The Norwegian National Budget

1.1.1 Option 1: A continuation of the current rules, but where the tax exemption will be limited to the input value

As a first option, the Ministry proposes a continuation of the tax exemption for repayment of previously paid-up capital, but where the tax exemption will be upwards limited to the shareholder’s input value. Amounts in excess of the input value will be taxed as dividends.

The draft legislation will amend section 10-11 of the Norwegian Taxation Act so that “repayment of paid-up capital in excess of the share’s input value (…) is regarded (…) as a dividend.” Under this option, section 10-35 of the Taxation Act will be continued, i.e. that the input value is reduced by repayment of paid-up capital.

1.1.2 Option 2: Tax exemption for distributions up to input value (regardless of historical paid-in capital)

Under this option, the Ministry proposes to grant tax exemption for the amount up to the shareholder’s input value of the share, regardless of the previously paid-in capital on the pertinent share. Also in this case, amounts in excess of the input value will be taxed as dividends. In practice, this option implies that the shareholders’ tax position “paid-in capital” will be discontinued and replaced by a rule on tax exemption for distributions up to the input value also in cases where the paid-in capital is lower.

For this option, the draft legislation for section 10-11 of the Taxation Act suggests that distributions that are lower or equal to the share’s input value may be exempt from taxation, and that the shareholder must request a tax exemption when submitting the tax return form for the distribution year. Also in this case, the share’s input value will be reduced corresponding to the amount that is exempt from taxation, but technically in a slightly different way (cf. amendment to section 10-32 of the Taxation Act, and by repealing section 10-35 of the Taxation Act).

In the consultation paper, the Ministry refers to taxpayers’ and the tax authorities’ long-standing requests for simplification, and to the fact that both the Scheel Committee (NOU 2014: 13 Capital taxation in an international economy) and the Tax Committee (NOU 2022: 20 A comprehensive tax system) have pointed out that the rules are complicated, confusing and difficult to practise. The main issue is that the tax position “paid-in capital” is tied to the share, not to the shareholder, which can result in major documentation and control challenges, as well as room for unwanted tax planning. The complexity is reflected in the fact that the tax authorities report a total adjustment amount of approximately NOK 14.4 billion in control cases in the period 2014-2024. The need for an adjustment is rooted in the ability-to-pay principle of taxation (taxation according to ability), the subject principle (taxation positions should be tied to the same tax subject) and neutrality considerations.

The Ministry assumes that both solutions will limit the tax exemption to the input value of the share and counteract unwanted tax planning, while at the same time safeguarding the ability-to-pay principle and the subject principle better than today. From an administrative perspective, option 1 is anticipated to have limited consequences relative to the current rules, while option 2 will ease the process for both taxpayers and the tax authorities. In the Ministry’s view, option 2 may increase foreign shareholders’ possibility of deferring or avoiding withholding tax on dividends, as Norway does not impose withholding tax on capital gains, and a downward adjustment of the input value will therefore not have an impact on the capital gains taxation.

The Ministry proposes that an amendment take effect from the fiscal year 2027 and sees no need for transitional rules, given the ample time period between the publication of the consultation paper and the effective date.

The Ministry has not yet concluded on the preferred solution and is therefore submitting option 1 and option 2 as two equally ranked options.

Option 2 will be the easiest to implement and will save administrative burdens on both taxpayers and tax authorities, and there are strong indications that it will therefore be the preferred option.

As expected, the Norwegian government is proposing extensive adjustments to the tax rules for securities funds and fund accounts in order to provide Norwegian funds with more competitive framework conditions, reduce unnecessary double taxation (especially on fixed income funds), narrow the scope of the rules against potential unwanted adjustments, and ensure that the rules are better harmonised with similar systems in our most important European neighbouring countries, while at the same time preventing erosion of the Norwegian tax base.

The current rules have created inequalities, both in practical taxation and in opportunities for customisation between investment products. Among other things, the current practice has resulted in economic double taxation for accumulating fixed income funds. In addition, the industry has called for predictable and competitive framework conditions – not least in light of the flagging out of funds and fund managers to Sweden and other EEA countries.

The proposals are based directly on the Ministry of Finance’s consultation paper from January 2025 and extensive consultations with the industry.

The proposed adjustments are a result of international competitive pressure, the flight of funds out of Norway and a need to sort out complex and sometimes illogical special rules that have resulted in both incorrect taxation and inconsistent reporting practices.

