by partner/attorney Øystein Hagen, Advokatfirmaet Tveter og Kløvfjell AS
When starting a business in Norway there are many considerations to take into account. Firstly, there should be a market for the services or goods you want to offer. Both the size of the customer group and the competition in the market are of great importance. If one wants to start a business in a small town it is particularly important to familiarize yourself with already existing businesses that might compete in the same market.
Furthermore, there can be many expenses in connection with the start-up of a business, such as renting a workspace or purchasing necessary equipment. Therefore, a loan will often be raised to finance the company during the start-up phase. When applying for a loan it is important to have a solid business plan including a realistic budget. This is also important for convincing any business partners. The business plan should also include a well-developed business idea. With a convincing idea, it could be possible to get investors already from the beginning.
Some companies might want to protect trademarks, the company name or technical inventions against competitors exploiting them. It may then be wise to apply for trademark registrations. When choosing a company name, one should also check the names of other, similar companies. One should also obtain a domain name for the company website. For technical inventions one might want to apply for a patent. It is also important to familiarize oneself with the General Data Protection Regulation (GDPR).
This article will in the following address some important options and legislation that applies to everyone wanting to start up a business in Norway. The article will take a closer look at different forms of incorporation, tax- and value added tax legislation, the obligation to register for EU/EEA citizens, and the Norwegian Working Environment Act (Arbeidsmiljøloven).
1. Choosing form of incorporation
I Norway, there are several different forms of incorporation one can choose from when starting up a business. The most common forms for incorporation are a sole proprietorship (ENK), private limited companies (AS), general partnerships (ANS/DA), Norwegian branch of a foreign company (NUF). In addition, there are co-operatives (SA) and foundations. Which form of corporation you choose is of great importance in relation to liability, risk, tax, rights and duties.
Below is a brief description of the various forms of incorporation and advantages and disadvantages of each of these.
1.1 Sole proprietorship
If one establishes a sole proprietorship, you will be personally liable for your proprietorship’s finances and obligations. This as unlimited liability. A sole proprietorship is often the simplest way to set up a business, and the owner is a natural person. The owner of the business cannot be employed in the company, but it is possible to have employees.
If you are considering starting up a business with a high financial risk, you should not choose sole proprietorship, since the owner will become liable to settle the claims if the company is unable to settle its debts. In these cases, its recommended to choose another organizational form with limited personal liability, e.g. a private limited company.
One condition for registering a sole proprietorship is that you carry out “commercial activity”. For an activity to be considered as a commercial activity, it must be of a certain duration and have a certain extent. I addition, the business must be carried out on your own account and at your own risk. Over time, it must be likely that the business generates a profit. It is
the Norwegian Tax Administration (Skatteetaten) that approves whether the business is carrying out commercial activity. Please note that in some industries, you must obtain a permit to run your business, e.g. cleaning services.
If the owner is the only one working in the company, you do not need to pay employers National Insurance contributions (arbeidsgiveravgift). The owner will not receive the usual salary as employees normally do. Instead, one can make use of the company profits, and withdraw as much funds for personal use as you see fit. These funds are taxable income for you.
If the owner wants to hire employees, one will have to pay a salary and employers National Insurance contributions. If the employee is one’s spouse, it will not be considered to be an employee, but he/she will instead receive a share of the profits.
In case of illness, one does not receive sick-pay for the first 16 days, contrary to regular employees. As an owner, one is entitled to sick-pay from the 17th day, and only with a 65 % coverage. Regular employees receive 100 % coverage from the first day. In the event of unemployment, the owner will not be entitled to receive unemployment benefits (dagpenger) from NAV. One also needs to be aware that you earn a pension based on your business income. Saving for your retirement is therefore important.
A sole proprietorship must pay advance tax four times a year. The tax rate will usually be somewhere between 33,4 -49,6 %. The owner must calculate how much profit one expects the business to generate. It is the Norwegian Tax Administration that calculates how much tax is to be paid based on the expected profit. One needs to submit the tax return for self-employed persons. If the company has a vatable turnover of more than NOK 50 000, – over a 12-month period, the company needs to register in the Value added tax Register (Merverdiavgiftsregisteret). VAT is a sales tax on goods and services.
