If you would like to start your own business in Norway, the big question is: Should I establish a limited liability company, an NUF or should I choose to be self-employed? Think carefully and choose the right form of company from the start, and you won’t have to spend time and money on a conversion later.
Limited liability company – AS
Limited liability companies are most often recommended as an organizational form. The main reason is that, by operating an AS, you cannot lose more than you have paid into deposits. The deposit must be a minimum of NOK 30,000.
In addition, limited liability companies are most recognized form of company in Norwegian market with well-established regulations that create trust with the counterparty and the customer.
A limited liability company is a separate legal entity, but that is not the case for a sole proprietorship. It is the AS that formally takes all actions and responds to all obligations incurred by the company.
With a limited liability company you can hire yourself as the employee, which gives you pension and social security rights. You can also withdraw the salary you need as long as the operation of your AS can withstand it.
If you receive dividends from the company, you must pay tax on the dividend. The tax rate is 22% for 2020.
Tax on dividends is calculated according to a separate method called the shareholder model. The dividend shall be reduced by a tax-free amount (shielding allowance) and multiplied by a factor of 1.44 before tax is calculated.
Norwegian branch of foreign enterprises – NUF
Establishing of NUF requires that you establish/use an established foreign enterprise, which then establishes a department in Norway. This foreign enterprise (headquarter) can be both limited liability company and sole proprietorship.
The regulations for the establishment of foreign enterprises will depend on the country in which you establish the enterprise. If your foreign enterprise is resident in one of the EEA states, and you come to Norway to do short-term projects, NUF can be the suitable option for you.
If the building/installation project is less than 6 months/12 months – depending on the tax treaty between your resident country and Norway, and your NUF does not have any permanent establishment in Norway, the NUF will not be tax liable to Norway. NUF without permanent establishment does not have accounting obligation to Norway, which means the company does not need to submit annual accounts if the annual turnover is less than 6 million NOK.
Although your NUF might not be tax liable to Norway, you still need to submit the tax return. The deadline for submitting tax return is 31st of May. For the tax return, the enforcement fine is NOK 600 per day. The maximum amount is NOK 59 950.
If the NUF undertakes enterprise assignment, the workers on the assignments will not be tax liable to Norway for short stay in Norway. But if assignment is considered as hiring labor, the workers will be tax liable from day 1.
There are some other requirements with NUF – employment business set up. For example:
- HSE card for employee working with installation and construction
- Contract, contractor, and employees report (RF-1199/RF-1198)
More details about obligations for a NUF can be found here: Norwegian Branch for a foreign company
Sole proprietorships – EPF
There are three advantages of a sole proprietorship.
- This gives you the opportunity to deduct a loss in other income.
- There are fewer formalities. Sole proprietorships are an organizational form that normally has less administrative and start-up costs than an AS, because there are fewer reporting requirements.
- EPF doesn’t require any share capital.
But remember with a sole proprietorship, you are personally responsible for the company.
By far the main disadvantage of sole proprietorships is the personal responsibility. Since a sole proprietorship is not a separate legal entity, it will be the case that if the company goes bankrupt, coverage for outstanding can be sought in your personal wealth and income. This means you and the company have the same “wallet”.
Therefore: if you are engaged in an activity that can create a liability/compensation situation that goes beyond the values of the sole proprietorship, you should think carefully before choosing sole proprietorships as an organizational form.
Many believe that one of the biggest disadvantages of sole proprietorships is that any profits you receive in operations are taxed on an ongoing basis. In other words, you have no possibility of “saving” profits in operations, as you have in an AS.
Submit Tax Return for all three company forms
No matter what company form you chose, it’s the company’s obligation to submit yearly tax return. Deadline for tax return 2020 is 31 May 2021. Contact ECOVIS now for assistance!