Expat Tax for Americans in Norway – What You Need To Know

Expat Tax In Norway – Expat Living In Norway

Norway is the northernmost of Scandinavian countries’ trio, sharing a long border with neighboring Sweden to the east. It’s the land of fjords, the aurora borealis, and so much more. Read on to discover essential tips on US Expat Tax In Norway.

Given its quality of life, stunning geography, human-friendly cities, pristine outdoors, and environmentally-conscious policies, it’s no wonder that living in Norway has long been a top choice for people in the know from all over the world. Norway is home to many breathtaking fjords. The massive inlets were carved into the land’s edge by slow-moving glaciers at the end of the last Ice Age, allowing the sea to rush in.

The Top 10 Cities In the Norway for expats:

• Oslo
• Tromsø
• Lofoten
• Bergen
• Geirangerfjord
• The Stavanger region
• Trondheim
• Kristiansand
• Eastern Norway
• The Svalbard Islands

About Norway

The southern and western parts of Norway, fully exposed to Atlantic storm fronts, experience more precipitation and have milder winters than the eastern and far northern regions. Areas to the east of the coastal mountains are in a rain shadow and have lower rain and snow totals than the west. Oslo’s lowlands have the warmest and sunniest summers and cold weather and snow during the winter months.

Norwegians enjoy the second-highest GDP per-capita among European countries (after Luxembourg) and the sixth-highest GDP (PPP) per-capita in the world. Today, Norway ranks as the second-wealthiest country in monetary value, with the largest capital reserve per capita of any nation.

Guide To U.S. Expat Tax In Norway

The Tax Samaritan country guide to U.S. ex-pat tax in Norway’s intent is to provide a general review of expat tax in Norway. And how that will impact your U.S. expatriate tax return as a U.S. Expat In Norway.

As a U.S. taxpayer, all worldwide income is subject to taxation and reporting. For most expatriates, you must file a U.S. tax return on an annual basis due on April 15 each year. June 15 if you are residing overseas on the April 15 deadline. The tax treatment for different classes of income can vary significantly from Norway and the U.S. For example, certain benefits may be tax-free or excluded from taxable income in Norway. Still, in the U.S., these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in U.S. As such, there are many considerations related to U.S. ex-pat tax in Norway, and this brief article will address a few of those considerations.

Norway Expat Income Taxes

Who Is Liable For Income Taxes In Norway

The Norwegian tax system has two bases of income. The ordinary income base is a net base. The tax on ordinary income is 22 percent for 2020.

Also, we have the personal income base. This is a gross base for taxation. The bracket tax and the social security contributions for employees are based on this. Bracket tax is a progressive tax on gross salary and other personal income.

All individuals who are employees have to file a tax return by the end of April the year following the income year. Individuals on tax cards according to Pay As You Earn system (PAYE) are exempt.

Norwegian residents pay taxes on their income worldwide, except for some foreign workers in the oil industry. Non-residents who are living in the country pay taxes on income from sources within Norway.

Tax Year In Norway And Tax Filing And Payment Rules

At the beginning of every year, the tax authorities give your employer a ‘tax card’ to let them know how much to deduct each month. This code is based on your previous year’s income.

The base rate (fellesskatt) of income tax in Norway is 22%. Those who live in Finnmark or Nord-Troms will pay 18.5%. There is also a step tax (trinnskatt), sometimes called bracket tax. This is a progressive tax rate based on four levels, as follows.

For the first 180,800kr of your personal income, the step tax rate is 0%. 1.9% step tax owing on personal income between 180,000kr and 254,500kr. The step tax for income between 254,500kr and 639,750kr is 4.2%. Income between 639,750kr and 999,50kr is subject to taxation at 13.2%. For those living in Finnmark and Nord-Troms, this level of step tax has a reduction to 11.2%. For all income above this amount, a 16.2% step tax applies. As with step tax, national insurance contributions apply to your income. This is calculated from gross income before any deductions. The majority of taxpayers pay 8.2% contributions on their income.

National Insurance Payments

Social security or national insurance payments are subject to withholding from wages simultaneously as income tax. In Norwegian, this is known as trygdeavgiften. Most employees will see these deductions covering both income tax and social insurance contributions on their pay stubs.

The taxpayer must file an annual income tax return for all resident years. The taxpayer must also file an annual income tax return for the year the assignee leaves Norway. In the year the taxpayer performed activities in Norway, there is no double tax treaty protection. The tax return filing is within the statutory deadline(s) for filing.

In the years following the expatriation year, the assignee does not generally have any filing requirements. The assumption being that the assignee is treated as a tax non-resident and has no Norway-source income. As a U.S. green cardholder, you must file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.

Any Norway income tax you pay can generally be claimed against the tax liability on your U.S. return on the same income.