A sole proprietorship normally has a bookkeeping obligation. Bookkeeping means that one needs to retain documentation of the company´s income and expenses and arrange them in a system. Legislation concerning bookkeeping can be found in the Bookkeeping Act (bokføringsloven) and the Bookkeeping Regulation (bokføringsforskriften). If the documentation does not amount to more than 600 vouchers a year, and the company´s turnover is less than NOK 50 000, -, you can defer your bookkeeping until you have to submit the tax return and income statement on an anual basis. However, it is wise to do this on a regular basis. Companies registered in the Value added tax Register must be up to date with the bookkeeping six times a year when the VAT-report is to be submitted.
1.2 private limited companies (AS)
In order to set up a private limited company you must have a share capital of at least NOK 30 000, -. The share capital will act as collateral for the company’s creditors. The risk associated with a private limited company is considered less than if you choose a sole proprietorship. This is due to the limited liability, which is limited to the share capital you have invested in the business. A private limited company is a separate legal person.
The supreme authority of the limited company is the general assembly. When a meeting is held, the company´s shareholders have the right to attend and vote. The general meeting shall elect a board of directors to the company, which must consist of at least one person. It is the board that is responsible for the management and running the company. At least half of the board members must reside in Norway or another EEA country. There must be a general assembly once a year.
The regulations for private limited companies are found in The Companies Act (aksjeloven). The legislation contains detailed regulations concerning running and managing the company, liability for compensation, the general assembly and distribution of profits and so on.
If you want investors to invest in the company, a private limited company is a smart solution. The shares can easily be traded, and the organizational structure gives the owners flexibility.
Unlike a sole proprietorship company, the owner of the business can be an employee in the company. This means that you have equal rights as other employees. If you are registered as an owner and employed, you will receive sick-pay with a 100 % coverage from the first day. One can also work for the company without being an employee. In this case, the payments will take place in the form of dividends. Please note that you will not accrue social security rights on the dividends that are paid, including sick-pay.
The profits generated by a limited company are taxed at 22 % (in 2019). The tax for 2019 is to be paid in two installments the following year. If dividends are paid to shareholders, the tax rate is at 31.68 %. If a company holds shares in another company, the dividend is virtually tax-free. If the company sells goods and services, and has a turnover of more than NOK 50 000, – within a 12-month period, the company must register in the Value added tax Register.
A private limited company has an accounting obligation. The company must submit annual accounts to the Register of Company Accounts (regnskapsregisteret) each year. It is important to retain documentation of the company´s income and expenses, as the company also normally has a bookkeeping obligation.
1.3 Norwegian branch of a foreign company (NUF)
If you have a company abroad, and want to do business in Norway, you must obtain a Norwegian organization number. This applies regardless of whether it is a permanent solution or an individual assignment. In order to obtain a Norwegian organization number, one must establish a branch in Norway or a separate Norwegian company. Foreign companies engaged in business activities in Norway are obliged to register with the Norwegian Register of Business Enterprises (Foretaksregisteret). It is the foreign company which is responsible for the activities of the Norwegian branch, and the branch must comply to Norwegian rules and legislation. The rules are essentially the same as for limited liability companies, but no equity is required to establish a NUF.
There are no requirements considering the type of foreign companies that can be registered in Norway. This means that both companies with limited liability and companies without limited liability can be registered. You may want to familiarize yourself with the Business Register Act (foretaksregistreringsloven) to find out how to register. Registration is done via Coordinated Register Notification (Samordnet registermelding).
There must be a designates contact person in the Norwegian branch. There is a requirement that this person has a Norwegian national ID number or a D number, but it is not required that the contact person resides in Norway. One can submit an application for a D-number with the Coordinated register notification registration form to the Brønnøysund Register Center (Brønnøysundregistrene). If several people are to have a formal role in the Norwegian, everyone must apply for a D-number. This is also done in connection with the registration of the company.
