The tax exemption method
The tax exemption method causes private limited companies’ share dividends and share gains from investments in other private limited companies to be exempt from tax. Losses on the sale of shares are not deductible.
Does this apply to me?
If your business has invested in other companies.
The tax exemption method applies to private limited companies (AS) and public limited companies (ASA).
- businesses assessed as partnerships
- general partnerships (ANS)
- general partnerships with shared liability (DA)
- limited partnerships (KS) and others
- securities funds
- intermunicipal companies
- savings banks
- other self-owned financial institutions
- mutual insurance companies
- cooperative enterprises, associations, and foundations
The tax exemption method
The tax exemption method means that private limited companies are not taxed on their gains on shares, and only 3 percent of dividends received is taxable income.
The tax exemption method also means that private limited companies are not taxed on gains on the sale of ownership interests in businesses assessed as partnerships (ANS, DA, KS), and only 3 percent of dividends received from such companies is taxable income.
The tax exemption method also means that losses on the sale of shares or ownership interests in businesses assessed as partnerships are not deductible.
The tax exemption method applies to the following types of investments:
- dividends on shares and gains or losses on the sale of shares and equity certificates
- gains or losses on the sale of ownership interests in businesses assessed as partnerships
- distributions from businesses assessed as partnerships
If the shares are sold for more than the purchase price, the gain will be tax free.
If the shares are sold at a loss, the loss is not deductible.
The private limited liability company (the Norwegian company) must invest in companies that actually are resident in an EEA country. The company’s actual management depends on where:
- management at board level is conducted
- general management is conducted
It can also be of significance where:
- the general meeting takes place
- the offices of the company are located
- the business activity of the company is conducted
If you wonder where the company is resident, you can check the company’s webpage or contact them.
Example
If the shares were bought for NOK 1,000,000 and sold for NOK 1,200,000, the gain of NOK 200,000 will be tax free.
If your company receives a dividend of NOK 1,000,000 from shares within the tax exemption method, this is not completely tax free. You must enter 3 percent of the received dividends as income: NOK 30,000 x 0.22 = NOK 6,600 in tax.
This means that the dividend in reality is taxed at 0.66 percent.(1,000,000 x 0.0066 = NOK 6,600).
- the share part of the shareholder’s gains on the redemption or sale of shares in a securities fund
- gains or losses on the sale of ownership interests in an intermunicipal company
- gains or losses on the sale or withdrawal of a financial instrument with an ownership interest as mentioned here as the underlying asset.
Examples
- options for buying or selling qualifying ownership shares, such as shares
- rights of issuance (“warrants”)
- future contracts (“futures” or “forwards”) for the future transference of ownership shares
- equity swaps
The tax exemption method applies to derivatives with shares as underlying assets, such as share options and subscription rights for Norwegian and EEA shares.
Share index certificates are covered by the tax exemption method if the index includes shares and other assets that are qualified under the tax exemption method. It’s a requirement that a predominance of the market value of the index’ underlying shares, etc. must be in companies resident in the EEA. This applies if a minimum of 90 percent of the index’s total market value is linked to such companies.
Investments in securities funds are covered by the tax exemption method. The tax exemption method applies to the part of the distribution that must be considered share dividend. The part of the distribution is to be taxed as interest income is not covered by the tax exemption method and is taxed as capital income.
Whether distribution from securities funds is to be taxed as interest income or share dividend depends on the share portion of the fund at the beginning of the year:
- If the share portion of the fund is more than 80 percent at the beginning of the year, all distribution from the fund must be taxed as share dividend.
- If the share portion of the fund is less than 20 percent at the beginning of the year, all distribution from the fund must be taxed as interest income.
- If the share portion of the fund lies between 20 percent and 80 percent at the beginning of the income year, the distribution is split in one part that is taxed as dividend and one part that is taxed as interest income.
The tax exemption method does not apply to:
- Shares in companies that are resident in low-tax jurisdictions outside the EEA. Low-tax jurisdictions are countries where the effective tax level is less than two-thirds of the respective Norwegian one.
- Income from shares in companies in low-tax jurisdictions in the EEA when they have not been actually established and are not operating an actual business activity in an EEA country.
- Gains on shares in companies outside the EEA when the ownership interest has been below 10 percent during a two-year period.
- Losses on shares in companies outside the EEA when the ownership interest has been continuously below 10 percent during a two-year period.
- Dividend on ownership interest in companies if the company receives deductions for the distribution.
Special information regarding Brexit
The United Kingdom is no longer an EEA country, and the rules on dividends and gains/losses outside the EEA as mentioned above will apply: Brexit – tax and duty consequences
Some examples of investments that are not covered by the tax exemption method:
- Companies that are listed on the stock exchange in countries outside Europe, where your company owns no more than 10 percent. Examples of this could include Samsung, Microsoft, or Ford.
- Companies in countries outside of Europe, which do not have company tax.
- All kinds of illegal dividends (for example, when a company pays out more than legally allowed).
- Investments in certain other types of securities other than shares, for example, financial products such as convertible bonds, bank savings with share returns, and share index bonds.
In these cases, the company must pay ordinary income tax on the income but is entitled to deduct any losses from sales.
Rates and key figures
Even if share dividends and distributions from businesses assessed as partnerships are covered by the tax exemption method, 3 percent of the dividend or distribution must still be recognised as income from these companies. This amounts to 0.66 percent tax.
Outside the tax exemption method, the company must pay ordinary income tax on this income but is entitled to deduct any losses from sales.
Supporting documents
You do not need to send us any supporting documents, but you must be able to provide them if we ask for them.