Norway’s 2025 national budget, presented on 7 October 2024, includes proposals to introduce limited tax liability on foreign individuals and foreign companies generating income from aquaculture and related activities, as well as work carried out in the 200-mile exclusive economic zone and on the continental shelf. In addition, the budget proposes to introduce tax liability for foreign employees who earn income in connection with mineral activities, the exploitation of renewable energy resources and carbon management in these areas. If enacted, the measures would apply as from 1 January 2025.
The above rules would expand legislation that became effective on 1 January 2024 regarding the taxation of corporate income derived from (i) mineral deposits on the continental shelf; (ii) the exploitation of renewable energy resources within the 200-mile economic zone; and (iii) carbon management within the 200-mile economic zone and on the continental shelf. Income derived from these activities is subject to the 22% corporate income tax. The legislation was modelled on existing rules for the ordinary taxation of income from the petroleum industry.
The government proposes to expand the legislation for income year 2025 and thereafter to include:
To avoid potential double taxation, an exemption from withholding tax on interest and royalties on payments taxable under the new legislation may be useful. Foreign taxpayers must still apply ordinary double taxation rules and apply for a credit deduction or exception in their own country.
According to international law, a state’s territorial borders stretch up to 12 nautical miles (approximately 22.2 km) from the state’s “baseline.” A state’s internal waters are located within the baseline, while the state’s territorial sea lies 12 nautical miles from the baseline. A state has full jurisdiction within its territorial borders according to international law.
In addition, a state has sovereign rights to the continental shelf outside its shores for the purpose of exploiting its natural resources on and underneath the seafloor, including living organisms of sedentary species (e.g., mussels). As a minimum, the continental shelf is considered to stretch 200 nautical miles (370.4 km) from a coastal state’s baseline. In this context, the coastal state has exclusive jurisdiction in building, allowing and regulating the building of artificial islands, facilities and installations on its continental shelf for the purpose of exploiting said resources.
International law also grants coastal states the right to proclaim an exclusive economic zone up to 200 nautical miles from their baseline. Within the economic zone, the country has exclusive jurisdiction to exploit both living and non-living natural resources on and underneath the seafloor, as well as in the waters above the seafloor.
Norway’s right to taxation can be limited by a tax treaty between the tax subject’s state of residence and Norway, provided the treaty is applicable to the 200-mile economic zone and the continental shelf. Norway has concluded around 85 tax treaties, most of which do not include areas outside Norway’s territorial waters and, therefore, will not limit Norway’s right to taxation in the economic zone and on the continental shelf. Some tax treaties do include a broader definition of Norway’s borders, but normally only include the continental shelf and not the exclusive economic zone. These treaties will only limit Norwegian taxation of industries associated with work on the continental shelf.
The Norwegian government expects future increased activity in new industries on the continental shelf as technological advancements evolve. Under domestic tax law, Norwegian taxpayers are liable to tax on income from such activities in the exclusive economic zone and on the continental shelf. However, without a specific legal basis, Norway does not have the right to tax foreign persons or companies on income derived from activities outside its territorial borders. The proposed measures aim to close this gap and level the playing field between domestic and foreign actors in the economic zone and on the continental shelf.
Currently, activities associated with mineral extraction, renewable resources, carbon management and aquaculture outside Norway’s territorial waters are minimal and are expected to remain so over the next few years. That being the case, the proposed legislation likely will have a limited impact in the short term. However, these industries are considered to have substantial future potential. While there are currently no proposals relating to the introduction of resource rent tax for these industries, this could change if the industries ultimately generate significant profits.
The 2025 budget will be discussed by the Norwegian parliament and subject to any potential changes, is expected to be approved by the first half of December.
Christian Reegård Dalby
Sondre Lid Riise
BDO in Norway
The above rules would expand legislation that became effective on 1 January 2024 regarding the taxation of corporate income derived from (i) mineral deposits on the continental shelf; (ii) the exploitation of renewable energy resources within the 200-mile economic zone; and (iii) carbon management within the 200-mile economic zone and on the continental shelf. Income derived from these activities is subject to the 22% corporate income tax. The legislation was modelled on existing rules for the ordinary taxation of income from the petroleum industry.