If the company only intends to do one assignment with limited duration, it can in many cases be more practical to establish a sole proprietorship.
The Norwegian branch can establish a board of directors, that will be responsible for the management of the business in Norway. The board members must have a Norwegian national ID number or a D-number. The board can choose to hire a general manager who is responsible for the day-to-day management of the branch.
All employees working for the company in Norway must be registered here. The employees have the same social rights as other employees in Norway. This means that you can claim unemployment benefit from NAV in case of unemployment, sick-pay in case of illness, and pension rights.
The construction industry requires that all employees have an HSE card (HMS-kort). The HSE card shows who you are working for.
NUF companies must comply with the rules for value added tax. This means that if the company has a vatable turnover of more than 50 000, – over a 12-month period, the company needs to register in the Value added tax Register on the Norwegian Tax Administration´s website. The registration is necessary regardless of whether the company intends activities over a longer or shorter period. For enterprises from Poland, it is not necessary to register a VAT-representative in Norway.
When it comes to tax, a specific assessment must be made for each company undertaking whether they are liable to tax in Norway. If the entire business is managed and operated in Norway, one will normally have tax affiliation to Norway. If the board and management of the company take place abroad and the company is domiciled there, the Norwegian department will only be liable to tax in Norway for the part of the business that is run through a permanent establishment in Norway. The amount of tax to be paid depends on the type of organization the foreign company has. If the foreign company has limited liability (similar to a private limited company), tax must be calculated at the rate of 22 % of the profit in Norway.
In order to calculate the tax, the NUF must submit the form “RF-1097 Søknad om endring av eller krav om forskuddsskatt – upersonlig skatteyter»” (Application for new or changed claim advance tax – non-personal taxpayer” via Altinn.
A NUF has an accounting obligation. The company must submit annual accounts to the Register of Company Accounts each year if the company is obliged to pay tax in Norway. If the branch is not liable to tax in Norway, it is possible to apply for exemption from the submission of annual accounts. If the Norwegian branch has a turnover of more than NOK 5 million a year, the branch is also subject to the audit obligation.
Previously, it was very convenient to choose NUF as an organizational structure, because one got the same conditions as a private limited company, while creating a NUF was a much simpler process. As mentioned, there is also no requirement for equity/share capital to create a NUF.
In recent years, the rules on starting up a private limited company have been simplified, meaning that the process of creating AS has become easier. Therefore, the main difference between a NUF and an AS is the requirement for share capital in a private limited company. A practical important disadvantage of the NUF is, however, that the company structure has got a worse reputation. When equity/share capital is not required, it is easy for rogue players to establish such companies. This makes it more difficult to get financial help when starting up the business, and suppliers can be more skeptical about entering into cooperation with a NUF.
1.4 general partnerships (ANS/DA)
If one wants to stablish a general partnership, you need to be at least two people. There is no requirement that one has equity when starting the company. The owner is personally liable for the company’s obligations, meaning that if the partnership is unable to settle its debts, the partners will then become liable to settle the claims. There are two different forms of general partnership:
- A general partnership with shared liability (DA)
The partners have unlimited and personal liability for the entire debt of the partnership. However, each participant can only be charged for their responsibilities. It is the partnership agreement that regulates how much responsibility each of the participants has. Participants entering a general partnership with shared liability will also be responsible for obligations that were established before the partner entered the partnership. It is important to note that a partner is liable for accrued debts after the partner has left the company, unless the creditor has exempted the partner from liability.
- A general partnership with joint and several liability (ANS)
In an ANS all the partners have unlimited and personal liability for the entire debt. Joint and several liability means that creditors can choose to claim the entire debt from one of the partners. The partners must later settle the debts amongst themselves. One possible risk for the paying partner is that the other partners are unable to repay their share.
It is the Partnerships Act (selskapsloven) that regulate general partnerships. The legislation includes rules regarding the partners´ responsibility towards creditors, the company’s liability for compensation and the withdrawal and dissolution of the company.
