Tax for personal shareholders in private limited companies
A shareholder can be taxed in one of two ways as regards income from a private limited company.
- Tax on salary from the company
- Tax on share dividends
When you as a shareholder work for the company and receive a salary, the company must pay employer's National Insurance contributions and make tax deductions for you in the same way as for any other employee. The amount that must be deducted in tax will be stated on your tax deduction card which your company retrieves in Altinn.
You must pay tax on any dividends you receive from the company. The tax must be calculated for the year in which the distribution of the dividend is approved by the general meeting. The tax basis is taxed at the rate of 22%.
Tax on share dividends is calculated according to a specific method called the 'shareholder model'. The dividend must be reduced by a tax-free amount (deduction for risk-free return) and multiplied by a factor of 1.72 before the tax is calculated (factor in 2022: 1,60).
The deduction for risk-free return = the basis for the deductible risk-free return x the risk-free interest rate
The basis for the deductible risk-free return is generally equal to the amount you purchased the share for, including expenses directly attributable to the purchase, e.g. broker expenses.
The risk-free interest rate is set by the Directorate of Taxes and announced in the January of the year after the taxation period (the income year).
If the dividend in any one year is less than the deduction for risk-free return, you can carry forward the remaining deduction for risk-free return for this share. This is done by increasing the cost price by the unused deduction for risk-free return, and creating a new basis for the deductible risk-free return in the following year.
If you sell or otherwise realise the share, the gain will be reduced by the unused risk-free return from the previous year. Gains made on the realisation of shares are taxable, and losses are deductible.
You have set up a private limited company with share capital of NOK 30,000. You take out NOK 50,000 as a dividend in 2023. In this example, the risk-free interest rate for 2023 is 0.7%.
|Dividend (in NOK):||NOK 50,000|
|Deduction for risk-free return: NOK 30,000 * 0.7% =||NOK 210|
|= dividend for tax-related upward adjustment||NOK 49,790|
|Basis for calculating tax NOK 49,790 * 1.72 (assessed upward adjustment factor) =||NOK 85,639|
|= Tax on dividend: NOK 85,639 * 22 % tax||NOK 18,841|
Maximum tax for company and owner
For many people, the combined total of the tax they have to pay as a shareholder and the tax payable by the company will be important. The following example illustrates the maximum tax which you and the company have to pay collectively on profit and dividends you have received:
In this example, we set the deduction for deductible risk-free return to 0. The profit generated by a private limited company is taxed at the rate of 22%.
|- Tax 22 %||NOK 22,000|
|The taxable dividend is||NOK 78,000|
The taxable dividend is adjusted upwards by a factor of 1.72 in the 2023 income year before the tax calculation: NOK 78,000 x 1.72 = NOK 134,160.
Tax on dividend: NOK 134,160 * 22% rounded to NOK 29,516.
Maximum tax for company and shareholder: NOK 22,000 + NOK 29,516 = NOK 51,516.
This corresponds to a total combined tax rate for company and owner of 51.5% of the profit. The tax on the actual dividend is 37.8 %.
If you withdraw the dividend as salary instead, the total tax percentage will be between 29.9 and 47.4%, and the company will also have to pay employer's National Insurance contributions.
Paying tax on dividends
Companies must not deduct tax from dividends that they distribute to their shareholders. It is the recipient of the dividend that must pay this tax. This is done by paying additional advance tax. On the Norwegian Tax Administration's website, you can generate a KID number and find the correct account number for the payment of additional advances. If you pay the tax by 31 May, you will not have to pay interest on the amount.
Loans to shareholders
If you as a shareholder take out a loan from your own limited company, this must generally be handled in accordance with the relevant rules for dividend payments.
The same applies to advances for expenses which you have received as a shareholder if you are unable to document that the advance actually concerns expenses.
To ensure that you are not subject to double taxation, repayments of loans which have already been taxed will be considered as the injection of new share capital. This means that the amount that is repaid is divided and added to the input value of your shares. This will increase the basis for the deductible risk-free return. The repaid amount can be withdrawn by the company again and paid to the shareholder without taxation.