The following is a general overview of the main points that those running a business need to be aware of, along with links to additional material. It is worth drawing attention to the fact that at the end of most chapters on the website of the National Tax Administration, there is special supplementary material with links to relevant legal and regulatory provisions, forms and other related topics.
The discussion is primarily focused on individuals in their own business, although certainly the same rules usually apply to business in the form of companies. Much broader requirements and formal rules apply to business operations in the form of a company, and the establishment of such an operation costs more.
The Norwegian Tax Administration regularly offers courses specifically aimed at those who are starting a business. Practical issues related to tax returns in operations are covered. These include the employer's obligations in withholding, income registration and issuing invoices, operating expenses and tax returns. In addition, VAT is discussed: output tax and input tax, tax liability, exemptions, tax value and more.
Contractor
A self-employed person is a person who engages in independent activities on a regular basis to a certain extent and for the purpose of making a profit. If he undertakes, for a fee, to work or take care of a specific work for another party, buys a project, and guarantees the success of the work, he is considered a contractor. Contractors can be both companies and individuals. An employer (contractor) who employs people (employees/salaried employees) is also called an employer and has certain obligations as such, as detailed below.
There is not always a clear line between who is considered an employee and who is a contractor. In the case of a person who only works for one or a few, it depends on the nature of the work relationship with the person they work for, whether they are considered a contractor or an employee/salaried employee. The Tax Commissioner can decide on that in tax terms. In this way, the Norwegian Tax Administration can, for example, reject an application for a VAT number with reference to the fact that the applicant is considered an employee despite an agreement on contractor payments. He can also evaluate the employment relationship afterwards and transfer the tax return from the operator's return to the employee's return with the corresponding redetermination of taxes as well as penalties.
The difference between a contractor and an employee/salaried employee
Contractors undertake to carry out a certain work for a predetermined price for the work purchase. They do work at their own risk. Employees/salaried employees are employed by an employer where they work under his control and under his responsibility in return for payment of wages.
The rights, duties and responsibilities of contractors and employees are different. Here the discussion is limited to duties towards the tax authorities.
Let's take a look at how it looks when you hire someone to work for another person, i.e. is an employee/salaried employee.
Taxes and fees paid by the employee (through withholding returns handled by the employer):
Income tax.
Local government.
Contribution to a pension fund.
Fees paid by the employer for employees (salary-related fees):
Insurance fee.
Counter contribution to a pension fund.
(Financial tax – as the case may be)
Employer's responsibility:
To withhold and report the aforementioned taxes and fees in the withholding tax returns payable to the employee.
Paying for salary-related fees.
Examples of other things the employer is responsible for:
To move accounting.
Ensuring that income recording is adequate – issuing sales invoices or using a cash register.
To settle the business and return the results with a tax return and supporting documents.
Returning salary and contractor receipts at the end of the operating year/withholding year if wages have been paid or contractor payments have been made.
Paying income tax on operating profit.
To collect and pay VAT if the activity is subject to VAT.
To collect and submit accommodation tax if the activity is subject to accommodation tax.
Employers must register with the Norwegian Tax Administration:
Payroll register: Due to the withholding of the employee's income together with the social security fee (and depending on the circumstances the administrative tax) and the return of payslips and salary returns.
VAT register: If an activity is subject to VAT.
Accommodation tax registration: If an activity is subject to accommodation tax.
A self-employed person (contractor) must calculate his salary for the work he performs in the business. Special rules apply to the minimum salary that he must calculate. The rules are published every year where the amounts are updated. Since he is to calculate his salary, he must register in the payroll register. It depends on the circumstances whether he should register in other registers with the National Tax Administration.
A person in independent activity (contractor) is, to a certain extent, in the role of both an employer and an employee in tax terms. It applies regardless of whether he works alone in the operation or not. In this way, he must pay taxes on his own salary, in addition to which he must pay salary-related fees. Other things that employers are responsible for according to the summary above are also his responsibility. If others work for the contractor's operations, he must also pay the aforementioned taxes and fees for their wages.
The aforementioned rules on salary in own operations also apply to a person who works in the business operations of an independent company (private limited company, partnership, etc.) where he is the controlling party due to ownership or management participation.
