one month during the summer and half a month before Christmas. In the case of weekly, daily or hourly payments, the deduction exemption applies for four weeks during the holiday period in the summer and two weeks before Christmas. You're free to decide whether the “half deduction” before Christmas should be made in November or December. If the employee doesn't have a tax deduction card, 50 percent must also be deducted during the summer and before Christmas.
An exemption from pension deductions applies for one month before Christmas. You're free to decide whether the deduction exemption before Christmas should take place in November or December. An exemption from pension deductions applies during the summer holiday period. You must deduct withholding tax from pensions that you pay to persons who are resident abroad for tax purposes. The amount of withholding tax deducted must be equal to the amount of tax (withholding tax) payable on this pension. You must calculate what the tax on the pension would be under the rate stipulated by the Storting in its tax resolution for the year concerned. Withholding tax must be deducted throughout the year, even during the summer and before Christmas.
Payments in kind
‘Payments in kind’ means any financial benefit in any form other than cash or any other means of payment. Examples of benefits in kind are goods, services, shares, low-interest loans and right of use. Such benefits constitute payments in kind when they're given free of charge and when they're sold at a discount. Some payments in kind are taxable, while others are tax-free. An example of a tax-free payment in kind is free parking at the workplace.
Withholding tax must be deducted from payments in kind if they are taxable.
When you give taxable payments in kind, you must calculate the value of these benefits. Valuation rules are stipulated for different types of payments in kind.
Specific rates have been set for the value of:
- board and lodging paid by an employer for its employees
- private use of an employer’s car (company car)
- benefit of low-interest loans from employers
- benefit of cost savings in the home
- private use of electronic communication paid by the employer
Rules have been established concerning the valuation of residential property owned or leased by the employer which are made available for use by the employees
There are some payments in kind that you must determine the value of as an employer. Some examples:
- goods and services that you provide or sell at a discount to your employees, even when the goods and services are purchased from business associates or other third parties
- employment-related options
- private use of bonus points earned on travels paid by the employer
Generally, payments in kind must be valued at market value unless specific or special rules apply.
For a more detailed description of the valuation rules, see the guide Salary ABC (in Norwegian only) or contact your local tax collector/treasurer.
An expense allowance is a benefit which an employer pays, normally in the form of money, to an employee in order to cover a cost which the employee has incurred in their work. Expense allowances therefore don't form part of an employee's ordinary salary. For example, an expense allowance will be considered to have been paid if an employee is reimbursed for costs linked to special glasses that they need in order to do their job or if an employee is reimbursed for costs attributable to his use of his own bicycle, costs for essential further education or costs for board and lodging associated with living away from home due to work.
Expense allowances are generally subject to withholding tax, but exemptions from the obligation to deduct withholding tax apply to many expense allowances. Expense allowances which are paid according to fixed rates and documentation requirements and documented through a travel expenses claim or expense statements aren't normally subject to withholding tax.
An expense allowance is not the same as an expense refund. An expense refund takes place when an employee has incurred an expense in connection with the performance of work which the employer refunds based on a receipt or some other voucher. Withholding tax must not be deducted from expense refunds.
Tax Payment Act, Section 5-6
Tax Payment Act, Section 5-7
Tax Payment Act, Section 5-8
Tax Payment Act, Section 5-9
Tax Payment Regulation, Section 5-6
Tax Payment Regulation, Section 5-7
Tax Payment Regulation, Section 5-8
Tax Payment Regulation, Section 5-9