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DIRECT SALE OF REAL ESTATE
This section discusses the most important tax implications of the direct sale of real estate. Firstly, the impact for resident individuals and non-resident individuals. Thereafter, the impact for resident companies and non-resident companies.
Capital gains
Gains derived from the direct sale of real estate is subject to individual income tax. Such gain can either be taxed as business income from a sole proprietorship with a progressive tax rate between 33% and 50.6%, or as capital income at a flat tax rate of 22%.
VAT/ transfer tax
The transfer of real estate is exempt from VAT in accordance with the Norwegian VAT legislation, conversely no VAT is added to the acquisition price. Furthermore, VAT on construction costs related to a new or existing building is not deductible if the property is intended for sale.
The Norwegian Supreme Court determined in a ruling from October 2021, that input VAT incurred on transaction costs (such as brokerage and legal fees), related to the sale of immovable property, is non-deductible. The ruling entailed buildings that served as a main office or an operations center within VAT liable business (e.g. business buildings, shop or factory as well as buildings rented out for use by VAT liable tenants). In its judgement, The Supreme Court seems to be in line with the established practice that transaction costs related to operations outside the scope of Norwegian VAT (for example related to acquisition and disposal of shares), will not be deductible.
Input VAT on costs related to the acquisition of immovable property is, however, permitted when the premises are used in VAT liable business. Furthermore, also input VAT on costs related to restructuring and/or raising capital appears to still be possible to deduct.
There are no specific transfer taxes in Norway. Stamp duty may apply to the buyer.
Deferral of tax
As commercial real estate is considered an operating asset for the company renting out the real estate, the taxable income can be deferred with an annual revenue recognition of 20% of the taxable income.
Deductibility of costs
Deductions are allowed for expenses incurred in connection with the sale of real estate.
Losses - carry forward
Losses on realisation of assets are tax-deductible for both individuals and companies. Tax losses may be carried forward indefinitely.
Non-resident individuals
Non-resident individuals are treated in the same manner as resident individuals.
Resident companies
Capital gains
The corporate income tax on capital gains is based on the difference between the net sales proceeds and tax written down value.
Business income derived from direct sale of real estate is subject to corporate income tax at a flat tax rate of 22%.
VAT/ transfer tax
The transfer of real estate is exempt from VAT in accordance with the Norwegian VAT legislation, conversely no VAT is added to the acquisition price. Furthermore, VAT on construction costs related to a new or existing building is not deductible if the property is intended for sale.
The Norwegian Supreme Court determined in from recent ruling from October 2021, that input VAT incurred on transaction costs (such as brokerage and legal fees), related to the sale of immovable property, is non-deductible. The ruling entailed buildings that served as a main office or an operations center within VAT liable business (e.g. business buildings, shop or factory as well as buildings rented out for use by VAT liable tenants). In its judgement, The Supreme Court seems to be in line with the established practice that transaction costs related to operations outside the scope of Norwegian VAT (for example related to acquisition and disposal of shares), will not be deductible.
Input VAT on costs related to the acquisition of immovable property is, however, permitted when the premises are used in VAT liable business. Furthermore, also input VAT on costs related to restructuring and/or raising capital appears to still be possible to deduct.
There are no specific transfer taxes in Norway. Stamp duty may apply to the buyer, see above.
Deferral of tax
As commercial real estate is considered an operating asset for the company renting out the real estate, the taxable income can be deferred with an annual revenue recognition of 20% of the taxable income.
Deductibility of costs
Deductions are allowed for expenses incurred in connection with the sale of real estate.
Losses- carry forward
Losses on the realisation of assets are tax-deductible for both individuals and companies. Tax losses may be carried forward indefinitely.
Non-resident companies
Non-resident companies are treated in the same manner as resident companies.
INDIRECT SALE
This section discusses the most important tax implications of the indirect sale (shares) of real estate. Firstly, the impact for resident individuals and non-resident individuals. Thereafter, the impact for resident companies and non-resident companies.
Resident individuals
Capital gains
lncome derived from indirect sale (shares) of real estate, is taxed as capital income at a flat tax rate of 22% multiplied by 1.72, i.e. 37.84% as the effective tax rate.
VAT I transfer tax
The sale of shares is outside the scope of Norwegian VAT. This implies that no VAT is calculated and paid for on the acquisition price of the shares. On the other hand, there is no right to deduct input VAT on costs directly related to VAT exempted activity. This counts both for the seller and the buyer.
There are no specific transfer taxes in Norway. Stamp duty does not apply to indirect sale (shares) of real estate.
Losses - carry forward
Tax losses are deductible and may be carried forward indefinitely.
Non-resident individual
lncome derived from indirect sale (shares) of real estate is not taxable, and tax losses not deductible, for non-resident individuals in Norway. Beyond that, non-resident individuals are, as a main rule, treated in the same manner as resident individuals, but differences may occur due to tax treaties with other jurisdictions.
