Real estate has long been an attractive investment in Norway due to historically stable price growth and favorable tax rules. However, a key question for investors is whether they should own property privately or through a limited company (AS). The choice between these two forms of ownership depends on several factors, including tax conditions, financing, administration, and investment horizon.
Owning property in Norway
The main rule is that the letting of property should be organized privately, especially when a limited number of rental units are involved. As a rule, a unit is defined as anything that can serve as an independent residential unit. Private individuals can therefore initially rent out up to four units without it being considered a business activity. The rental income is then taxed as capital income at a tax rate of 22%.
If you exceed four rental units, the business will normally be considered a business activity. This means that the income may be subject to business tax, and it will be more appropriate to organize the ownership through an AS. This can be done when purchasing unit number five.
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Be aware that the limit of five rental units is only a starting point and that the authorities are entitled to make a discretionary assessment of the scope of the letting regardless of the number of units let. The core of the assessment is whether the scope of the letting activity indicates that it is to be regarded as a business. Short-term letting in the form of Airbnb is an example of how as few as two letting units are regarded as a business and taxed accordingly.
Also read: Property Ownership: Shares vs. Direct Purchase – Which is Better?
Advantages of owning private property in Norway
- Lower tax on rental income (22% capital income)
- Possibility of more favorable interest rate terms on home loans compared to business loans
- Easier administration without accounting and reporting requirements
- Flexibility if you only have a few rental properties
Disadvantages of owning private property in Norway
- Limit on the number of rental units (four) before it is considered a business activity
- Rental income cannot be reinvested without taxation
- Limited opportunities for tax planning and sheltering of profits
Owning property through AS
If you want to invest in several rental units, or plan to reinvest your income, it may be advantageous to organize ownership through a limited company. An AS pays 22% corporation tax on its profits but also allows for reinvestment without immediate taxation. However, if you want to withdraw money privately (for consumption, etc.), this triggers dividend tax of 37.8%. This is in addition to the 22% already paid.
A popular structure is to organize the investments through a holding company. This means that a holding company owns a property company that in turn owns the properties themselves. Profits from other companies can then be transferred tax-free through the exemption method to the property company.
Advantages of owning property through AS
- Possibility to own more than four rental units
- Possibility to reinvest profits without taxation
- Better protection against personal liability (limited liability in AS)
- Tax-free transfer of profits (group contributions/dividends) between companies in a structure
Also read: How Norwegian wealth tax is affected by property ownership
Disadvantages of owning property through AS
- Higher administration costs (accounting, auditing, and reporting requirements)
- Dividends to private individuals trigger dividend tax (37.8 per cent)
- Corporate loans may have less favorable interest rate terms than mortgages for private individuals
Also read: Norwegian property tax for residence and commercial properties
Summary – What property ownership is right for you
If you only plan to own up to 4 rental properties, private ownership is the most favorable option, as profits and gains are only taxed at 22%.
If you want to invest in more rental properties or have profits from other companies that you want to reinvest in property, practice suggests that your property management should be regarded as a business.
Also remember withdrawal tax! If you own property through your own property company, do not simply withdraw it to yourself privately later, as this can trigger significant withdrawal tax.
The above review has been kept simple, without looking at all the conditions and differences between the two ownership structures. This includes highlighting any interest rates that may be more favorable for private individuals than limited companies, but that the degree of borrowing may be more flexible for limited companies than private individuals. There are also administrative costs associated with having a limited liability company, including accounting, and bookkeeping obligations, etc. that should be considered in the overall assessment. Our lawyers are ready to assess your specific case and assist in the assessment phase.
INVESTING IN NORWEGIAN PROPERTY?
Let our property lawyers help you. Contact us today.