In the same way as the general assemblies is in private limited companies, the supreme authority of a general partnership is the partners’ meeting. It is not required by law to have a general manager or board in general partnerships, but the partners´ meeting can decide that one should have one or both.
In contrary to private limited companies, the partners cannot be employed by the company. Therefore, they do not receive a salary, but can receive work remuneration for the work they do for the company. Profits can also be paid to the partners. The partnership can employ people who are not a partner. Employees receive a salary, and the company must pay employer’s National Insurance contributions.
One does not accrue social security rights through what one takes out as dividends. Partners are considered self-employed and will therefore not be entitled to sickness benefits during the first 16 days. From the 17th day, they receive 75 % coverage of the sickness benefit basis. The employees, on the other hand, receive 100 % coverage from the first day of sickness. Regarding social security rights, it can therefore be safer to be a shareholder in a private limited company than a partner in a general partnership, because one can also be employed by the private limited company.
It is not the company, but the partners themselves, who are responsible for tax. The tax rate is between 33.4 % and 49.6 % of the work remuneration. The tax rate on the company’s profit is 22 %, as is the distribution of profits to the participants. The dividends are deducted in the calculation of the company’s profit so that it is not taxed twice. The tax rate is lower on the distribution of profits in general partnerships compared to payments of dividends in private limited companies. For that reason, general partnerships can be more profitable for the partners, even if the risk is greater. If the company has a vatable turnover of more than NOK 50 000, – over a 12-month period, the company needs to register in the Value added tax Register
General partnerships normally have a bookkeeping obligation. They also have an accounting obligation when certain criteria are met. General partnerships will normally have an accounting obligation if the annual sales revenues exceed NOK 5 million, or if the company has more than five full-time employees or more than five partners.
2. A duty to register for EU/EEA nationals
According to the EEA agreement all EU/EEA citizens have the right to live and work in Norway. If one intends to stay for more than three months, you must register. Registration is done with the Service center for foreign workers (SUA) or with the police, depending on where in the country one intends to live and work. It is necessary to document that one has work if registering as an employee. Self-employed (first and foremost sole proprietorships) must also provide documentation of their activities when they register.
If one has started up a business in Norway, one also has certain duties when hiring EU / EEA citizens. If the employee has not yet registered, one must give him / her an employment certificate (ansettelsesbevis) which must be presented at registration. An employment contract that contains the same as an employment certificate also applies. The employee must meet in person to register. Workers who have already received a registration certificate can start working in the company right away.
3. A brief look at the Norwegian Labor Law
When hiring employees in Norway, the company must comply with the Norwegian Working Environment Act. The law contains rules regarding dismissals, employment, working hours, whistleblowing and about requirements for safeguarding health, environment and safety in the workplace. The rules ensure certain rights for employees, such as protection against unfair dismissals or discrimination.
Normally, it is not possible to enter into work agreements that give the employee less favorable rights than what follows from the law. The Working Environment Act also contains rules on penalties in cases where the employer or owner of the company violates the law. For companies that operate both in Norway and abroad, it is important to be aware of section 14-7 of the Act. If an employee is to work outside of Norway for more than one month, a separate employment contract shall be entered in accordance with the rules in this section.
In addition to the legislation, there are also collective agreements for many different industries. Collective agreements are agreements entered between trade unions and employers or employers’ associations. General application of collective agreements
can be made public by the Tariff Board. That is, if the Tariff Board decides that a collective agreement shall apply to all employees in the industry the agreement applies. In order to prevent foreign workers from getting less favorable wages and working conditions compares to Norwegian employees, the collective agreements have become generally applicable in some industries, such as the construction industry and the cleaning industry. The agreements ensure, among other things, a minimum wage, overtime supplement and that the employer must provide the workers with necessary work clothes.
The Holiday Act (ferieloven) is another important law, which provides rules concerning holiday and holiday pay to employees.
If you need legal assistance in connection with the establishment of a company, please contact the lawyers at Advokatfirmaet Tveter and Kløvfjell AS, who have expertise and experience within company law. Please send a non-binding e-mail to firstname.lastname@example.org call us on +47 22 17 74 00.