Taxation of dividends and gains on shares, where shares include primary capital certificates, shares in mutual insurance companies, equity fund holdings and holdings in cooperatives, for personal shareholders/unit holders.
The regulations are referred to as "the shareholder model".
Former rules for taxation of dividends and gains on shares
Since 1992, shareholders were not charged tax on legally distributed dividends from limited liability and equivalent companies, i.e. savings banks, mutual insurance companies, cooperatives and unit trusts. From a technical point of view, this was achieved by assessing tax on dividends which was then eliminated through an "allowance". On the sale of shares and holdings in savings banks, mutual insurance companies or equity funds, the input value (in most cases, the cost price) was adjusted by the share's proportion of retained taxed capital (RISK) in the company in the shareholder's time of ownership.
The allowance model, sharing model and the RISK system were abolished as of 1 January 2006. The last determination of RISK amounts was at 1 January 2006. Unused allowances can be carried forward for 10 years after the allowance was earned.
Scope of the shareholder model
Which taxpayers are comprised by the shareholder model?
The shareholder model applies to personal shareholders/unit holders who are ordinarily liable for tax in Norway. It also applies to decedent estates, administration estates belonging to a natural person and bankruptcy estates where the debtor is a natural person.
Personal shareholders resident abroad are not in principle entitled to a deduction for risk-free return. The exception is personal shareholders resident in another EEA state who may be granted a deduction for risk-free return through an application for a refund (see separate item below). Corporate shareholders are not comprised by the shareholder model. See instead the article on the "Exemption method".
Which distributions are comprised by the shareholder model?
The shareholder model applies to dividends and similar distributions from:
- private and public limited companies
- savings banks and other independent financing enterprises
- mutual insurance companies
- equity funds
- equivalent foreign companies etc.
More about the model
The shareholder model entails that dividends and gains, after deduction of an allowance of a deduction for risk-free return, are taxable as ordinary income. In calculating taxable dividends/gains, the terms "deduction for risk-free return", "basis for deduction for risk-free return" and "risk-free interest rate" are used.
Deduction for risk-free return = Basis for deduction for risk-free return * risk-free interest rate
The purpose of the shareholder model is to reduce the difference between the taxation of capital and work by taxing dividends, above a certain level, as ordinary income.
Basis for deduction for risk-free return
The basis for deduction for risk-free return is set at the share's acquisition value (input value) plus the share's unused deduction for risk-free return from previous years.
The basis for deduction for risk-free return is calculated per share and, as a rule, equals the share's acquisition value including charges directly connected with the acquisition, such as broker fees.
In three cases, the basis for deduction for risk-free return may deviate from the above main rule:
- transitional rule for shares acquired before 1 January 2006
- use of alternative input values determined at 1 January 1992 for shares owned at 1 January 1989
- valuation of shares owned after 1 January 2006 through inheritance or transfer as a gift.
For the transition to the shareholder model, the basis for deduction for risk-free return for shares held at 1 January 2006 shall be set at the historic cost price (alternatively, redistributed cost price) plus accumulated RISK during ownership.
Use of alternative input values
For unlisted shares that could have been sold tax-free in 1992, the basis for deduction for risk-free return shall be set at the share's proportional share of the fiscal value, or cost price, if this can be documented, plus accumulated RISK.
Estimated values and proportions of accounting values can still be used as alternative input values for calculation of gains on realisation. The rule which precludes allowances for losses when accounting value or estimated value is used as an alternative input value from 1992 is upheld.
For listed shares acquired before 1 January 1989, an alternative input value will be the stock exchange share price in 1992 plus RISK during ownership.
Valuation of shares owned after 1 January 2006 through inheritance or transfer as a gift
In the case of transfer through inheritance and gift of shares and holdings comprised by the shareholder model, the recipient shall carry forward the testator's/donor's tax values.
The testator's/donor's input value, basis for deduction for risk-free return, unused deduction for risk-free return and any other tax positions (such as acquisition date) are carried forward to the successor/beneficiary.
This principle is referred to as "fiscal continuity". If the rule on fiscal continuity means that the input value of the shares is higher than the inheritance tax basis, the basis for deduction for risk-free return/input value will have an upper limit of the inheritance tax basis: see the Tax Act, Section 9-7.
Inheritance tax was abolished in respect of deaths from 2014 onwards and of gifts donated from 2014 onwards. For inheritances from 2014 onwards, the recipient carries forward the testator's input value.
Tax assessment of shares' input value – shares owned at year-end
Note that the input value (acquisition value) for all shares you own at year-end is assessed in the tax calculation. The assessed input value will be used to calculate future deductions for risk-free return in the years in which you own the share (except for shares acquired before 1 January 1989 with alternative input values).
