The shareholder model
Persons who are resident for tax purposes in Norway are generally liable to pay tax on share dividend and on gain from the realisation of shares. The following are taxable:
- shares in a company
- units in securities funds
- equity certificates in savings banks, mutual insurance companies, credit unions and self-owned finance companies
- preferential rights to subscribe to shares
- letters of allocation
The scope of the shareholder model
Which taxpayers fall under the shareholder model?
The shareholder model applies to personal shareholders/part owners that are resident in Norway for tax purposes. In addition, it applies to a deceased person’s estates, estates in receivership that belong to a natural person, and bankruptcy estates where a debtor is a natural person.
Personal shareholders that are residents in other countries are in general not entitled to a risk-free return allowance. The exception are personal shareholders residing in another EEA state, who can be granted a risk-free return allowance upon application of a refund (see a separate point on this below). Company shareholders are not covered by the shareholder model.
Which distributions fall under the shareholder model?
The shareholder model applies to dividend and similar distributions from:
- private and public limited companies
- savings banks and other self-owned finance companies
- mutual insurance company
- cooperative enterprises
- equity funds
- corresponding foreign companies, etc.
More information on the model
The shareholder model means that dividend and gain after deducting a risk-free return are taxable as ordinary income. When calculating the taxable dividend/gain, we use the terms "risk-free return base", "risk-free return interest rate" and "risk-free return allowance".
Risk-free return allowance = risk-free return base * risk-free return interest rate
The goal of the shareholder model is to reduce the difference in taxation of capital and work by taxing dividend, to some degree, as ordinary income.
Previous rules for the taxation of dividend and share gain
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 equity funds. From a technical point of view, this was achieved by assessing tax on dividends which was then eliminated through an "allowance". Upon 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 as at 1 January 2006. Unused allowances can be carried forward for 10 years after the allowance was earned.
Risk-free return base
The risk-free return base is set at the share's acquisition value (input value) plus the share's unused deduction for risk-free return from previous years.
The risk-free return base is calculated per share and will generally be the share’s acquisition value, including expenses that are directly attributable to the acquisition, for example broker expenses.
In three cases, the risk-free return base 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 as 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 risk-free return base for shares in holding as of 1 January 2006 will be set to the historic cost price (alternatively, the redistributed cost price) plus accumulated RISK in the period of ownership.
Use of alternative input values
For unlisted shares that could have been sold tax-free in 1992, the risk-free return base will be set at the share's proportional share of the tax 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 that precludes allowances for losses when the accounting value or estimated value is used as an alternative input value from 1992 is upheld.
In the case of Norwegian listed shares acquired before 1 January 1989, the input value can be set to the average of the listed prices on each individual trading day from and including 1 November 1991 to and including 31 December 1991. If there is no listed price, the tax value of the shares as of 1 January 1992 must be used.
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/donor's tax values. The testator's/donor's input value, risk-free return base, unused risk-free return allowance and any other tax positions (such as acquisition date) are carried forward to the successor/beneficiary.
This is called “continuity for tax purposes”. If the rule on continuity for tax purposes means that the input value of the shares is higher than the inheritance tax basis, the risk-free return base/input value will have an upper limit of the inheritance tax basis: see section 9-7 of the former Taxation Act.
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
The shareholder determines the input value of the shares when submitting the tax return. The determined input value will be used to calculate the risk-free return allowance in the years you own the share (with the exception of 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. If you make any corrections, you must include them in the tax return.
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.
Risk-free return interest rate
The risk-free return interest rate is calculated and published by the Directorate of Taxes in January of the year after the income year.
The risk-free return interest rate is calculated based on the mean observed three-month interest rate for treasury bills.
The risk-free return allowance
The risk-free return allowance indicates the amount of dividend you can receive tax-free, and an unused reduces the gain upon realising a share.
The risk-free return base is set to the risk-free return base multiplied by the risk-free return interest rate.
The risk-free return base is calculated for each share you own as at 31 December in the income year. If shares are realised during the income year, no risk-free return allowance is calculated for the seller (disposer). Instead, the person who owns the shares as at 31 December will be entitled to the deduction (buyer).
In order to be entitled to a risk-free return allowance, the dividend must have been legally distributed.
If the dividend is less than the risk-free return allowance in a specific year, the remaining risk-free return allowance can be carried forward for this share. The risk-free return allowance may not be coordinated between different shares/share acquisitions. The risk-free return allowance cannot be negative.
If the dividend is greater than the risk-free return allowance, the excess amount will be taxed as general 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 2006, the input value is adjusted for accumulated RISK. An alternative input value can be used if the shares were owned as at 1 January 1989.
