Income deductions in connection with investments in start-up businesses - the tax incentive scheme
Personal taxpayers can claim a deduction from their general income of up to NOK 1 million per year for share contributions to start-up companies. (The deduction was limited to NOK 500,000 for investments made before 2020).
Measure - the deduction scheme is expanded from the 2020 income year
- The threshold amount is increased to NOK 1 million per investor.
- The limit for share contributions to start-up companies is increased to NOK 5 million.
- As a temporary measure for the 2020 and 2021 income years, the scheme is expanded to include employees and their related parties.
This deduction entitlement is in addition to the normal right to include the share contribution in the input value of the shares being invested in. The share contribution must amount to at least NOK 30,000 in order to give entitlement to the deduction.
A start-up company can receive a maximum of NOK 5 million in contributions that give entitlement to the deduction annually (maximum NOK 1.5 million for contributions made before 2020). As an investor, you may claim an income deduction (the deduction reduces tax by 22 percent of the investment) from your general income of up to NOK 1 million per year, which means the total tax burden for the 2020 income year could be reduced by up to NOK 220,000.
It’s important to realise that the scheme only applies to shares in start-up companies that are acquired through establishment or new subscription of shares through a share issue. If the shares are acquired in any other way, no deductions will be granted.
What do I need to do?
You can invest in the start-up company either directly or through a limited liability company that you wholly or partly own when you participate in either the establishment or new share issue of the start-up company. In order to claim the income deduction, the company you’re investing in (and any intermediate companies) must provide the tax authorities with information about the personal taxpayers who have made eligible share contributions. The start-up company (and any intermediate companies) must report this information in the Shareholder register statement (RF-1086). If they report this information correctly and on time, the eligible contributions will be pre-filled in your tax return.
From the date of the investment, both you and the company will be subject to certain obligations in a period of ownership:
- The company cannot distribute dividends or make payments in connection with capital reductions during the year the new shares were acquired or in the next three calendar years.
- You or your related parties cannot be, or previously have been, shareholders in the company/group in which the investment is made.
- Nor can you or your related parties be, become or have been, employees of the company/group during the three-year period.
- You must retain the shares in the year you acquired them and in the next three years.
- Under the regulations, if you invest in year 1, you will not be able to sell the shares, receive dividends etc. until year 5; if you do, the deduction will be reversed. If the rules are broken, the entire tax benefit will be reversed.
If the conditions are breached in the binding period, you must make changes to your tax return as soon as possible for the income year in which the deduction was granted. If you give away all or some of the shares as a gift or an advance on inheritance in the binding period, this is considered a breach of the condition to keep the shares in the acquisition year and the three subsequent years.
Requirements for the scheme
Requirements for investors:
- It must be a direct or indirect investment (if indirect investment from a private limited company, the owners must have a proportional allocation according to their stake in the company making the investment).
- The minimum amount is NOK 30,000 per company, the maximum is NOK 1 million per year.
- The investor or his or her related parties must not be or have been shareholders in the company in which they are investing.
- You cannot be, have been or become employed in the company in the three-year period of ownership.
- Persons who are only board members are not considered employees according to the rules set out in section 6-53, subsection 4 of the Taxation Act.
- You must own the shares for at least three calendar years after the end of the calendar year in which the contribution/investment was registered in the Register of Business Enterprises.
- During the three-year period of ownership, the investor cannot receive distributions in connection with capital reductions or dividends from the company.
Requirements for the company:
- It cannot be more than 6 years old.
- It must have fewer than 25 employees, calculated according to full-time equivalents - operating revenues not exceeding NOK 40 million.
- It must have a balance sheet total maximum of NOK 40 million.
- It must have an annual salary basis minimum of NOK 400,000.
- It must primarily carry on activity other than passive capital management.
- It can receive a maximum of NOK 5 million under the scheme annually.
- It must have new share issues either through establishment or capital increase.
- It must be a Norwegian private limited company or equivalent foreign company domiciled within the EEA and liable to pay tax to Norway.
- It cannot be experiencing financial difficulties at the time of the capital increase.
- It must report amounts received and investors to the Norwegian Tax Administration (RF-1086).
For a more detailed description of the scheme, see the guide Skatte-ABC (in Norwegian only) under the topic "Aksjer – aksjeinnskudd i oppstartsselskap" (Shares – share contributions in start-up companies) and section 6-53 of the Taxation Act.