PAYE in Norway

Foreign workers in Norway often find themselves faced with the complexities of the country's tax system. One essential aspect to understand is the Pay As You Earn (PAYE) scheme, a voluntary tax arrangement that automatically enrolls most new foreign workers when they apply for a tax deduction card. This article provides an in-depth exploration of the PAYE scheme, shedding light on its nuances, differences from general tax rules, and essential considerations for foreign workers.

The PAYE Scheme Explained

1. Inclusion in the PAYE Scheme:

Foreign workers, especially those with short work stays or in their first year in Norway, are usually automatically included in the PAYE scheme when applying for a tax deduction card. Under this system, taxes are deducted at a fixed percentage from your salary by your employer.

2. Process and Documentation:

Participants in the PAYE scheme won't need to submit a tax return or receive a tax assessment notice. Instead, they receive a receipt for PAYE tax, detailing reported salary and tax information for the previous year.

3. Opting Out:

While the PAYE scheme is the default for many, foreign workers can opt out if paying taxes under general tax rules is more profitable. This decision can be made during the application for a tax deduction card or later in the income year by changing the tax deduction card.

PAYE vs. General Tax Rules

1. Tax Rates:

  • PAYE Scheme: 25% tax rate.
  • General Tax: Varies based on income and deductions. If exempt from national insurance contributions, a 17.1% tax rate applies.

2. Income Limits and Deductions:

  • PAYE Scheme: There is an income limit of NOK 642 950 (2023); no deductions allowed.
  • General Tax: No defined income limit; various deductions, such as commuter expenses and interest expenses, can be claimed.

3. Tax Return and Assessment:

  • PAYE Scheme: No tax return; receipt for PAYE tax provided.
  • General Tax: Tax return submitted, followed by a tax assessment notice indicating overpayment or underpayment, with potential refunds or additional payments.

Considerations for Opting Out and Exclusions from PAYE

  • You do not meet the PAYE criteria if you earn more than NOK 642,950 for the 2023 income year.
  • If expecting to earn more than the maximum amount, including holiday pay and taxable expense allowances, choose to be taxed under the general tax rules when applying for a tax deduction card.
  • Uncertain about exceeding the maximum amount? Start with PAYE and opt out later if necessary.
  • Excluded from the PAYE scheme if you have other taxable income, including public benefits from NAV, parental benefits, taxable income from business activity, income earned on Norwegian ships, and more.

Making Informed Choices

To decide between the PAYE scheme and general tax rules:

  • Contact ECOVIS in Norway to help you calculate which tax scheme is most beneficial for you
  • Use the deduction wizard to identify eligible deductions under general tax rules.
  • For the PAYE scheme, subtract 25% (or 17.1% if exempt from national insurance contributions) from your salary to estimate your tax.

Conclusion

Navigating the complexities of the PAYE scheme and general tax rules demands careful consideration. Stay informed, assess your financial circumstances, and choose the tax solution that aligns with your unique situation. Be mindful of exclusion criteria and income thresholds to ensure compliance with Norway's tax regulations.