Resident company
Capital gain
According to the participation exemption method, companies owning shares or units are exempted from paying tax on profits from the sale of shares or units, subject to certain conditions. Accordingly, costs and losses related to shares or units covered by the participation exemption method, and not deductible.
Liquidation distributions paid to the shareholders are taxed as capital gains and not as dividends, provided that the distribution is in connection with the final dissolution of the company.
VAT
The same rules apply as for resident individuals.
Transfer Tax
There are no specific transfer taxes in Norway. Stamp duty does not apply to indirect sale (shares) of real estate.
Subject to certain prescribed conditions, mergers and demergers may be carried out exempt of tax and stamp duty. One condition for exemption is that the companies involved are resident in Norway.
Because of the EEA Agreement, tax deferrals are allowed on cross-border mergers and demergers within the EU/EEA. Another condition for exemption is that all tax positions are transferred with full continuity and in accordance with the exchange ratio at the merger or demerger. The terms and conditions for exemption are stated in the Norwegian Tax Act.
Non-resident company
lncome derived from the indirect sale (shares) of real estate is not taxable, and tax losses not deductible, for non-resident companies in Norway.
Beyond that, the taxation of non-resident companies is dependent on the tax treaty with the resident country and whether the company is resident within or without the EU. Companies with a permanent establishment within the EU are covered by the participation exemption method.
Losses can only be offset against other Norwegian taxable income.
DIRECT TRANSFER INTRA CONCERN (NORWEGIAN REAL ESTATE TO A NORWEGIAN COMPANY)
Resident company
Norway has an optional relief method for intra-group transfers. In essence, capital gains on the transfer are calculated, but then deferred. The transferring company must provide security for the potential tax on the deferred gain. The deferred gain is crystallised if the group connection between the transferring company and the receiving company is broken ('group' in this connection requires more than 90% direct or indirect ownership).
Non-resident company
The capital gain relief method for intra-group transfers may apply when the transferor is a non resident group company with limited tax liability to Norway (permanent establishment), provided that the company is resident in a jurisdiction with which Norway has entered a tax treaty.
INDIRECT TRANSFER INTRA CONCERN (NORWEGIAN REAL ESTATE TO NORWEGIAN COMPANY)
Capital gain
According to the participation exemption method, companies owning shares or units are exempted from paying tax on profits from the sale of shares or units, subject to certain conditions. Accordingly, costs and losses related to shares or units covered by the participation exemption method, and not deductible.
Liquidation distributions paid to the shareholders are taxed as capital gains and not as dividends, provided that the distribution is in connection with the final dissolution of the company.
VAT
The same rules apply as for resident individuals.
Transfer Tax
There are no specific transfer taxes in Norway. Stamp duty does not apply to indirect sale (shares) of real estate.
Subject to certain prescribed conditions, mergers and demergers may be carried out exempt of tax and stamp duty. One condition for exemption is that the companies involved are resident in Norway.
Because of the EEA Agreement, tax deferrals are allowed on cross-border mergers and demergers within the EU/EEA. Another condition for exemption is that all tax positions are transferred with full continuity and in accordance to the exchange ratio at the merger or demerger. The terms and conditions for exemption are stated in the Norwegian Tax Act.
DIRECT TRANSFER INTRA CONCERN (NORWEGIAN REAL ESTATE TO A FOREIGN COMPANY)
Resident company
Norway has an optional relief method for intra-group transfers. In essence, capital gains on the transfer are calculated, but then deferred. The transferor must provide security for the potential tax on the deferred gain. The deferred gain is crystallised if the group connection between the transferring company and the receiving company is broken ('group' in this connection requires more than 90% direct or indirect ownership and voting rights). – Conversely, the transferor will be taxed for the difference between the market fair value of the asset and the tax book value.
The capital gain relief method for intra-group transfers may apply when the receiver is a non-resident group company with limited tax liability to Norway (permanent establishment), provided that the company is resident in a jurisdiction with which Norway has entered a tax treaty.
Non-resident company
The capital gain relief method for intra-group transfers may apply when both the transferor and the receiver is a non-resident group company with limited tax liability to Norway (permanent establishment), provided that both companies are resident in jurisdictions with which Norway has entered tax treaties.
INDIRECT TRANSFER INTRA CONCERN (NORWEGIAN REAL ESTATE TO FOREIGN COMPANY)
lncome derived from the indirect sale (shares) of real estate is not taxable, and tax losses not deductible, for non-resident companies in Norway.
Beyond that, the taxation of non-resident companies is dependent on the tax treaty with the resident country and whether the company is resident within or outside the EU. Companies with a permanent establishment within the EU are covered by the participation exemption method.
Losses may only be offset against other Norwegian taxable income.
