From 2019, a new and simplified tax scheme has come into effect. The scheme is meant for foreign workers who have time-limited work stays in Norway. This scheme is called PAYE (Pay As You Earn). Most new foreign workers will fall under this scheme the first year they work in Norway.
About the PAYE scheme
- employment income is taxed at a rate of 25 percent. The rate includes national insurance contributions at 8.2 percent.
- the tax is final and settled when you as an employer have deducted and reported it in the a-melding.
- employees do not claim deductions, and they will not receive a tax return or a tax assessment notice.
Who is the scheme for?
Primarily, the scheme is meant for foreign workers who work in Norway for short periods of time, and who are not tax residents in Norway. The scheme also applies to most foreign workers the year in which they become tax residents in Norway.
Workers who live abroad and receive director’s fees and similar remuneration from Norwegian companies will also fall under the PAYE scheme.
If the annual income exceeds a set amount, which is NOK 639,750 for 2020, the employee will be removed from the scheme and be taxed according to the general rules in the Taxation Act.
Tax deduction cards and tax deductions
- Employees that are covered by the PAYE scheme have tax deduction cards marked with PAYE. You'll receive information about this in Altinn.
- The scheme does not affect your reporting obligation, but you must know which benefits to include in the income basis and deduct tax from.
- No months are exempt from tax or have reduced tax deductions.
- When you pay out holiday pay to an employee covered by the PAYE scheme, you must deduct tax according to the rate on the employee’s tax deduction card at the time of the payment. This also applies to employers that pay out holiday pay in 2020 earned in 2019. If the employee has a PAYE tax deduction card in 2020, you as an employer/former employer must deduct tax from holiday pay according to the tax rate on the tax deduction card.
- The tax is assessed and final when it’s deducted and reported, so it’s important to do it right the first time.
- Employees that have full or partial exemption from Norwegian national insurance contributions will have a lower rate than 25 percent on their tax deduction cards. This rate can also include decimal numbers.
How to apply for tax deduction cards for your foreign employees
All foreign workers who work in Norway must have a tax deduction card. When you apply for a tax deduction card on behalf of an employee, he or she will normally receive a PAYE tax deduction card. If the employee has income that cannot be taxed through the PAYE scheme, or for other reasons does not meet the conditions to join the scheme, he or she will receive an ordinary tax deduction card. As an employer, you cannot decide on behalf of your employee that he or she should not join the PAYE scheme. If the employee does not want to be taxed under the PAYE scheme, he or she must change their tax deduction card and tick the box for requesting to be taxed according to the general tax rules.
If the annual income exceeds a set amount (NOK 639,750 in 2020), the employee will be removed from the scheme and receive an ordinary tax deduction card when the salary has exceeded the limit. If the employee wants an ordinary tax deduction card from the beginning, he or she must tick the box for taxation according to ordinary rules when he or she applies for a tax deduction card or by changing their tax deduction card. In order to be removed from the PAYE scheme, it’s not sufficient that the employee specifies an expected income that exceeds the income limit. The employee must in addition tick the box for requesting taxation according to ordinary rules.
Under "Calculate your tax", the employee can calculate what the tax would be if he or she chooses to be taxed according to the general rules.
The PAYE scheme is voluntary
Most new foreign workers will automatically be covered by this scheme the first year they work in Norway. If the employee would rather be taxed under the general tax rules, they must specify this when they apply for a tax deduction card, or at any time during the income year by applying for a new tax deduction card.
If the employee is not sure which scheme to opt for, he or she may start with the PAYE scheme and choose to opt out of the scheme later.
When the employee has chosen to be taxed according to the general rules, he or she cannot go back to the PAYE scheme in the same income year. This applies regardless of the reason to why the employee chose not to join the PAYE scheme. At the turn of the income year, the employee may re-join the PAYE scheme in the new income year if the conditions are met.
The employee may choose to opt out of the PAYE scheme at any time during the income year and no later than 30 April the year after the income year.
When the employee leaves the scheme, tax that's already deducted will be converted to an ordinary advance tax payment. The employee will receive a tax return and a tax assessment for the income year. As an employer, you’ll be notified that you can retrieve a new tax deduction card for your employee if he or she chooses to opt out of the scheme during the income year.
Important for reporting
The scheme does not affect your reporting obligation, but you must be aware of which benefits to include in the income basis and deduct tax from.
- If you cover a commuter's extra expenses for board, lodging and home visits in connection with stays away from home, the gross amount is considered taxable under the PAYE scheme. You should not do a surplus calculation – you should report the entire benefit as taxable and deduct according to PAYE on the gross amount. The expense allowance is also liable for employer's national insurance contributions.
- When you cover expenses that are directly incurred because of work, such as extra costs when business travels entail stays away from home, only a surplus would be considered a taxable benefit. That means you only include the taxable benefit when calculating the basis for and deducting tax under the PAYE scheme. This taxable benefit is reported in the a-melding as subject to withholding tax. If your contribution or part of the contribution does not create a surplus, you must report this as not liable for tax. See more about reporting in the guide to the A-ordning scheme. This does not apply to coverage of extra expenses for commuters, see the section above.
For workers with a net salary arrangement you must gross up the net salary with the applicable rate in the tax deduction card and enter table number “0000” in the field for the grossing-up table when you report in the a-ordning
Taxable income under the PAYE scheme
- Salary and other benefits from sources in Norway for personal work performed in Norway
- Allowances received as directors or members of a board, control committee or similar in companies in Norway
- Bonuses and remuneration or similar benefits from companies in Norway
- Salary for foreign workers that are made available to others to perform work in Norway (workers for hire)
- Taxable benefits, refunds and payments in kind
- Holiday pay
- The exemption to pay tax on holiday pay does not apply to workers with a PAYE tax deduction card. In these cases, you as an employer must deduct tax according to the PAYE rate on the employee's tax deduction card at the time of payment.
If you pay salary benefits to the employee for work performed abroad and the employee is not a member of the National Insurance Scheme (PAYE rate 16.8 percent), the amount should not be included in the income basis in the PAYE scheme and tax should not be deducted. If the employee is covered by the National Insurance Scheme in such a case, the employee cannot join the PAYE scheme.
Correcting deductions and correction notices
The general rules for advance tax payments in January before the new tax deduction card for the income year is ready also apply to those with a PAYE tax deduction card. The same applies to corrections after the tax deduction card is retrieved, see Retningslinjer for korrigering og tilbakebetaling av forskuddstrekk (Guidelines for correcting and repaying advance tax payments – in Norwegian only).
Tax exemption under a tax treaty and the Nordic Tax Withholding Agreement (NT1)
If the employee thinks that the salary income earned in Norway is not taxable in Norway according to the provisions in a tax treaty Norway has entered into with another country, the tax office will assess such an application and give the employee an ordinary tax deduction card if the application is accepted. In such cases, the employee cannot be taxed via the PAYE scheme.
Nor can the employee be taxed via the PAYE scheme if NT1 has been submitted showing that tax has been deducted in another Nordic country.