Foreign workers in Norway are liable to pay tax to Norwegian tax authorities. Doing this correctly can be overwhelming. Luckily, there is a shortened method available. Pay As You Earn (PAYE scheme) is a simplified tax scheme for foreign workers in Norway. Most foreign workers fall under this scheme during their first year in Norway. In this blog, we'll explain how the PAYE scheme works and how you, as an employer, can help your employees do it correctly.
PAYE scheme explained
Your income from employment is taxed at a rate of 25 percent. The rate includes national insurance contributions at 7,9 percent. Your employer deducts the tax directly from your salary and the deducted tax is the final payable tax. The 25 percent deduction is made from your gross earnings. It is not possible to claim any deductions under this scheme. There is no obligation to file a tax return, and no tax settlement will be issued by the tax administration. You will receive a statement from the tax administration confirming tax paid for documentation purpose.
Also read: A brief guide to your Norwegian tax return
Who can choose to join the PAYE scheme?
The scheme is meant for foreign employees who work in Norway for short periods of time and who are not tax residents. It applies to most foreign workers the year they become tax residents. Persons living abroad who receive a director’s fee or similar from a Norwegian company also fall under the PAYE scheme.
You cannot join the PAYE scheme if your annual income exceeds the limit set out in the bracket tax step 3 (equal to NOK 642,950 for the income year 2023 and NOK 670,000 for the income year 2024).
Who can't join the PAYE scheme?
You can not join the PAYE scheme if you have taxable income from:
- The Norwegian continental shelf
- Norwegian (NOR/NIS) ships abroad
- Real property or moveable property in Norway
- The Norwegian State
- Business in Norway
- Benefits from NAV
How to join the Norwegian PAYE tax scheme
All foreigners working in Norway must have a tax deduction card. If you meet the criteria, you will join the scheme automatically when you apply for a tax deduction card.
Married couples can choose different tax regimes. If only one of you qualify for the PAYE scheme you can choose to sort under different schemes, you do not have to choose the same tax rules.
If you change your mind during the tax year and do not want to be taxed under the PAYE scheme but rather prefer the general tax rules, you can opt out of the scheme by changing your tax card at any time during the tax year.
If you have chosen to be taxed under the general tax rules, you cannot re-join the PAYE scheme for the ongoing income year. The following tax year you can re-join the scheme if you meet the criteria.
NEED HELP WITH YOUR NORWEGIAN TAX RETURN?
Contact us today and let us help you.
Taxable income under the scheme
The following types of income are considered taxable under this scheme:
- Gross wages
- Bonus
- Holiday pay
- Any other taxable benefits
- Any travel, meals, per diem, housing covered by the employer
If the total of these income components exceeds the limit for bracket tax step 3 (NOK 670,000 for the 2023 income year), your income will be taxed according to the general tax rules.
If you are unsure of your total income for the year, you can initially use the PAYE system and, if needed, opt out later in the year. Note that if your total income exceeds the limit, all income will be taxed under the general tax rules.
When exempt from paying Norwegian National Insurance contributions
If you have a full or partial exemption from paying Norwegian National Insurance (NI), the PAYE tax rate should be reduced accordingly. You can get a tax deduction card with a reduced rate if you show documentation to the tax office proving you are a member of a foreign insurance scheme. For instance, you can use form A1 issued by the authorities in your home country and approved by the Norwegian NI office, showing that you are a member of an insurance scheme in another EEA state.
Please be aware that employees who are residents of an EU/EEA country do not have to send the A1 form to NAV. Starting from July 2023, the EU/EEA countries exchange information directly with the authorities in the respective countries.
Also read: What is the Norwegian national insurance scheme?
Will you become a tax resident during the income year?
If you become a tax resident during the year, you can remain in the PAYE scheme for the rest of the income year. However, note that the income limit of NOK 670,000 includes worldwide income from employment as well as capital income, such as interest and rental income. If your capital income increases by NOK 10,000, you must be taxed under the general tax rules.
Change from PAYE scheme to general tax rules after the end of the tax year
If it turns out that you would be better off under the general tax rules, you can apply for a refund by submitting a request for amendment. You may claim a refund for up to three years after the income year in which the tax was assessed under the PAYE scheme. If you have already been taxed under the general tax rules, you cannot switch to PAYE.
Get professional help with your Norwegian tax return and PAYE scheme
If you are unsure how to navigate the PAYE scheme and Norwegian tax rules, we recommend seeking professional help. Failure to comply can result in costly fines and penalties.
NEED HELP WITH YOUR NORWEGIAN TAX RETURN?
Contact us today and let our tax advisors help you.
