Income in a sole proprietorship
Identify the taxable income for your sole proprietorship and find out how to report it.
Does this apply to me?
It applies to you if you carry out your business activity in a sole proprietorship.
Taxable income
All income from activity where the objective is to earn money is taxable income. This could, for example, be income from the sale of goods and services, rental income, and subsidies. Income can also be rights, objects or similar, that you receive when selling goods and services.
Income that is reported by others
If you conduct your business activity without having a permanent place of business and work on assignments for other self-employed persons who report this income, it’s considered taxable income for your sole proprietorship. This applies to the sale of services such as transportation, courier services, or tradesman services.
If you have copyrights and others report remunerations or fees for using your intellectual property, this is considered taxable income for your sole proprietorship. More about reporting remuneration to owners of intellectual property.
Different types of income:
Income from ordinary operations, such as the sale of:
- goods (food, clothing, furniture, etc.)
- consulting, teaching, or health services (doctor, dentist, physiotherapist, etc.)
- tradesman services (plumber, carpenter, electrician, etc.)
If the company calculates output VAT, the income without VAT is entered in the business statement.
If you as the owner of the business withdraw goods, assets, or services for your personal use, this is considered taxable income.
If you give something away or sell cheap to related parties, such as family and friends, this is considered a withdrawal too.
Examples of withdrawal:
a carpenter builds their own house during working hours
- the business owner who sells bicycles, gives one away
- a doctor takes a bandage from their storage for personal use
- a music teacher takes guitar strings purchased for educational use and uses them privately
As the owner of the business, you must pay tax on the value of the goods, asset, or service that you withdraw. The value is the price you would have received for a regular sale at market value.
Renting out real property
Income from renting out real property, such as residential properties, retail spaces, office spaces, or land, is taxable business income.
Renting out rights, such as hunting or fishing rights
If someone pays you for the right to hunt, fish or pick berries on your property, this is taxable income.
Other rental income
Income from renting out assets and income from subletting is taxable income. Subletting means that you rent out something you rent yourself. This applies, for example, to the renting out of premises, machinery, or parking spaces.
Subsidies
Any money that the business receives from the public sector is taxable income. This could, for example, be:
- apprenticeship subsidy, instructor subsidy
- exceptional subsidies such as interest rate subsidies
- liquidity subsidies, investment subsidies
Exceptions apply to:
- subsidies such as area-specific investment subsidies to businesses in areas where the challenges for profitable business are the greatest
- subsidies for investment and business development in agriculture
Refunds
Remuneration from the public sector, in addition to payment from customers or patients, is taxable income. This could be, for example, refunds to a doctor, dentist, or physiotherapist for treatment.
Grants and subsidies for start-ups
Grants or subsidies during the start-up phase are taxable income. This applies to grants and subsidies from the public sector and from private sources such as a bank.
Subsidies can be granted on different grounds: rights-based or means-tested. Some subsidies are meant to replace income and others to help covering expenses.
Some subsidies are taxable and others are tax free. In some cases, it must be considered whether the subsidy has the necessary connection to a taxable income or deductible expense.
Income from percentages of sales made on behalf of others is taxable income. This could, for example, be:
- a travel agent receives a commission from an airline for airline tickets sold
- a bookseller receives a commission from the publisher for books they have sold
Income from licenses, patents, and royalties is taxable income, for example:
- payment from someone who has permission to use something the business owns or has developed, such as software or a trademark
- income from the rental or sale of a documented exclusive right to the company's invention
- payment from someone who uses intellectual property the company has produced, such as music, photography, or text
Other operating revenue outside of the main business activity, such as:
- interest on customer receivables
- interest on lost claims
- remunerations, money, or return services on the sale of non-depreciable fixed assets, or an asset that does not decrease in value because of use over time, for example, a plot of land.
The business must pay tax on gains from the sale or withdrawal of fixed assets. Fixed assets are assets such as cars, machinery, or equipment, which are used in the business.
The business can choose to declare the entire sales price or supply value or parts of it as income in the year of sale. The part of the sales price or supply value that the company does not recognise as income during the year of sale must be depreciated in the balance or transferred to the profit and loss account.
Enterprises that engage in investment activities and make a profit on the sale of long-term investments (financial fixed assets) receive this as taxable income..
Financial fixed assets combine all the shares, ownership interests, primary capital certificates, bonds, and other tangible financial assets owned by the business.
Foreign exchange gain is, for example, if the company receives an invoice in a foreign currency, and the value of the currency is lower when the invoice is paid. This gain is considered taxable income.
Financial income from, for example, fees and transactions, is also taxable income.
Sickness benefit is income that replaces operating revenues and counts as taxable income.
The business’ tax base
You pay tax on the profit from the business. The profit from the business is the income minus expenses.
You must also calculate and report personal income from your sole proprietorship.
If you run a sole proprietorship in a municipality other than where you live, you must allocate income, deductions and wealth to this municipality in your tax return.
When you should recognise the income
All income must be included in the tax basis in the year it was earned, even if you're paid in another year.
Cash sales
If you sell goods or services, and the customer pays immediately with cash, a payment card, or a mobile payment solution (such as Vipps), it's a cash sale. You must enter the income in the accounts immediately.
Credit sales
If you sell goods or services on credit, you must enter the income in the accounts at the time the goods or services were sold. It does not matter when you get paid.
Example:
If the enterprise sells goods or performs a service in year 1, but does not receive payment until year 2, the enterprise must recognise the income and pay tax on it in year 1.
Sale of fixed assets (assets)
Fixed assets are assets, such as cars, machinery, or equipment, which are used in the business. A fixed asset is considered tangible when it has been purchased to have a useful life of at least three years, and it's considered significant when the purchase price is above the threshold amount for purchases (acquisitions).
- up to and including the income year 2023: NOK 15,000
- from and including the income year 2024: NOK 30,000
When you sell tangible and significant fixed assets at a profit, you can choose to spread the income over several years.
You make the distribution using balance groups and declining-balance depreciation, or by using a profit and loss account.
If your business buys tangible and significant fixed assets that depreciate in value through aging or use, you must recognise this in the balance and distribute the expenses over several years in the accounts (depreciation). In this way, the company can get a deduction in income in the years to come, as the value of the fixed assets decreases..
You calculate the deduction that the company can receive for the costs by using declining-balance depreciation. In this case, you depreciate the fixed assets at a fixed percentage rate in your accounts each year.
The different types of fixed assets are divided into different groups (balance groups). The balance groups have different depreciation rates, which indicate the percentage that you can deduct each year.
About balance groups and depreciation rates
Fixed assets in balance groups a to d are depreciated as a whole for each group (aggregate/collective balance). This means that there are many fixed assets in the same balance group. The total sum for the entire balance group is the basis for depreciation.
Fixed assets in balance groups e to i are entered on separate balances for each fixed asset (individual/individual balance). If you, for example, own several buildings, each building will have its own balance. If you have several buildings, there will be several balance groups h.
Fixed, technical installations that are part of group j are depreciated on a summary balance for each building.
The enterprise uses a profit and loss account to keep track of the distribution of income and deductions for the years ahead.
Both gains and losses must be recorded in a profit and loss account. Each sale should be recorded as a positive or negative amount, and the account has a balance that is the sum of all the amounts.
You can only have one profit and loss account in your business, except if you have several different types of business activity, for example, if you're an independent consultant and also engage in agriculture.
Recognising income for different fixed assets
When you sell or withdraw fixed assets that are depreciated
in balance groups a, c, d, or j, the company can choose to recognise the sales price
or the sales value in whole or in part in the year of sale. The depreciation of
the balance should continue as before.
The part of the sales price or sales value that the company does not
recognise in the year of sale shall be reduced (written down) on the balance of
the fixed asset.
If the balance is negative at the end of the income year for balance groups
a, c, d, and j, the company must recognise as income at least as large a share as it
could have depreciated the fixed asset by (corresponding to the group's depreciation rate).
Example:
Balance group d – Passenger cars – 20 percent (collective balance)
Passenger cars have an opening balance in year 1 of NOK 250,000 One of the passenger cars is sold in year 1 for NOK 700,000 Negative balance in year 1 NOK - 450,000 Total recognised income in year 1 (20% of 450,000) NOK 90,000 Negative balance as at 31 December – transferred to year 2 NOK -360,000
- up to and including the income year 2023: NOK 15,000
- from and including the income year 2024: NOK 30,000
If the negative balance at the end of the year is less than the amount limit for purchases, the entire amount must be recognised as income.
When you sell or withdraw fixed assets that are depreciated in balance groups e to i, you must calculate the gain and loss of the sale or withdrawal. This applies to individual fixed assets with larger values.
If the enterprise has a gain from the sale or withdrawal of major fixed assets in balance groups e to i, it’s taxable income. If the company sells or withdraws fixed assets at a loss, it can claim a deduction.
You can enter the entire gain as income in the year of sale, or you can choose to enter the income in the company’s profit and loss account so that you spread the gain over several years.
The enterprise uses a profit and loss account to keep track of the distribution of income and deductions for the years ahead.
Both gains and losses must be recorded in a profit and loss account. Each sale should be recorded as a positive or negative amount, and the account has a balance that is the sum of all the amounts.
You can only have one profit and loss account in your business, except if you have several different types of business activity, for example, if you're an independent consultant and also engage in agriculture.
If the balance in the profit and loss account is positive (positive balance), the enterprise must enter at least 20 percent of the amount as income. If the balance in the profit and loss account is negative (negative balance), the enterprise can claim a deduction for a maximum of 20 percent of the amount.
Since the amounts are calculated with percentages, both income and deductions will be largest in the first year, before gradually decreasing in the years to come.
If the balance is below the threshold amount for purchases, the entire amount must be entered as income or deductions for that income year.
- up to and including the income year 2023: NOK 15,000
- from and including the income year 2024: NOK 30,000
Example:
The enterprise sells a building in balance group h. The value
of the building was NOK 700,000 (depreciated value) and
the building was sold for NOK 1,000,000. The enterprise enters the gain of NOK 300,000 in a profit and loss account.
The gain to be recognised as income in the year of sale is NOK 60,000 (20 percent of NOK 300,000). For year 2, there is NOK 240,000 left in the account (NOK 300,000 – 60,000), and the enterprise recognises NOK 48,000 as income in year 2 (20 percent of NOK 240,000).
When the balance falls below the purchase limit, the remaining amount must be recognised as income.
Deficit
If the expenses in your business are larger than your income, you have a deductible deficit.
A deficit in your business can be deducted in the tax return under other ordinary income (net income) in the same year that the deficit occurred.
If there is no coverage for using the entire deficit in the annual ordinary income (net income), the rest is transferred to be deducted the next year - this is called a loss to carry forward.
Supporting documentation
You must keep your vouchers and other supporting documents, but you do not have to include any attachments in the tax return. If the Tax Administration needs more information, we’ll contact you.