2.2.1 Tax exemption for interest income etc. in securities funds

The proposals entail that qualified securities funds will be exempt from ordinary taxation on interest income, share income and income from financial instruments at fund level.

For share income, this applies to both dividends and capital gains, and regardless of whether the dividends come from a company in or outside the EEA.

The adjustments relating to interest income entail that Norwegian fixed income funds will be able to accumulate the income within the fund and will no longer need to distribute taxable dividends to shareholders to avoid taxation as per the current tax rules. This would solve the double taxation issues associated with accumulating fixed income funds and would give Norwegian fixed income funds conditions more equal to those of similar funds in for example Sweden and Denmark.

2.2.2 New standardised rule for taxation in funds

The government and the industry are aware of the risk that some countries (“source states”) may deny tax treaty protection – against such as reduced rates or exemption from withholding tax – on outgoing payments of dividends and interest to Norwegian funds, if the funds themselves are not subject to sufficient taxation in Norway.

It is therefore proposed that a new standardised rule be introduced under which income at fund level will be taxed by treating 1% of dividends received on shares as gross income, with a deduction for management costs. Losses may be carried forward, but for a maximum of five years.

This would provide a minimum of continuous taxation at fund level, which appears useful and important in that it would enable the funds to invoke tax treaty protection of income from abroad. This harmonises with the so-called “three-percent rule” under the exemption method, but with a significantly lower percentage rate. The adjustments are also aligned with international trends and would bring the Norwegian regulations in line with, for example, the systems in Sweden, Denmark and the OECD/EU standard.

2.2.3 Clarification and definition of which funds that qualify for favourable tax rules

New requirements have been proposed for what can be considered a securities fund under the Taxation Act. In line with the consultation paper from January, the tax exemptions and special rules will only apply to (a) UCITS funds, (b) Norwegian national funds, and (c) funds established in other EEA countries that “correspond” to Norwegian national funds.

The criteria and regulatory requirements (investment rules, security deposit bank, settlement, supervision, etc.) must be laid down in regulations. In practice, foreign funds must document that they have equivalent investment regulations, investor protection and supervision.

The Ministry also maintains their proposal that the same definition should apply to determine which securities funds can be considered as subject to the exemption method.

Among other things, such definition implies that (both Norwegian and foreign) alternative investment funds and funds without real investor protection/adequate supervision will no longer be covered. This is measured, among other things, according to similar criteria as for Norwegian national funds under the Norwegian Securities Funds Act. Funds must be able to document that they meet the requirements (either in Norwegian, English or another Nordic language).

Transitional rules have been proposed to ensure that fund units that do not qualify under the new rules will have their new taxable input value determined at market value as per 31 December 2025.

2.2.4 Extension of the exemption for share income to include indirect share income via businesses assessed as partnerships (Nw: “SDF”)

Under the current rules, share income earned indirectly via businesses assessed as partnerships (i.e. tax transparent entities), such as limited partnerships (and similar foreign structures), is not covered. However, over time, a practice has developed according to which the law is interpreted broadly so that the authorities have nevertheless allowed such income to be covered by the exemption rule for share gains. A proposal to restrict the rules was put forward in the consultation paper, but the proposal was withdrawn after considerable criticism from the industry because of the administrative burdens this would entail. The new tax exemption rules will therefore also apply to income earned via businesses assessed as partnerships, in line with established practice.

2.2.5 No special limitation on income from low-tax countries

After significant objections from the industry and considering the fact that global minimum taxation is implemented within the OECD (Pillar 2), the broad exemption will also be maintained for capital gains and dividends from companies in low-tax countries. The original proposal to restrict these rules has been scrapped. Practical and administrative challenges are considered to weigh more heavily. The funds will therefore be relieved from having to carry out consecutive and comprehensive assessments of and reporting on each underlying company.

2.2.6 Amendments to the tax rules applying to fund accounts

A proposal has been made to amend the rules applying to fund accounts. It will still be possible to offer fund accounts to companies, but the favourable tax treatment under the exemption method will be narrowed compared to the current rules.

Companies that invest in fund accounts will have their income taxed under the exemption method according to the normal rules, but the standardised calculation of shareholdings will be adjusted to ensure that the exemption method only applies to the actual proportion of share investments in fund accounts. This restricts the possibility for companies to obtain unintentional tax exemption also on investments to which the exemption method does not apply (e.g. shares in low-tax countries outside the EEA, interest-bearing products, high-yield and certain structured products). Hence, a prior possibility for unintended tax exemptions on such investments is eliminated.