The government proposes to expand the legislation for income year 2025 and thereafter to include:
- Income derived from aquaculture within the 200-mile economic zone and on the continental shelf;
- Tax liability for foreign employees earning income from work connected to minerals, renewable energy resources, carbon management and aquaculture; and
- Foreign individuals’ wealth connected to business activities carried out by self-employed individuals (i.e., taxable persons who conduct activities through sole proprietorships, as well as taxable persons who are participants in businesses assessed as partnerships) on the continental shelf and/or in the economic zone and that is taxable under the 2023 rules. Such wealth would be subject to wealth tax in Norway in the same manner as for other limited taxable persons.
To avoid potential double taxation, an exemption from withholding tax on interest and royalties on payments taxable under the new legislation may be useful. Foreign taxpayers must still apply ordinary double taxation rules and apply for a credit deduction or exception in their own country.
Economic Zone and Continental Shelf
According to international law, a state’s territorial borders stretch up to 12 nautical miles (approximately 22.2 km) from the state’s “baseline.” A state’s internal waters are located within the baseline, while the state’s territorial sea lies 12 nautical miles from the baseline. A state has full jurisdiction within its territorial borders according to international law.In addition, a state has sovereign rights to the continental shelf outside its shores for the purpose of exploiting its natural resources on and underneath the seafloor, including living organisms of sedentary species (e.g., mussels). As a minimum, the continental shelf is considered to stretch 200 nautical miles (370.4 km) from a coastal state’s baseline. In this context, the coastal state has exclusive jurisdiction in building, allowing and regulating the building of artificial islands, facilities and installations on its continental shelf for the purpose of exploiting said resources.
International law also grants coastal states the right to proclaim an exclusive economic zone up to 200 nautical miles from their baseline. Within the economic zone, the country has exclusive jurisdiction to exploit both living and non-living natural resources on and underneath the seafloor, as well as in the waters above the seafloor.
Pay As You Earn (PAYE) and Tonnage Tax
- PAYE: When the above rules were introduced in 2023, parts of the originally proposed measures relating to the taxation of employee income was put on hold to make adjustments to corresponding legislation, mainly concerning registration and reporting duties, residency rules and rules on income derived from work on ships. The proposals in the 2025 budget clarify that employees who become taxable under the new legislation cannot utilise the PAYE scheme, an alternative simplified taxation scheme for foreign workers in Norway under which the individual is taxed at a fixed percentage that the employer deducts from salary. Employee income under the proposals is similar to what applies to employees taxable under the legislation governing petroleum activities on the continental shelf. Employee income derived from a relevant industry on the continental shelf is subject to progressive personal taxation in accordance with ordinary Norwegian employment income rules.
- Tonnage tax: The proposal to include income derived from aquaculture as taxable income has raised questions on how this would impact the existing Norwegian tax regime for shipping, known as the tonnage tax regime. Under this regime, certain income derived from shipping activities is exempt from taxation, and the company can elect to pay a specific tonnage tax based on annual rates (as opposed to being taxed under the general rules). The government plans to await the development of activities that fall within the scope of the new legislation before making any further assessments of the relationship between the legislation and the tonnage tax regime, an approach that has been met with scepticism by some interest organisations.
Tax Treaties
Norway’s right to taxation can be limited by a tax treaty between the tax subject’s state of residence and Norway, provided the treaty is applicable to the 200-mile economic zone and the continental shelf. Norway has concluded around 85 tax treaties, most of which do not include areas outside Norway’s territorial waters and, therefore, will not limit Norway’s right to taxation in the economic zone and on the continental shelf. Some tax treaties do include a broader definition of Norway’s borders, but normally only include the continental shelf and not the exclusive economic zone. These treaties will only limit Norwegian taxation of industries associated with work on the continental shelf.
Comments
The Norwegian government expects future increased activity in new industries on the continental shelf as technological advancements evolve. Under domestic tax law, Norwegian taxpayers are liable to tax on income from such activities in the exclusive economic zone and on the continental shelf. However, without a specific legal basis, Norway does not have the right to tax foreign persons or companies on income derived from activities outside its territorial borders. The proposed measures aim to close this gap and level the playing field between domestic and foreign actors in the economic zone and on the continental shelf.Currently, activities associated with mineral extraction, renewable resources, carbon management and aquaculture outside Norway’s territorial waters are minimal and are expected to remain so over the next few years. That being the case, the proposed legislation likely will have a limited impact in the short term. However, these industries are considered to have substantial future potential. While there are currently no proposals relating to the introduction of resource rent tax for these industries, this could change if the industries ultimately generate significant profits.
The 2025 budget will be discussed by the Norwegian parliament and subject to any potential changes, is expected to be approved by the first half of December.
Christian Reegård Dalby
Sondre Lid Riise
BDO in Norway