Financial activity tax

Financial activity tax was introduced with effect from 2017. The financial activity tax consists of two elements:

Employers in the financial sector are subject to an extra payroll tax of 5 percent.

The taxation of enterprises in the sector is maintained at the 2016 level. That means that the 25 percent tax rate remains unchanged for the income years 2018 and 2019. 

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 general, the financial activity tax applies to all employers that engage in activities within section K - Financial and insurance activities - in Statistics Norway's Standard Industrial Classification (SN2007).

Section K includes the following industrial codes:

  • 64 Financial services activities
  • 65 Insurance, reinsurance and pension funding, except compulsory social security
  • 66 Activities linked to financial services and insurance activities

A more detailed description of the industrial codes under section K is available at ssb.no. In addition to the electronic list at ssb.no, there's also a PDF version of the industrial codes. This is not kept up-to-date. The descriptions given in the electronic version must be used to assess whether the activity is covered by section K.

Enterprises without employees will not be subject to the financial activity tax, neither on salary nor on 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 industrial code 64.308), provided that salary linked to the K activity exceeds 30 percent of the company's total salary expenses.

With regards to hired labour, a question may arise as to who should be considered the employer. In this case, and concerning financial activity tax, the entity that pays the salary or other remuneration is considered the employer.

Exemptions and limitations to the financial activity tax

There are two exemptions and one limitation to the financial activity tax.

  • There’s an exemption from financial activity tax liability for enterprises where the salary expenses linked to the employer's financial activities do not exceed 30 percent of the enterprise's total declarable salary expenses.
  • There’s an exemption from tax liability for enterprises where the salary expenses linked to VATable financial activity exceed 70 percent of the enterprise's total declarable salary costs linked to financial activities. What constitutes VATable financial activity must be assessed based on the nature of the service. For example, it’s 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 engage in non-economic activity, as defined in EEA law, may limit the tax basis for the financial activity tax on salary to that proportion of the salary expenses linked to economic activity.

The actual activity is the deciding factor for whether an enterprise is subject to financial activity tax.

The company itself must evaluate each individual activity they’re engaged in and determine whether one or more of these are classified under section K. The deciding factor will be whether the activity, when viewed in isolation, is covered by the description in one of the applicable industrial codes or whether the activity is more naturally classified under a different industrial code. Please note that the industrial 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 salary expenses linked to financial activities exceed 30 percent of its total salary expenses, the employer's national insurance contributions for the preceding year shall in general be used as the basis.

For the income year 2018, the enterprises may alternatively use salary etc., included in the employer's national insurance contributions for the month of January 2018 as a basis for assessing financial activity tax liability. For enterprises established after January 2018, salary for the first complete declarable calendar month must be used as the basis for assessing financial activity tax liability.

For the distribution of salary expenses between the enterprise's financial activities and non-financial activities, both direct and indirect salary expenses must be divided, such as, for example, salary expenses linked to administrative shared services.

Equivalent principles must be applied when assessing whether the salary expenses linked to the enterprise's VATable financial activities exceed 70 percent of the enterprise's total declarable salary expenses linked to financial activities.

Financial activity tax on salary

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 salary expenses etc., that are liable to employer's national insurance contributions.

This entails that the salary expenses 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 engage in non-economic activity, as defined in EEA law, may limit the tax basis for the financial activity tax on salary to the proportion of the salary expenses linked to economic activity. It’s a condition for such limitation that the employer establishes an accounting distinction between declarable salary expenses linked to economic and non-economic activities respectively.

The distinction between economic and non-economic activity is formulated based on 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 salary benefits that’s linked to the different activities. This means that a cost unit must be established for declarable salary benefits for each activity. When allocating the salary expenses between the enterprise's economic activity and non-economic activity, salary expenses 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 percent to 23 percent in 2018 and to 22 percent in 2019 respectively.

How is financial activity tax on salary 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 salary. This means that the enterprises must report financial activity tax on salary as new information in the a-ordning.

Documentation requirements

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.

Group contributions

When a company liable to pay financial activity tax on salary provides group contributions to a company that’s not liable for financial activity tax, they're only granted a partial deduction for the contribution. The deduction is granted for the part that is calculated after a reduction with a factor equal to the tax rate on ordinary income divided by the tax rate on ordinary income for companies that are liable for financial activity tax. The factor is therefore 23/25 for the income year 2018 and 22/25 for the income year 2019. Correspondingly, when a company liable to pay financial activity tax on salary receives group contributions from a company that’s not liable for financial activity tax, they’re only liable for tax for the part of the group contribution. This part is calculated after a reduction with a factor equal to the tax rate on ordinary income divided by the tax rate on ordinary income for companies that are liable for financial activity tax. The factor is therefore 23/25 for the income year 2018 and 22/25 for the income year 2019.

Advance payment of tax for non-personal taxpayers that pay financial activity tax

For information regarding advance payment of tax for non-personal taxpayers that pay financial activity tax on salary.

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