Tax for sole proprietorships
In the case of sole proprietorships, it is the holder (owner) who is personally liable for the obligations that the enterprise assumes.
These enterprises are not a separate tax entity and as holder, you will be personally liable for paying the enterprise's taxes.
Even if you work for the enterprise, the withdrawal or transfer of money to you will not be considered salary. Employer's National Insurance contributions do not therefore have to be calculated. Payments made to the holder must also not be deducted in the enterprise's accounts in the same way as salary payments to employees and will therefore not affect the taxable profit.
The enterprise's profit before payment to holder - NOK 50,000
Your withdrawal from the enterprise - NOK 30,000
Taxable profit - NOK 50,000
How much tax do I have to pay?
The tax percentage (the marginal tax) is calculated on your total income, both from the enterprise and any other income. For most people, the tax rate will be somewhere between 34.4 - 49.8%. The tax will be somewhat higher for business income than for the corresponding salary income because the tax on business income includes a higher National Insurance rate (the National Insurance rate for salaried employees is 8.2%, while that for business income is 11.4%).
You must pay tax in advance. You will not be sent a tax invoice automatically. You must therefore report any changes in income in order to have your advance tax calculated. You do this by submitting form 'RF-1102 Amend tax deduction card/advance tax'.
When the Norwegian Tax Administration has calculated how much tax you have to pay, you will receive a payment slip for each period.
If you calculate that you made a loss in the first year, you should not submit the form for calculating advance tax. The surplus will be specified in your tax return instead.
Spouses and cohabiting partners
If you are married and your spouse works for the enterprise, payments to your spouse will also not be treated as salary. The spouse will therefore not be treated as a spouse and the payment can also not be deducted in the enterprise's accounts. Instead, the enterprise's surplus/deficit can be distributed between you and your spouse following an overall assessment of your work input and that of your spouse. If you do not distribute the amount, the income will be allocated to the owner of the enterprise.
For cohabiting partners, a different rule applies. Cohabiting partners who work for their partner's sole proprietorships must be employed. They will receive a salary, and the payments can be deducted in the enterprise's accounts. The payments will be subject to employer's National Insurance contributions.
Reporting to the Norwegian Tax Administration
Profits/deficits are reported annually through your ordinary tax return for income and wealth tax and any attachments.
- Smaller enterprises with a turnover of less than NOK 50,001 do not need to submit attachments.
- Enterprises with simple tax affairs can opt to submit the Business Tax Return.
Other enterprises must attach an income statement and form RF-1224 Personal income from sole proprietorship.
If a spouse works for the enterprise, both spouses must submit a tax return for self-employed individuals, but only the spouse who has principal responsibility should submit an income statement or the Business Tax Return.
How to pay the tax
After you have had your advance tax calculated, the Norwegian Tax Administration will send out a payment slip for the appropriate period.
Periods are due:
- 15 March
- 15 May
- 15 September
- 15 November
This must be paid by the relevant deadline in order to avoid additional tax in the event of late payment. If you realise that the turnover is higher than expected, you can pay extra tax; this is known as an additional advance.
You do this by generating a KID number on the Norwegian Tax Administration's website. You will also find the account number for paying the tax.
Expenses attributable to the running of the business are generally deductible. All expenses and acquisitions must be documented through original vouchers and recognised in the enterprise's accounts. Deductions for the use of cars, expenses for telephone and internet use (ECOM services) and deductions for home office expenses are subject to specific rules.
Expenses for courses to keep up with developments in your professional field are normally deductible. However, education and further education cannot be deducted.
In the first year in which you are treated as a business, you can have up to the previous five years approved as start-up years for the enterprise. You could therefore be entitled to deductions for purchases for your business during this period.