What You Need To Know About US Income Taxes

Some of these preferential tax treatments or benefits for U.S. expat tax in Norway include:

• If you are a U.S. citizen or a green card holder of the United States and you live in Norway, your U.S. ex-pat tax in Norway is based on your worldwide income, and as such, you must file a U.S. return for all the years that you are residing in Norway. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings with an annual adjustment for inflation ($107,600 for 2020). Also, you can exclude or deduct certain foreign housing amounts depending on other factors if you exceed the initial exclusion. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.
• When it comes to your U.S. expat tax in Norway, most U.S. expatriates worry about “double taxation.” (i.e.,– paying taxes to two different countries – the U.S. and Norway). A U.S. taxpayer working overseas in Norway may reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion, or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a credit.

Don’t Make This Mistake

A common but dangerous mistake is the assumption that if there are zero taxes owing with these tax benefits that the return filing requirement for U.S. ex-pat tax in Norway does not apply. That is not true. If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that the preferential tax treatments, such as the foreign earned income exclusion and foreign tax credit, are not granted automatically and must be claimed on a properly filed U.S. tax return.

When faced with U.S. expat tax in Norway, there are many tax items to consider. But, the above is by far the most common benefits individuals can take advantage of. Suppose you can qualify for both of these benefits – the foreign earned income exclusion & foreign tax credit. In that case, your tax professional should analyze to determine a strategy to optimize the return outcome as much as possible. For example, those with young children may want to consider forgoing the foreign earned income exclusion and utilize the foreign tax credit.

With top-notch experience and knowledgeable expat tax preparation from Tax Samaritan, you can be assured that all these eligible benefits will be explored and approached with the best outcome pursued. The decision to utilize the foreign earned income exclusion or the foreign tax credit can be complicated and depend on various factors, so it is typically best to discuss with a tax professional if unsure which option is best or what you may qualify for.

Norway Foreign Bank Account Reporting – The FBAR (FinCen Form 114)

Another important tax deadline that frequently applies to U.S. ex-pat tax in Norway is in regards to the disclosure of foreign assets on the <a href=”http://taxsamaritan1.wpenginepowered.com/tax-preparation/expatriate-tax/fbar/” target=”_blank” > FBAR </a> (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1)

The FBAR filing deadline is April 15th. Or the preceding business day if April 15th falls on a holiday or weekend. Unfortunately, requesting an extension on your return does not extend the FBAR due date. However, in years past, the Treasury Department has granted an automatic six-month extension to October 15th for those who miss the April 15th due date. Any reports filed after this date are considered a delinquent FBAR.

Filing The FBAR

The FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other types of foreign financial accounts (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.

Suppose you have bank accounts at Bank Norwegian AS, DNB Bank, Luster Sparebank, Handelsbanken, Storebrand Bank, or at another bank in Norway or any other foreign country. In that case, you may meet the filing requirement to disclose your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.

U.S. – Norway Social Security Totalization Agreement

An agreement effective July 1, 1984, between the United States and Norway improves Social Security protection for people who work or have worked in both countries. It helps many people who, without the agreement, would not be eligible for monthly retirement, disability, or survivor benefits under the Social Security system of one or both countries. It also helps people who would otherwise have to pay Social Security taxes to both countries on the same earnings.

The agreement covers Social Security taxes (including the U.S. Medicare portion) and Social Security retirement, disability, and survivor’s insurance benefits. It does not cover benefits under the U.S. Medicare program or the Supplemental Security Income program.

U.S.- Norway Tax Treaty And Tax Relief For U.S. Expat Tax In Norway

Under the agreement, if you work as an employee in the United States, you will generally have coverage by the United States. You and your employer will pay Social Security taxes only to the United States. If you work as an employee in Norway, you usually will have coverage by Norway, and you and your employer pay Social Security taxes only to Norway.

On the other hand, if your employer sends you from one country to work for that employer or an affiliate in the other country for five years or less, you will continue to have coverage by your home country, and you will be exempt from coverage in the other country. For example, suppose a U.S. company sends an employee to work for that employer or an affiliate in Norway for no more than five years. In that case, the employer and the employee will continue to pay only U.S. Social Security taxes and will not have to pay in Norway.

Self-employed individuals living and working in Norway have coverage by the Norway system and should obtain a certificate of coverage to claim the totalization agreement’s benefits. A photocopy of this certificate must be attached to your U.S. individual tax return to exempt yourself from U.S. self-employment tax properly. Tax Samaritan can help guide you through this process if unsure of how to proceed.

U.S. – Norway Tax Treaty And Tax Relief For U.S. Expat Tax In Norway

The United States and Norway do have an income tax treaty in place. Many of the articles apply to non-resident aliens for U.S. tax purposes. Still, they can also extend certain benefits to U.S. citizens, residents, and green card holders (limited by the ‘Savings Clause’), so it is vital to understand if you qualify for these benefits.

Tax Samaritan Takeaways For U.S. Expats In Norway

Please click on the following hyperlinks below for additional takeaways for your ex-pat tax in Norway:

Norway Tax Treaty documents

Totalization Agreement Between the United States and Norway

Top banks in Norway

Tax Samaritan Expat Tax Services

IRS Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad