A holding company abroad – what do Norwegian tax rules require?

It is lawful for a Norwegian owner to own a company in another country, but a foreign certificate of registration does not move the company out of Norwegian tax. Four questions have to be kept apart: where the company is tax resident, whether the CFC rules apply, whether the share income falls under the participation exemption, and what Norwegian withholding tax hits payments leaving Norway.

A foreign certificate of registration is not enough

A company formed abroad is treated under section 2-2 of the Taxation Act as resident in Norway where its effective management is in Norway. Skatteetaten looks at where board-level and day-to-day management are actually exercised, and how the company's activity is organised in reality. A local director or a local address is not enough if the decisions are in practice taken somewhere else. At the same time, overarching strategic decisions at group level are not automatically decisive for where a subsidiary is resident.

What if both countries say the company is resident there?

Then the specific tax treaty has to be examined. Some treaties use the criterion of the place of effective management, while others require mutual agreement between the tax authorities. Section 2-2 of the Taxation Act also contains an important rule: where the treaty places residence in the other state, the company is not at the same time treated as resident in Norway under the Norwegian residence rule.

CFC applies where the company genuinely is foreign

The CFC rules become relevant where the company is still foreign but Norwegian taxpayers control a company in a low-tax jurisdiction. Norwegian owners can then be taxed currently on their share of the profit even with no dividend. The money can sit untouched in the company's foreign account and the Norwegian tax still falls due.

Within the EEA there is an important exception

CFC treatment does not apply where the taxpayer documents that the company is genuinely established and carries on genuine economic activity in the EEA state. What is actually required – and what is not – is set out in Genuinely established in the EEA – what the substance test means in practice

The participation exemption is relevant internationally too

Where a Norwegian AS owns the foreign company, you have to consider whether dividends and gains fall under the participation exemption. Within the EEA the general rule is often favourable. Outside the EEA there are specific ownership and time conditions, and low-tax jurisdictions outside the EEA normally fall outside.

Does the foreign holding company own a Norwegian operating company?

Then the question of Norwegian withholding tax on dividends arises. The Norwegian headline rate is 25%. A tax treaty can reduce it, and the participation exemption can give a full exemption for qualifying EEA companies. Norway also has 15% withholding tax on certain interest and royalty payments to related recipients in low-tax jurisdictions. Tax treaties and EEA exceptions can affect the outcome.

A tax treaty and the participation exemption do not use the same test

Under a tax treaty, beneficial ownership can be a condition in its own right: is the recipient the real owner of the dividend? For an exemption under section 2-38(5) of the Taxation Act the central test is different: that the recipient corresponds to a qualifying company and is genuinely established and carries on genuine economic activity in the EEA. Those two assessments have to be kept apart. Passing one does not mean the other is met.

Does the personal owner still live in Norway?

Then that person is as a starting point taxable in Norway on worldwide income. Foreign shares, dividends and other foreign income and wealth therefore have to be dealt with in the Norwegian tax return – regardless of what the company does in its own country.

And if the owner moves away from Norway?

A person's tax residence and a company's tax residence are two different questions and have to be assessed separately. Emigrating can also trigger Norwegian exit tax on the shares, with a threshold of three million kroner and a payment deferral that can run for twelve years.

A foreign company also means more reporting

With a foreign company, Norwegian owners often have to handle foreign shares, wealth values, dividends, CFC income, credit relief and intra-group transactions. What actually has to go into the tax return is set out in Do you own a foreign company? How to report it correctly

A foreign holding company is not primarily a question of tax rates

Before comparing tax rates you have to know where the company is tax resident, where the real decisions are taken, whether the company is in a low-tax jurisdiction, whether CFC can apply, whether the EEA requirements for genuine establishment are met, what the tax treaty says, what Norwegian withholding tax hits payments leaving Norway, and where the personal owner is tax resident. A foreign holding company can be a legitimate and correct structure. But the benefit does not come from buying an address, a local director and a company registration. The structure has to work legally, commercially and for tax purposes in reality. We can map the ownership structure, the accounting and reporting obligations and the Norwegian tax rules that have to be considered. When establishing or moving a foreign holding company, an international tax lawyer or another specialist should also check the specific tax treaty and the company law of the country of establishment.

This is general guidance, not advice on your specific case. Deadlines, rates and amounts change – always check the current rules, or get in touch with us.

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