By lawyer/partner Preben Kløvfjell
Business culture in Norway
Starting a business in Norway is undoubtedly lucrative due to our excellent purchasing power, intercultural understanding, and the fact that it is both safe and easy for aspiring business starters to initiate new establishments. As a matter of fact, Norway is ranked in the top 10 of the 189 countries on the Ease of doing Business ranking. To create a successful business, knowledge on the Norwegian business culture is essential. Therefore, we will summarise some of the business culture’s most prevalent attributes in the following.
Norwegian business culture is built on a foundation of Scandinavian work values. Firstly, the culture has significant emphasis on equality. This results in very limited hierarchy, flat structures, and informal interaction. Cooperation is another important attribute. This is evident when looking at the so-called tripartate model in which the Government, the Employer Federations and the Employee organizations work closely together. Cooperation is also apparent at company level, especially between the employer and the employees.
Trust embodies the business culture to a great extent. This is apparent in the relationship between the authorities and the citizens, between employers and employees and between business partners. This creates efficient businesses without the need for an abundance of formal structures.
The fact that employees receive a great deal of trust from their superiors, imply that the workers are expected to take initiative and responsibility. This is undoubtedly a contributing factor as to why the Norwegian workforce is highly skilled, productive, and ambitious.
Source: Norwegian Business Culture – Invest in Norway (invinor.no)
Choosing the best legal structure for your business
When starting your own business, choosing a legal structure to form your business around can be challenging. You might not know whether to choose a sole proprietorship, a private limited company, a general partnership or a cooperative. Which legal structure is more suitable for your business, will depend on an assessment of your circumstances. In the following, we will discuss key differences between the legal structures in hopes of easing your choice.
A sole proprietorship consists of one owner. There are no legal requirements concerning capital and there is unlimited liability. There are few formal requirements. As far as social security rights are concerned, you will be entitled to sick-pay from the 17thsick day (80% of sick-pay basis). In event of unemployment, there is no unemployment benefit.
Private limited companies consist of one or more owners. The legal capital requirement is 30.000 NOK and there is liability limited to the invested share capital. Contrary to sole proprietorships, there are many formal requirements. You will be entitled to sick-pay from the first sick day (100% of sick-pay basis) and you will receive unemployment benefit in event of unemployment).
General partnerships (ANS/DA) comprise two or more owners. There are no legal capital requirements. There is unlimited liability (For ANS: jointly and severally liable for all debts. For DA: liable for the agreed share of all debts). This legal structure demands many formal requirements. You are, similarly to sole proprietorships, entitled to sick-pay from the 17th sick day (80%) of sick-pay basis). There is no unemployment benefit in event og unemployment.
Co-operatives (SA) consist of two or more owners. Similarly to general partnerships, there are no legal capital requirements. However, this legal structure imposes liability limited to any shareholding. There are many formal requirements. Sick-pay is disbursed from the first sick-day (100% of sick pay-basis). In event of unemployment, unemployment benefit is disbursed.
Source: https://www.altinn.no/en/start-and-run-business/planning-starting/Choosing-Legal-Structure/
Taxes in Norwegian business
Starting a business in Norway requires knowledge on the Norwegian tax system. Insight on the Norwegian salary system, the main taxes for corporations and rules regarding pension and tax incentives will undoubtedly be of great interest to aspiring business starters.
Norwegian companies are required to pay a corporate income tax of 22% on their net income. Income from shipping, exploration of petroleum resources and production of hydropower are subject to different tax regulations. In addition to income, dividends, interests, foreign-sourced income, and capital gains on the disposal of assets are taxable. Regular capital gains are however taxed as ordinary income at the general corporate income tax rate of 22%.
Main taxes
Corporations are obliged to pay corporate tax (22%) and national insurance contribution (14,1%). Concerning the latter, it may be useful to know that there are zones with a lower level of national insurance contribution.
In addition, companies who engage employees working in Norway must pay employer contributions on the gross remuneration that their employees receive. This includes pension contributions and benefits in kind. Employer contributions are deductible for corporate income tax purposes. The general employer contribution rate is 14,1%. Certain areas in northern Norway and other sparsely populated areas across the country are however subject to a lower contribution rate.
Norwegian incorporated companies are not required to pay wealth tax on their net assets.
Property tax is not nationally required by the Government. Property tax is rather decided and regulated on the municipal level. Not all municipalities have decided to impose property tax, but for those who have, the tax rate ranges from 0,2% to 0,7%.
The property tax base equates the real estate’s market value. The market value is determined by a valuation conducted by the municipality in which the real estate is located. Property tax can be subject to deduction from the taxable income for corporate income purposes.
Tax incentives
Tax incentives are not prevalent in Norway. However, the Research council of Norway administer an incentive scheme called “SKatteFUNN” who offer tax credit for R&D costs up to a particular amount. The credit’s total is either 18% or 20%, depending on the extent of the business.
The Norwegian salary system
The Norwegian salary system consists of 11 months of salary and one month of vacation pay. Vacation pay is determined by the employees’ salary the preceding year, and they receive 10,2% – 12% of this in June or July each year. Vacation pay is included in the gross salary that has been agreed upon by the parties.
Pension
Norwegian employers are required to guarantee occupation pension by providing a pension scheme for their employees. The minimum pension rate is 2% of gross salary.
This rule applies to all employers who hold a minimum of two employees, each with working hours and a salary of 75% or more. The rule also applies to employers with at least one employee who does not have ownership interest in the company, with working hours and a salary of 75% or more. Finally, the rule applies to employers with employees with at least 20% working hours and salary if these employees amount to at least two fulltime positions.
Source: Understand the tax system – Invest in Norway (invinor.no)
The lawyers at Tveter og Kløvfjell AS have broad experience in matters regarding business and tax law. Feel free to send a non-committal email to pk@klovfjell-gammel.local or call us on 22 17 74 00 if you have any questions about your rights.