Most shareholders in Norwegian private limited companies will receive the Shareholder's tax report (RF-1088) from the Tax Administration's Register of Shareholders during March and April. The report contains information you need in order to check your tax return. The information is based on what the limited liability companies have reported to the Tax Administration. You must check and, where necessary, correct the information in the report.
Shares you own in foreign companies that are not registered on the Oslo Stock Exchange are not included in the Tax Administration's Register of Shareholders; nor are all shares in Norwegian companies registered in the Tax Administration's Register of Shareholders, since some companies submit incomplete reports to the Register. In order for the input value (acquisition value) of such shares to be determined, you yourself must provide information about the input value when submitting the tax return. You must fill in and submit form gain, loss, dividend and capital value of shares and other financial products (RF-1159) along with the tax return. Note that this is a mandatory form that must be sent in to have the input value of the shares determined if they are not registered in the Tax Administration's Register of Shareholders.
Risk-free return interest rate
The risk-free interest rate is calculated and published by the Directorate of Taxes in January of the year after the income year.
The risk-free interest rate is calculated based on the mean observed three-month interest rate for treasury bills.
The deduction for risk-free return
The deduction for risk-free return indicates the amount of dividend that can be received tax-free.
The deduction for risk-free return is set to the basis for deduction for risk-free return multiplied by the risk-free interest rate.
The deduction for risk-free return is calculated for each share owned at 31 December of the income year. If shares are realised during the income year, no deduction for risk-free return is calculated for the seller (disposer). Instead, it will be the person who owns the shares at 31 December who is entitled to the deduction (buyer).
It is a condition of entitlement to a deduction for risk-free return that the dividend has been legally distributed.
If the dividend is less than the deduction for risk-free return in a specific year, the remaining deduction for risk-free return can be carried forward for this share. Deductions for risk-free return may not be coordinated between different shares/share acquisitions. The deduction for risk-free return cannot be negative.
If the dividend is greater than the deduction for risk-free return, the excess will be taxed as ordinary income.
Calculation of gains in the shareholder model
When the share is realised, as a rule, gains or losses are calculated as follows:
- The input value is deducted from the output value. For shares acquired before 1 January 2016, the input value is adjusted for accumulated RISK. An alternative input value can be used if the shares were owned at 1 January 1989.
- Any gain is then reduced by the unused deduction for risk-free return.
- Any loss from the input value being higher than the realisation will be deductible in ordinary income. An allowance for deduction for risk-free return is only granted up to the point the taxable gain equals zero. Losses due to the deduction for risk-free return itself are not deductible (see worked example below).
- Any unused deduction for risk-free return is lost in the event of realisation of the share.
The risk-free interest rate for year 1 is 2.1 percent. For the second year, in the example, we use 2.5 percent.
The acquisition cost for year 1 for share A is 10,000. The share is sold in year 4.
Basis for deduction for risk-free return for share A: 10,000
Deduction for risk-free return year 1: (10,000 x 2.1 percent) = 210
Dividend year 1= 500
Taxable dividend: (500 – 210) = 290
Unused deduction for risk-free return for year 1 = 0
Basis for deduction for risk-free return for share A year 2 (10,000 + 0) = 10,000
Deduction for risk-free return year 2: (10,000 x 2.5 percent) = 250
Dividend year 2= 100
Taxable dividend: (100 – 250) = 0
Unused deduction for risk-free return for year 2: (250 – 100) = 150
Accumulated unused deduction for risk-free return = 150
Basis for deduction for risk-free return for share A (10,000 + 150) = 10,150
Deduction for risk-free return year 3: (10,150 x 2.5 percent) = 254
Dividend year 3= 100
Unused deduction for risk-free return for year 3: (254 – 100) = 154
Accumulated unused deduction for risk-free return: (150 + 154) = 304
Amount realised: 12,000
Note: No deduction for risk-free return is calculated for the year of sale since the shareholder doesn't own the share on 31 December of this income year.
Calculation of gains in year 4
Amount realised: 12,000
Acquisition value/input value: 10,000
Gain before deduction for risk-free return = 2,000
Unused deduction for risk-free return = 304
Taxable gain = 1,696
Calculation of gains in the case of alternative realisation payment in year 4 Alt. 2 Amount realised 10,100
Acquisition value/input value: 10,000
Gain before deduction for risk-free return = 100
Unused deduction for risk-free return = 304
Taxable gain = 0*
* In this case, not all the unused deduction for risk-free return is employed. The remainder – 204 – is lost through the realisation.
