The corporate tax system and taxation of capital income

On the whole, declining balance depreciation is used for tax-related depreciation. An exception is hydroelectric power plants where linear depreciation schedules apply for some fixed capital categories.

For tax depreciation purposes fixed assets are divided into 9 different categories according to the expected life of the assets. These are as follows:

Depreciation category	Maximum tax depreciation rate
a) Office equipment	30 %
b) Goodwill	20 %
c) Goods vehicles	20 %
d) Passenger vehicles, machinery, furniture and fixtures	20 %
e) Ships	14 %
f) Aircraft	12 %
g) Power lines and electrotechnical equipment in power plants	5%
h) Plant and equipment	4(8) %
i) Commercial buildings	2 %

Double tax depreciation rates apply to assets in assets group h when the expected total useful lifetime of the asset is no longer than 20 years. Depreciated asset values below NOK 15 000 are fully deductible from taxable profits. When assessing inventories, application of the First In – First Out (FIFO) principle is mandatory.

Norway has a imputation system where company surplus, including dividend payments, is taxed at company level as ordinary income at a rate of 28 per cent. Dividend income is also taxed as ordinary income at shareholder level at a rate of 28 per cent, but the shareholder receives as a rule full credit for this tax.

The so-called RISK-system has been developed to avoid double taxation of capital gains and to ensure equitable taxation of dividends and capital gains. The idea is to adjust the share value for retentions (retentions are already taxed at corporate level). This system can be described as follows: Each company calculates the increase in share value due to retentions at the end of each year. This is called the RISK amount and it will be positive if retentions are positive and negative whenever retentions are negative. The RISK amount is added to the share’s purchase price and the gain is then calculated as the sale price net of the RISK adjusted price.

Income from self-employment or closely held companies where the activity is comparable with self-employment, is a result of both capital and labour input. However, the accounts only show the total income, not the income sources. Due to the considerable difference between the top marginal tax rates on labour income and capital income, it is necessary to separate the income related to labour input from the total income.

The labour income part of total income is calculated as follows: Actual capital income, actual capital expenses and some actual capital gains and losses are reset. In addition to this, an imputed capital income calculated as the capital stock multiplied by a fixed rate of return on capital is deducted from the total income. In 2004, rate of return on capital is set to 7 percent. A percentage of the total wages paid by the owner of a business to any employees can also be deducted from the owner’s total income. Total income net of capital income and the wage deduction, is denoted as "calculated personal income" and is liable to social security taxes and surtax.

A withholding tax of 25 per cent is levied on dividends paid by Norwegian company to non resident companies and individuals. The withholding tax may be reduced pursuant to provisions of a tax treaty. Norway does not levy withholding tax on interest and royalty payments.