The amendment enters into force on 1 January 2026, and affected companies will be given the opportunity to sell/adjust their portfolios in fund accounts prior to this date to ensure predictability and prevent unconstitutional retroactive effect. Transitional rules are not considered necessary for existing holdings.

There has been broad support from the fund industry, lawyers, the financial industry and the accounting community for the main approach, particularly in terms of competitiveness for Norwegian fund management. Critical voices have emphasised the risk of tax planning, but the Ministry believes the proposed restrictions will be sufficient.

Consultation responses from the industry and auditors have largely been adhered to – both the proposals for equal treatment with Sweden and Denmark and more targeted restrictions, instead of general cut-offs against low-tax countries or indirect share income.

Entry into force is set for 1 January 2026 (i.e. for the income year 2026), with necessary transitional rules for fund units outside the scope of the new regime and to ensure administrative adjustments in the industry. Great emphasis has been placed on avoiding unconstitutional retroactive effects in the field of fund account management.

The amendments will have the following effects:

• For funds established in other EEA countries, a specific, regulation-based documentation requirement will now be introduced for these to be considered as qualified “securities funds” under the Taxation Act.
• VAT and reporting systems for fund managers will have to be adapted due to new reporting requirements and any special reporting formats from the Norwegian Tax Administration.
• The industry must introduce routines and IT systems to handle standardised taxation on dividends (1%) and any loss carry-forwards.
• Companies that have invested in fund accounts and want tax exemption on non-equity investments must adapt to the new rules by the end of 2025.

Overall, the proposals entail a thorough modernisation and significant simplification for funds, fund managers and investors. Handling the dynamics between fund structure, tax treatment at fund level and investor taxation will be far simpler and more transparent, which in turn will reduce the need for continuous tax adjustments and be better adapted to industry and competitive realities.

This will bring the Norwegian tax system for collective investment schemes more in line with international practice and provide an efficient and neutral tax framework for Norwegian participants and is also expected to safeguard the industry against future changes in an international market.

Effective from and including the income year of 2026.

In our view, the proposed amendments to the tax rules for funds represent a significant shift towards more internationally competitive conditions for Norwegian funds and a simplification for fixed income funds that do not have regular distributions of dividends. The proposed amendments will also provide more consistent and “neutral” taxation across fund types, and Norwegian rules will more closely mirror similar practices in Sweden and Denmark. A clearer framework for which funds qualify – and stricter documentation requirements – should reduce the possibility of unintended tax exemptions and provide greater predictability for investors and managers.

The adjustments will make it attractive to remain Norwegian-registered but will also increase the administrative responsibility for organisers and will, in the short term, entail significant system adjustments and the need for industry players to adapt.

For institutional players, the coordination of fund reporting and taxation positions will require new routines and control measures, while the private market players will have far simpler and more predictable rules across the product structures. In practice, the restriction relating to fund accounts will entail that companies will no longer be able to use fund accounts to obtain unintentional tax exemption on assets other than shares.

These adjustments are in line with the industry’s wishes but must be closely monitored by consultants and suppliers during the implementation phase to avoid unintended consequences.

Affected companies should now consider implementing the following actions:

• Fund companies should immediately initiate system adjustments and a strategic review of their product portfolio to ensure continued compliance with the new formal requirements.
• Limited companies with fund account investments should review these to identify investments that will fall outside the scope of the exemption method after year-end and consider appropriate adjustments.
• Private investors should note that several products will have more similar tax conditions and are advised to seek guidance regarding possible transitional effects.
• Investment managers should document and map whether existing funds or planned launches qualify under the new rules and organise their reporting routines accordingly.

The Global Minimum Tax is intended to ensure that large corporations pay at least 15 % tax on their activities, regardless of where they operate. The Norwegian Supplementary Taxation Act was adopted in January 2024 and implements the OECD/G20 Inclusive Framework’s model rules on global minimum taxation – “Pillar 2”. The changes proposed by the Ministry of Finance aim to bring the Norwegian regulations in line with two sets of administrative guidance from the Inclusive Framework published in June 2024 and January 2025, respectively.

Most of the adjustments will enter into force with effect from the income year 2024 (the financial year starting after 31 December 2023), while provisions relating to the Undertaxed Profits Rule (UTPR) will not apply until the income year 2025. The changes are not expected to have significant revenue effects but will contribute to a more uniform international regulatory framework.