Alt. 3 Amount realised 9,500
Acquisition value/input value: 10,000
Loss before deduction for risk-free return 500**
** The loss is deductible against ordinary income. The unused deduction for risk-free return – 304 – is lost.
The shareholder model for personal shareholders resident in Norway who own shares etc. in foreign companies
Personal shareholders resident in Norway are entitled to deductions for risk-free return if they own shares/units in companies abroad that are considered equivalent to Norwegian companies comprised by the model; see the list above under "Which distributions are comprised by the shareholder model?". In this context, there is no difference whether the company is domiciled in an EEA or non-EEA state.
The shareholder is only entitled to a deduction when the dividend has been legally distributed.
In addition to the shareholder being liable for tax on the dividend in Norway, the dividend will also normally be subject to withholding tax in the state where the distribution occurs. The taxpayer may claim an allowance for the Norwegian tax on the dividend (credit deduction) for the foreign withholding tax.
The shareholder model for shareholders resident in the EEA area who own shares in Norwegian companies
Personal shareholders resident abroad are liable for tax on dividends distributed by companies domiciled in Norway (withholding tax). Personal shareholders who are tax-resident in another EEA state are entitled to a deduction for risk-free return under the same rules as shareholders resident in Norway. This is conditional on the dividend being legally distributed by a company domiciled in Norway.
When deducting and assessing withholding tax, no account shall be taken of the deduction for risk-free return.
If the withholding tax is higher than the tax that the shareholder has to pay on the dividend after risk-free return under internal Norwegian rules, the taxpayer can apply for a refund of the overpaid withholding tax.
If the risk-free return exceeds the year's dividend, unused risk-free return can be carried forward for deducting from subsequent years' dividends on the same share. Risk-free return that does not exceed the year's dividend is lost of the taxpayer does not claim repayment of withholding tax overpaid based on the right to risk-free return. The same applies if the risk-free return cannot be utilised due to withholding tax under the tax treaty being lower than assessed tax on the dividend after deduction for risk-free return.
A Swedish personal shareholder owns shares in a Norwegian company. The shareholder receives a gross dividend of 100. Risk-free return on these shares amounts to 8. The company deducts withholding tax of 15 percent of the gross dividend, so that the shareholder is paid 85 by the company. Taxable dividend after deduction for risk-free return, according to internal Norwegian rules, is 92, and 23 percent tax of this amount is 21,16. Since the taxpayer has had 15 percent withholding tax deducted under the tax treaty, he is not entitled to repayment of any withholding tax. The risk-free return is therefore lost and cannot be carried forward to later years.
If the example is changed, so that risk-free return is 50 instead, the tax under internal Norwegian rules comes to 11.5 (100 – 50 = 50 * 23 percent = 11.5). This amount is lower than the amount deducted in tax under the tax treaty (which is 100 * 15 percent = 15). In this case, the taxpayer is entitled to reimbursement of the difference: 3.5 (15 – 11.5 = 3.5). The entire risk-free return is then utilised.
Taxation of share gains after emigrating
As of income year 2007, a general emigration tax on latent gains on shares and equivalent holdings was introduced, so that increases in value while the taxpayer was resident in Norway are subject to tax liability in Norway at the time that the taxpayer is no longer resident in Norway under domestic law or a tax treaty. This only applies when total gains exceed NOK 500,000. The tax liability ceases if the shares or holdings are not realised within five years of the tax liability from residence in Norway ending, or if the taxpayer becomes liable for tax under the Tax Act, Section 2-1 before the shares are realised.
Extra tax on interest on loans from a person to a company
In order to counteract an adaptation where a personal taxpayer, instead of taking dividends, loans money to the company and receives a high rate of interest, rules have been issued concerning extra tax on interest on loans.
If a person gives a loan to a company that is covered by the shareholder model, extra tax must be calculated on the loan interest above a certain level. The interest income must first be taxed as ordinary income. In addition, interest income above a determined deduction for risk-free return is taxed again as ordinary income.
The deduction for risk-free return shall in principle be calculated in the same way as for share dividends etc. The risk-free return is however calculated for the individual calendar month, based on the balance of the loan at the start of the month. If a loan is taken up during a calendar month, the balance of the loan on the borrowing date will apply. If you have given loans to several companies, the interest income subject to extra tax will be calculated for each company. The Directorate of Taxes determines and publishes the risk-free interest rate for extra tax on loans (for two months at a time).
If you submit your tax return online, you can use auxiliary form RF-1070 to calculate interest income that will be subject to extra tax.
Entry into force
The shareholder model was introduced with effect from 2006