After the recent tax reform imposed since 2004, Norway has become a favourable domicile for institutional investors investing in shares (and other objects covered by the exemption method). According to the new tax legislation, dividends and capital gains on shares are exempt from taxation for limited liability companies and similar entities (companies). So dividends and capital gains on shares are only taxable when received or gained by individuals.
The exemption method entails that:
- Norwegian companies are exempt from tax on dividends received from companies resident in Norway or in the EU.
- Norwegian companies are exempt from tax on capital gains on shares in companies resident in Norway or in the EU. Correspondingly, losses on such shares are not deductible.
- There is no withholding tax on dividends distributed from Norwegian companies to companies resident in the EU.
- Special rules apply for dividends and capital gains on shares in companies resident outside the EU.
- Special rules also apply for dividends distributed from Norwegian companies to shareholders resident outside the EU.
For individuals resident in Norway, dividends and capital gains on shares are taxable at a current rate of 28%, subject to deduction for a calculated risk-free return. The risk-free return is calculated on the basis of the shareholder's cost price on the share. Losses are deductible in the taxpayer's general income.
Dividends distributed from a Norwegian limited liability company to individuals not resident in Norway are generally subject to Norwegian withholding tax. The withholding tax on dividends is 25%, but it is normally reduced to 15% (or less) if a tax treaty applies.