Exactly which requirements are made to the contractor in each case depends on the scope and nature of the activity. For example, whether it is an activity subject to VAT and whether taxes and fees due to calculated wages must be paid in cash or at the end of the income year.
Personal taxes in sole proprietorships
Contractors can be both companies (legal entities) and individuals. When people are contractors, it is either said that they are in business under their own social security number, in individual business, in their own business or that they are in independent activity. People's income from independent activities, i.e. when the business is not in a company, personal income is taxed at the general tax rate. Therefore, it is the same tax and local government percentage as for wages.
Calculated compensation
Those who work in their own business, incl. contractors, should calculate their remuneration (salary) for that work. It is important to understand which rules apply and how implementation is carried out.
Operating expenses
When calculating the tax base, operating expenses may be deducted from operating income. Operating expenses include direct expenses that are to be incurred during the year to generate income, secure it and maintain it. It also applies to what is spent on insurance and maintenance of assets that bear dividends in the business.
General household and family expenses and other personal needs are not deductible. Incidental use of personal belongings generally does not create an authorization for the transfer of charges in operation. For example, it is generally not accepted to charge the cost of buying clothes, since people usually have full personal use of them. However, there are exceptions, e.g. due to the necessary safety and protective clothing.
In numerous rulings of the Supreme Tax Committee, various issues regarding operating costs are addressed, i.e. which costs may be charged and which costs may not be charged.
From the committee's rulings, it is possible to read which points of view are generally put forward as a basis for assessing whether the charging of costs is permitted.
Before starting the operation, you must notify the Norwegian Tax Administration
Before starting operations, the operation must be reported to the Norwegian Tax Administration, regardless of whether it is run in a company or on an individual's social security number (individual operation). Changes to the operation must also be reported as appropriate, as well as the end of operations.
Those who are starting a business must, as the case may be, register in the following registers with the Norwegian Tax Administration no later than 8 days before the start of business:
Payroll register: Operators are obliged to withhold and report withholding tax from the income of employees and from calculated wages (calculated remuneration) together with insurance premium and, depending on the circumstances, administrative tax.
VAT register: Only those who are engaged in activities subject to VAT should report for registration.
Other files:
Accommodation tax register: Those who sell accommodation units must report their activity before it starts. An overnight unit is the rental of an accommodation facility for up to one day, including overnight. Lodging tax should not be levied on the sale of accommodation that is not subject to VAT.
Capital income tax register: Those who are required to withhold and return tax withholding on interest income must send a notification to the Norwegian Tax Administration. Companies with limited liability of the members are all required to withhold and return dividends and therefore do not need to register separately for dividend payments. The Norwegian Tax Administration registers companies upon their establishment.
It should be noted that those who run a business and calculate their own wages or pay wages to employees/employees must themselves report the activity to the appropriate pension fund and handle payments.
Manage the finances of the business
Accounting shall be kept regularly and in accordance with the provisions of the Act on Accounting and Value Added Tax. All information on income and expenses shall be kept. Income shall be recorded as soon as it is generated. A sales invoice shall be issued for each delivery of goods or services, even if payment has not been received, or the sale shall be recorded in a cash register as soon as it is made. Complete and satisfactory accounting shall form the basis for tax returns.
After the end of the operating year, companies must prepare and submit annual accounts based on the accounting. Individuals must submit annual accounts along with a separate operating return with their tax return if the turnover for the operating year exceeds ISK 20,000,000.
Filing and paying taxes
During the current operating year, those engaged in business operations must file various taxes and fees. Examples include value-added tax, withholding tax (local tax and income tax) and withholding social security contributions on wages and calculated wages (calculated remuneration) and withholding capital income tax on dividend payments. What must be filed and how often varies depending on the type and scope of the activity.
After the end of the operating year, certain data must be submitted for tax purposes. The operation is settled by submitting a separate operating report with a personal tax return for those who are self-employed and a tax return for legal entities if the operation is run as a company.
X-us Business Solutions recommends that you seek advice before starting the operation, as making mistakes at the beginning of the operation can be expensive.
Good luck.
