The PAYE scheme
- Updated: 25 April 2023
About the PAYE scheme and how you as an employer should make correct deductions of tax and report correctly.
What is PAYE (Pay As You Earn)?
The PAYE scheme is a tax scheme for foreign workers who have short work stays in Norway, and the first year the worker is a tax resident in Norway.
For you as an employer, the PAYE scheme means you must deduct tax according to a fixed rate and report both salary and deducted tax to the Tax Administration. You must calculate and deduct PAYE tax from all salary and all remunerations that are taxable for the worker. For the worker, the tax is settled when you report salary and deducted tax, so it’s important that you submit accurate reports.
Tax deduction cards for the PAYE (Pay As You Earn) scheme
Workers in the PAYE scheme will have tax deduction cards marked “kildeskatt på lønn” in the field for additional information. If this information is not shown in your payroll system, you must get access to this information in another way before the payroll run.
For workers that have a tax deduction card marked “kildeskatt på lønn”, you must deduct a fixed tax rate for all the months of the year. The PAYE tax deduction card has the same deductions for all 12 months. There are no months in which you do not deduct tax, nor do you reduce the deducted amount before Christmas.
If the worker has a tax deduction card for PAYE when holiday pay is paid, you must deduct tax according to the rate on the tax deduction card. Holiday pay cannot be paid without tax being deducted in this case.
For workers with a net salary agreement, you must convert the net pay to gross salary by using the tax rate in the tax deduction card and enter table number “0000” in the field for the grossing-up table when you report the information in the a-melding.
As an employer, you are responsible for submitting accurate reports
However, for workers in the PAYE scheme, the employer is responsible for assessing income and calculating tax. You assess the income and calculate the tax for your workers in the PAYE scheme by reporting information in the a-ordning scheme.
Since the worker’s tax is settled when you report income and advance tax deductions in the a-melding, you must make sure that the deducted tax and the basis for the deduction is correct. Read more about how to report under “Tax basis and PAYE tax".
How to calculate the correct basis for tax
There are some differences in how you calculate the basis for deducting tax within and outside of the PAYE scheme. This depends on what type of benefits the worker receives.
Include the following in the basis for PAYE tax:
- Fees, remunerations, bonuses, or similar benefits to, for example, foreign chairpersons of the board or board members in Norwegian companies.
- Salary (cash benefits, fees, remunerations, etc.) for work performed in Norway. This includes holiday pay.
You should not reduce the calculation basis based on pension contributions and trade union fees that you deduct from the worker’s income.
Coverage of extra expenses for commuters
If you have workers in the PAYE scheme that are commuters, and if you cover their extra expenses incurred during stays away from home and home visits, you must include all you cover – the full amount – in the basis for PAYE tax. The full amount must be reported as subject to PAYE tax, and you must deduct tax according to the rate on the tax deduction card on the full amount.
The income description for commuter benefits that are not taxable cannot be used when you report such remuneration for a worker in the PAYE scheme.
Here are some examples of how to prepare a report for workers who are commuters.
Expense allowances, refunds, and benefits in kind
Expense allowances, refunds and benefits in kind must be assessed under general tax rules. The only exception is coverage of expenses for commuters, see “Coverage of extra expenses for commuters”.
Expense allowances, refunds and benefits in kind must be included in the basis on which you assess and deduct PAYE tax from if the benefits are taxable for the worker.
If you as the employer cover expenses that are directly incurred because of work, such as extra expenses when business travel/work-related travel entail stays away from home, only a surplus should be included in the PAYE tax basis.
The portion of the remuneration that does not result in a surplus should not be included in the basis for PAYE tax. You should not deduct tax from this portion, and you should report this part as being not subject to withholding tax.
The portion of the remuneration that results in a surplus must be reported as subject to PAYE tax, and you must deduct tax from the surplus according to the rate on the tax deduction card.
If you as the employer cover private expenses for the worker, for example, expenses relating to travel to and from work, the full amount must be included in the basis for PAYE tax.
The full amount must be reported as subject to PAYE tax, and you must deduct tax according to the rate on the tax deduction card on the full amount.
Do not include the following in the basis for PAYE tax:
Even though you must report all salary benefits in the a-melding, some benefits are not taxable for the worker in the PAYE scheme. Do not deduct PAYE tax from these benefits.
Coverage of expenses that does not result in a surplus
When covering incurred expenses directly related to work, the portion of the remuneration that does not result in a surplus should not be included in the basis for PAYE tax. You do not deduct tax from this portion.
|Benefit||Amount||Included in the basis for PAYE tax||Included in the basis for general tax|
|Salary, cash benefit||400 000||400 000||400 000|
|Payment in kind, free housing||72 000||72 000||0|
|Expense allowance, coverage of home visits||10 000||10 000||0|
|Expense allowance, coverage of business travel||20 000||0||0|
Salary for work performed abroad
Salary for work performed abroad should not be included in the basis for PAYE tax. You do not deduct tax from these benefits. Remember to include the country of earnings when you report these benefits in the a-melding.
|Benefit||Amount||Included in the basis for PAYE tax|
|Salary (cash salary) earned in Norway||400 000||400 000|
|Salary (cash salary) earned in Sweden||50 000||0|
|Expense allowance, house moving allowance||10 000||0|
|Payment in kind, free car in Sweden||5 000||0|
The tax rate for the PAYE scheme is fixed at 25 percent. Workers who are not members of the Norwegian National Insurance Scheme pay a reduced rate. You can find information about which rate to use in the worker’s tax deduction card.
This may also affect whether you should calculate employer’s national insurance contributions on salary and other remuneration.
Errors in withholding tax
The amount reported for payroll withholding tax payable is incorrect
Payroll withholding tax for income recipient is incorrect
You are responsible for the assessment, for ensuring that the deduction of tax is correct and that the employer's national insurance contributions are correctly calculated. Here you will find information on how to make corrections to submitted reports:
These regulations are only available in Norwegian.