Is your company planning a project in Norway requiring employee accommodation? Or have you already incurred costs for employee lodging? Your choice of accommodation can significantly impact on your company's VAT deduction rights. Recent legal developments have provided new clarity on deduction rights for accommodation in barracks.
Below, we will highlight key points your company should be aware of when sending employees to stay in barracks accommodation in Norway.
How to meet the formal requirements for VAT deductions
Only registered VAT entities can deduct input VAT on purchases for use in VAT-liable business activities.
The VAT registration requirement applies when the company's turnover and withdrawal of VAT-liable goods and services exceed NOK 50 000 within a 12-month period.
Also read: How to get VAT refund in Norway: 6 key considerations
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Business use vs. private use: The key distinction
Registered VAT entities have the right to deduct input VAT on purchases that are for use in VAT-liable business activities. As a starting point, all purchases qualify for deduction, but there are certain limitations for instance on food, remuneration, passenger vehicles and other items meant for private consumption.
Employee accommodation presents unique challenges in VAT contexts because these services are essentially similar to private consumption. The nature of accommodation services means they are closely related to what is normally considered personal or private use. Accommodation may be deemed residential and private for individual employees rather than part of the company's VAT-liable activities. Purchases with consumption-like characteristics are typically excluded from deduction when they are considered to be closer to individual consumption than to company operations. A purely financial connection with the business, for instance that the purchase can be seen to have a positive effect on turnover, is normally not sufficient to establish that a purchase is for company use.
In cases involving accommodation, a specific assessment of the actual situation must be made. Factors that may influence the assessment include:
- Duration of the stay
- Proximity to workplace
- Necessity of the stay
The type of accommodation chosen also influences assessments, with different evaluations for permanent installations versus movable accommodation.
Also read: 7 FAQ's about VAT for foreign companies operating in Norway
Barracks hotels: Recent legal developments in Norwegian Court
One accommodation alternative that has been particularly under review recently is so-called barracks hotels. The central question concerns their nature: Do they constitute private accommodation or are they purchases for VAT-liable company activities?
In 2024, AS Norske Shell successfully obtained recognition in the Norwegian Court of Appeals for VAT deductions on barracks hotel accommodation for employees during an extensive project with upgrading an onshore facility for receiving and processing gas. The case involved a comprehensive assessment of whether the circumstances were private in nature or constituted purchases for AS Norske Shell's company operations.
The following factors were highlighted:
- The company's ability to choose other accommodation options
- The employees' actual accommodation conditions, including house rules and access to permanent rooms
- Whether the workplace could be considered the employee's permanent workplace
Despite the company being granted the right to deduction, it became apparent following the judgment that the tax authorities considered the decision to apply a strict assessment standard, suggesting that only extraordinary circumstances could justify VAT deductions for barracks accommodation.
Following this judgment, two additional cases involving barracks accommodation have come before the tax appeals board, both of which were granted approval. This development strongly suggests that the threshold for deduction of rights may not be as restrictive as initially indicated.
Recommended actions for your company
VAT treatment of employee accommodation in Norway can be complex, but staying updated on recent developments could make a real financial difference. If you have already completed a project in Norway where the company paid for employee accommodation, it may be advisable to investigate whether the company has potential deduction rights that can be claimed retroactively.
For future Norwegian projects, early clarification of accommodation deductibility can provide significant economic advantages by:
- Obtain the deductions you are entitled to, or
- Ensure that economic expenses are covered in the sales price if there is no right to deduction.
Need help assessing your company’s situation? Our tax specialists can assist with evaluating deduction eligibility and ensuring compliance with Norwegian VAT rules.
CONTACT US ABOUT VAT IN NORWAY
Do you need help navigating the Norwegian VAT rules? Contact us for assistance.