- Any gain will then be reduced by the unused risk-free return allowance.
- Any loss from the input value being higher than the realisation will be deductible in ordinary income. A risk-free return allowance will only be granted until the taxable gain equals zero. Losses that are caused by the risk-free return allowance itself are not deductible (see example below).
- Any unused risk-free return allowance will be lost upon realisation of the share.
The risk-free return interest rate for year 1 is 2.1%. For the other years in the example, 2.5% is used.
The acquisition cost in year 1 for share A is 10,000. The share is sold in year 4.
Risk-free return base share A: 10,000
Risk-free return allowance year 1: (10,000 x 2.1%) = 210
Dividend year 1 = 500
Taxable dividend: (500 – 210) = 290
Unused risk-free return allowance year 1 = 0
Risk-free return base share A year 2 (10,000 + 0) = 10,000
Risk-free return allowance year 2: (10,000 x 2.5%) = 250
Dividend year 2 = 100
Taxable dividend: (100-250) = 0
Unused risk-free return allowance year 2: (250 – 100) = 150
Accumulated unused risk-free return allowance = 150
Risk-free return base share A (10,000 + 150) = 10,150
Risk-free return allowance year 3: (10,150 x 2.5%) = 254
Dividend year 3 = 100
Unused risk-free return allowance year 3: (254-100) = 154
Accumulated unused risk-free return allowance: (150 + 154) = 304
Remuneration from realisation: 12,000
NOTE: A risk-free return allowance will not be calculated in the sales year as the shareholder is not the owner of the share as of 31 December in this income year.
Calculation of gains in year 4
Acquisition value/input value: 10,000
Gain before risk-free return allowance = 2,000
Unused risk-free return allowance = 304
Taxable gain = 1,696
Calculation of gains in the case of alternative realisation payment in year 4
Alt. 2 Remuneration from realisation 10,100
Acquisition value/input value: 10,000
Gain before risk-free return allowance = 100
Unused risk-free return allowance = 304
Taxable gain = 0*
* In this case, not all the unused risk-free return allowance is employed. The remainder – 204 – is lost through the realisation.
Alt. 3 Remuneration from realisation 9,500
Acquisition value/input value: 10,000
Loss before risk-free return allowance 500**
** The loss is deductible against ordinary income. The unused risk-free return allowance – 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 fall under the shareholder model?". In this context, there is no difference between whether the company is domiciled in an EEA or non-EEA state.
The shareholder is only entitled to the risk-free return allowance when the dividend has been legally distributed.
In addition to the shareholder being liable for tax on the dividend in Norway, the recipient of 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 resident for tax purposes in another EEA state are entitled to a risk-free return allowance under the same rules as shareholders that are resident in Norway. This is conditional on the dividend being legally distributed by a company domiciled in Norway.
When assessing and deducting withholding tax, the risk-free return allowance should not be included.
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 if the taxpayer does not claim repayment of overpaid withholding tax 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 the 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. The risk-free return on these shares amounts to 8. The company deducts 15 percent withholding tax of the gross dividend, so that the shareholder is paid 85 by the company. Taxable dividend after deducting the risk-free return allowance, according to internal Norwegian rules, is 92, and 22 percent tax of this amount is 20.24. Since the taxpayer has had 15 percent withholding tax deducted under the tax treaty, he or she 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 the risk-free return is 50 instead, the tax under internal Norwegian rules comes to 11 (100 – 50 = 50 * 22 percent = 11). 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: 4 (15 – 11 = 4). The entire risk-free return is then utilised.
Taxation of share gains after emigrating
As of the 2007 income year, 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 taxable 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. If the tax liability from residence in Norway has ended before 29 November 2022 and the shares or units have not been realised within five years of the tax liability ending, the exit tax will no longer apply. The exit tax also does not apply if the taxpayer is liable to pay tax under section 2-1 of the Taxation Act before the shares have been realised. See RF-1141 Gevinst og tap på aksjer og andeler ved utflytting (Gains and losses on shares and units on moving from Norway – in Norwegian only)
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, the interest income in excess of a determined risk-free return allowance must be taxed once again as ordinary income. The basis for extra tax is first reduced with the tax rate for ordinary income. After that, the risk-free return is deducted.
In principle, the risk-free return allowance must be calculated in the same way as share dividends, etc. The risk-free return will however be calculated for each calendar month based om the loan balance 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. In the event of giving loans to several companies, the interest income will be calculated for each company. The Directorate of Taxes determines and publishes the risk-free return 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. From and including the 2023 income year, any income subject to extra tax must be upwardly adjusted by 1.72.