Tax Residency in Norway
1. Criteria for Determining Tax Residency in Norway
According to the Norwegian Tax Act, an individual is considered a tax resident if they meet any of the following criteria:
- Physical Presence: Residing in Norway for more than 183 days in a calendar year.
- Center of Vital Interests: Having the closest personal and economic ties to Norway, as evidenced by factors such as family, employment, and social connections.
- Domicile: Having a permanent home in Norway with the intention of residing there indefinitely.
Entities, on the other hand, are considered tax residents if they are incorporated or have their management and control in Norway.
2. Impact of International Tax Treaties on Tax Residency
Norway has entered into numerous tax treaties with other countries to prevent double taxation and facilitate cross-border economic activities. These treaties may modify or provide exceptions to the standard criteria for tax residency.
Key Provisions in Tax Treaties
- Tie-Breaker Rules: Treaties often include tie-breaker rules to determine tax residency in cases where an individual or entity is considered a resident of both Norway and the treaty country. These rules typically consider factors such as permanent home, center of vital interests, and habitual abode.
- Special Provisions for Cross-Border Workers: Some treaties contain specific provisions for cross-border workers who reside in one country but work in another. These provisions may exempt the worker from taxation in the country of residence on income earned in the country of employment.
- Reduced Withholding Tax Rates: Treaties may also provide for reduced withholding tax rates on dividends, interest, and royalties paid to non-residents. This is intended to encourage cross-border investment and reduce the tax burden on foreign investors.
Rationale and Objectives of Treaty Provisions
The treaty-specific modifications and exceptions aim to:
- Prevent Double Taxation: By establishing clear rules for determining tax residency, treaties help prevent individuals and entities from being taxed on the same income in multiple jurisdictions.
- Promote Cross-Border Economic Activities: Reduced withholding tax rates and other treaty provisions encourage investment and trade between Norway and treaty countries.
- Enhance Tax Compliance: Clear and consistent rules for tax residency facilitate tax compliance and reduce the risk of tax avoidance.
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