When a foreign company starts doing business in Norway, there are several legal obligations to understand and follow. In this blog, we’ll explain what constitutes a permanent establishment in Norway, outline the related tax obligations, and highlight three potential grey areas you should be aware of before beginning operations in the country.
In many cases, a foreign company’s activities in Norway qualify as a permanent establishment. This can occur if the company:
Generally, Norway can only tax the business profits of a foreign company that has a permanent establishment in the country. For this reason, the concept of a permanent establishment is frequently discussed among Norwegian tax advisors.
A foreign company with a permanent establishment in Norway is covered by Norway’s tax treaties with roughly 90 countries. Under these treaties, the company must pay Norwegian corporate tax — 22% in 2022 — on the profits generated by the permanent establishment.
Also read: Get the basics on corporate tax in Norway
It may not always be obvious whether a foreign company’s Norwegian operations qualify as a permanent establishment. Based on experience, we see three grey areas that often cause uncertainty, especially regarding the “twelve-month test” used for construction and installation projects.
Questions often arise about whether preparatory activities—such as sales meetings, business discussions, or on-site inspections—count toward the twelve-month period.
According to OECD commentary: “A site exists from the date on which the contractor begins his work, including any preparatory work, in the country where the construction is established, e.g., if he installs a planning office for the construction.”
From our point of view: Short business meetings and formalities, like attending an ID check at the tax office, generally do not start the clock.
Activities that approach project management or occur immediately before construction may be included.
It is advisable to document all preparatory activities, showing their nature and duration, to provide clarity if questioned by Norwegian tax authorities.
Unexpected interruptions are common in construction projects in Norway, often due to harsh weather.
The OECD commentary notes: “Seasonal or other temporary interruptions should be included in determining the life of a site. Seasonal interruptions include interruptions due to bad weather.”
For example: A construction project is planned to last eight months starting May 2022 in Northern Norway.
Work stops in September 2022 due to weather and resumes the following May, finishing in July 2023.
Even though the actual work totals eight months, including the interruption pushes the project beyond 12 months, creating a permanent establishment.
In some cases, the interruption may be considered a “permanent abandonment” of the site, especially if the foreign company only performs short, separate operations before returning home. Companies should plan and track interruptions carefully, particularly in areas with harsh weather.
According to OECD guidance: “The site continues to exist until the work is completed or permanently abandoned.”
This includes:
However, time spent away from the site packing gear should not be counted toward the twelve-month test.
Testing or commissioning the installation is included in the twelve-month calculation. Knowing the exact start and end dates of a project is essential for planning and compliance.
Understanding the concept of a permanent establishment and the potential grey areas is crucial before starting a business in Norway. Proper planning and careful documentation help prevent unexpected tax liabilities and ensure smoother operations.
We know what it takes to start a business in Norway, from planning to execution and finally ending the project. If you have any questions. Do not hesitate to contact us.