Sunday, 24 February 2013

The myth about the 75% income rule in Norway

Much is touted about the rules surrounding how much income a contractor declares through a UK Limited company as salary earned in Norway. The most common one I come across is the 'rule' that you must declare 75% of income as salary in Norway and pay related taxes there.

Norwegian law requires that 75% of profit (not gross income) earned by a Ltd company should (not must) be distributed as salary. You can offset your Norwegian costs against Norwegian income and pay the payroll taxes on 75% of the net. Therefore, if your costs equate to 10% of gross income then you will be able to reduce your taxes to payment on 65% of gross income.

In addition:

1. Your UK Ltd company can make an application for exemption from Norwegian Social Insurance.
2. As a foreign employee of a foreign company operating in Norway, you will be eligible for the 10% standard tax relief.
3. If you work offshore, aboard a vessel for 130 days or more then you may be eligible for the Norwegian seafarers tax relief.
4. Your UK company can pay out residual profits (after corporation tax id deducted) as dividends to shareholders.

By managing the structure correctly a UK Ltd company can be a tax-efficient vehicle in a Norway, achieving gross income retention rates of between 65%-80% as opposed depending on individual circumstances in an environment where starting tax rate is 28%.

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