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17 October 2019

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Norway 2020 Budget Measures Include New VAT Rules for Imported Goods and Amendments to the Interest Deduction Restriction and the R&D Incentive

The Norwegian Parliament is considering the State Budget for 2020, which was presented by the Ministry of Finance on 7 October 2019. Some of the main tax-related aspects of the Budget include the following:

  • The standard corporate and individual income tax rates are maintained at 22% and the progressive individual tax bracket will be adjusted as follows:
    • up to NOK 180,800 - 0%
    • over NOK 180,800 up to 254,500 - 1.9%
    • over NOK 254,500 up to 639,750 - 4.2%
    • over NOK 639,750 up to 999,550 - 13.2%
    • over NOK 999,550 - 16.2%
  • The NOK 350 tax-free limit for imported low-value goods will be replaced with a simplified VAT regime (VOSC) for goods valued up to NOK 3,000 from non-resident B2C suppliers, with non-resident suppliers required to register for VAT if supplies exceed NOK 50,000 in a 12-month period (VOSC will be implemented as an extension to the VOES system for B2C electronic services);
  • The interest expense deduction restriction rules will be amended as follows:
    • the general NOK 25 million de minimis net interest threshold for the Norwegian part of a group is maintained, but a NOK 5 million net interest threshold will be applied at the entity level in relation to borrowing from a related party that is not a group company;
    • eligibility for the equity ratio escape clause will be restricted for surviving entities resulting from a merger during an income year to prevent abusive arrangements that involve the merging of a highly leveraged company into a low leveraged group company;
    • the definition of group companies will be amended to restrict the use of optional consolidation exemptions under financial reporting standards so that group companies do not avoid being subject to the interest deduction restrictions;
  • The SkatteFUNN R&D incentive scheme is amended as follows:
    • a standard 19% tax credit for approved R&D costs will replace the 20% rate for SMEs and 18% rate for large companies;
    • the maximum eligible expenditure for R&D services from approved research institutions will be reduced from NOK 50 million to NOK 25 million;
    • the maximum hourly rate for internal employees will be increased from NOK 600 per hour to NOK 700, and the maximum hourly rate will be extended to employees of related parties when acquiring R&D services from a related party;
    • eligible R&D service costs will be restricted to services from companies in the European Economic Area and countries with which Norway has a tax treaty or information exchange agreement;
    • additional administrative requirements will be introduced, including new documentation requirements in relation to related parties acting as subcontractors of a company applying the incentives and requirements for the related parties to prepare specific accounts for a project.

Subject to approval, the Budget measures will generally apply from 1 January 2020, although the simplified VAT system for low-value goods is to be implemented from 1 April 2020.

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