The proposed changes mainly fall into two categories: Changes relating to the calculation of an “effective tax rate”, including “deferred tax” on temporary differences and changes relating to administrative simplifications (so-called “Safe Harbours”). The proposal provides useful clarifications but is comprehensive and technically challenging to comply with.

To ensure that an adjustment for deferred tax only relates to temporary differences with a certain and short-term reversal amount, the supplementary tax regulations contain a rule stating that deferred tax liabilities that are not reversed within five years must be reversed. The purpose of the proposal is to clarify how the rule on reversal of a deferred tax liability should be practiced.

Previously, there have been doubts as to whether the reversal relates to an “aggregate amount” or to the individual temporary differences that arise per asset. The proposal clarifies that the reversal should be made per category of deferred tax liability. The guidance specifies three such categories to be used:

• deferred tax relating to a single asset or liability,
• deferred tax relating to the total assets and liabilities in a general ledger account, and
• deferred tax relating to the total assets and liabilities in an “aggregate account”.

The group may use different categories alongside each other. However, the same asset or liability may not appear in more than one category.

The guidance provides two standardised methodologies for determining which increase a reduction (reversal) relates to when the tax liability is not tracked individually (as in category 1). One methodology is “last-in, first-out” (LIFO). The group should use this methodology, unless the conditions for using the “first-in, first-out” methodology (FIFO) have been met. If the conditions for using the FIFO methodology have been met, the group may choose which method to use. The guidance allows for a simplified approach if it can be demonstrated that all deferred tax liabilities are short term (fully reversed within five financial years).

Questions have been raised as to how deferred tax should be calculated when accounting profits are adjusted as part of the calculation of adjusted profits. The calculation is of particular importance whenever group entities become part of or leave a group and when assets and liabilities are transferred.

The principle is that the calculation of adjusted profits and adjusted tax is based on figures from the financial statements, but there are several exceptions from this. The model rules state that adjusted values should be used in the calculation of adjusted profits and adjusted tax.

The proposal specifies that a group entity that adjusts accounting items as part of the calculation of adjusted profits, should also rely on the adjusted value when calculating the deferred tax. Otherwise, the calculation should be made in accordance with the accounting language used.

According to the guidance, the deferred tax should be calculated consistently on the basis of adjusted values, including in the case of questions relating to reversals, unclaimed provisions and exemptions from reversals. Nor should deferred tax be calculated on items that are excluded from the calculation of adjusted profits.

The proposal also specifies how deferred tax should be allocated between group entities based on detailed sequence rules. The proposal specifies how the allocation should be made between the parent company and a controlled foreign company, between the parent company and a hybrid entity, reverse hybrid entity or distributing group entity. In addition, the allocation should also apply to allocations between the main entity and a permanent establishment, but with certain adjustments.

The proposal also includes further clarifications relating to the treatment of deferred tax that arises in a system for joint taxation of controlled foreign companies. The allocation of tax in such cases is particularly regulated in the Administrative Guidance issued in December 2023, and in section 4-1-3 third subsection litra b of the Norwegian Supplementary Tax Regulations.

3.5.1 Deferred tax assets should not be included in the calculation of “simplified covered tax” based on the country-by-country reporting

The Norwegian Supplementary Tax Regulations have provisions on temporary Safe Harbours related to country-by-country reporting. The simplifications are based on a simplified calculation of the tax rate and entail that the effective tax rate is calculated according to a simplified method based on the “simplified covered taxes” in the jurisdiction, divided by “profit before tax”.

The key feature of the proposal is that it specifies that simplified covered taxes should not include deferred tax assets.

Deferred tax assets are usually a negative tax expense (increase profit after tax). If deferred tax assets are included, “simplified covered taxes” and thus the effective tax rate are lowered. By excluding deferred tax assets from the calculation, the calculation results in a higher tax expense figure and therefore a higher effective tax rate. This makes it easier to meet the Safe Harbour test.

3.5.2 Extended exemption from qualified national supplementary tax Safe Harbour

Rules on qualified national supplementary tax Safe Harbour have been included in the Norwegian Supplementary Tax Regulations. If a group chooses to apply this to a jurisdiction, the supplementary tax under the tax inclusion and undertaxed profits rule is set to zero.

However, there are exceptions to the national supplementary tax Safe Harbour (“Switch-off Rules”), which means that the supplementary tax cannot be set to zero. This switch-off mechanism is proposed extended to include cases where deferred tax assets arise in specific ways. The extension somewhat narrows the opportunity to apply the national supplementary tax Safe Harbour.

For years, wealth tax has been one of the most hotly debated topics in Norwegian tax policy, as this year’s election campaign clearly showed. In the national budget for 2026, the Government is proposing some adjustments to the wealth tax, which are unlikely to dampen the debate significantly.

First, the basic tax-free allowance will be increased to NOK 1.9 million for single taxpayers and NOK 3.8 million for spouses. This means that around 27,800 fewer people will pay wealth tax, and that those still covered will receive an average tax relief of around NOK 800.

Second, the Government is proposing to codify that the decisive date for wealth tax liability to Norway is 31 December of the income year, and not 1 January of the following year, as the Tax Appeal Board found in SKNS1-2024-100.

Third, the Government is proposing to adjust the distribution between state and municipal wealth tax. The municipal wealth tax rate will be reduced from 0.525% to 0.35% in 2026, while the state’s rate will be increased from 0.475% to 0.65% for wealth up to NOK 21.5 million and to 0.75% for wealth exceeding this amount.

In addition to these adjustments, the Government is proposing two major changes: a permanent deferral scheme for payment of wealth tax, aimed at personal taxpayers with business assets, and an updated model for valuation of residences under the wealth tax. These proposals are discussed in more detail below. Furthermore, the Government, in accordance with the Norwegian Parliament’s (“Stortinget”) resolution no. 939 (2022-2023), has investigated the possibility of differentiated valuations of unlisted shares based on share class and other characteristics of the shares. The Government has concluded that it will not propose to introduce such differentiation. This decision is also discussed below.

One of the main challenges when it comes to wealth tax is that the tax is calculated based on asset values, and not income streams. This may be particularly unfavourable for owners of start-up companies. The shares may be highly valued, even though the company has no profit to distribute as dividends to the shareholders. In such situations, the owner may lack the capital to pay the wealth tax.

To alleviate these challenges, the Government is proposing to introduce a permanent deferral scheme for the payment of wealth tax as of the income year 2026. The scheme is aimed at personal taxpayers with business assets, i.e. assets in shares, stakes in businesses assessed as partnerships, as well as operating assets and commercial property in sole proprietorships.

Under the scheme, taxpayers may claim deferral of payment for up to three years if the wealth tax exceeds NOK 30,000. If the deferral scheme is applied, interest will accrue during the deferral period. The Ministry is proposing that the interest rate be set at Norges Bank’s policy rate plus five percentage points, determined every six months with effect from 1 January and 1 July. With the current policy rate, this implies an effective interest rate of 9 %.

The proposal is unlikely to significantly alleviate the challenges associate with wealth tax. For a more detailed assessment of the scheme, see Wiersholm’s newsletter “The proposed deferral scheme for wealth tax – how attractive is it really?”.

The Government is further proposing the introduction of an updated model for valuation of residences as of the income year 2026. The model has been revised by Statistics Norway (“SSB”) and is intended to provide more accurate estimates of the market value of each residence. The transition to the new model will primarily affect expensive residences which previously have been undervalued.

For the majority of taxpayers, the transition to the new model will not have a significant impact. It is estimated that around 6% will see an increase in wealth tax (of which two thirds will see an increase of less than NOK 2,000, and one third an average of around NOK 7,000), while around 5% will see a reduction in wealth tax of, on average, around NOK 2,400. Seen in isolation, this will result in an increased wealth tax revenue of approximately NOK 435 million.

The activation threshold for high valuation of primary residences will be maintained at NOK 10 million. This means that primary residences will be valued at 25% of the estimated market value up to NOK 10 million, and at 70% for values above this. For secondary residences, the valuation of 100% of the market value will be continued.

The Government has also reviewed whether unlisted shares should be valued on a differentiated basis depending on the share class and certain other characteristics of the shares. The purpose has been to consider whether different characteristics of the shares, such as voting rights and dividend rights, should be taken into account, so that the valuation better reflects the real market value.

However, the Government has concluded that it is not practical to establish a system that takes into account all factors and characteristics that affect the value of unlisted shares. Furthermore, the Government points out that such a rule would lead to increased administrative burdens for both the tax authorities and the taxpayers. In addition, such a system would not be sufficiently effective against undesirable adjustments.

Against this background, the Government is not proposing to introduce differentiated valuations of unlisted shares, but that the current rules be continued. The Ministry nevertheless points out that “[i]t may (…) be relevant to try cases under evasion rule of the Taxation Act if a transaction has little reality beyond the tax savings”.