Why are Norwegians moving to Switzerland?

While the tax rate itself is may seem modest with a 1.1% tax for assets above NOK 20M for singles and NOK 40M for couples, it is interesting to note that this increase most likely started the exodus.

The problem with the wealth tax in Norway is that it is also calculated on values tied up in the company (so-called working capital), without taking into account the company’s earnings or losses. In addition, the wealth tax only affects Norwegian private business owners or investors resident in Norway. Many Norwegian-owned companies are drained of capital by dividend distributions year after year for the shareholder to pay the wealth tax, while companies owned by non-residents may uses the capital to develop their business. The dividend itself is of course subject to income tax in the hands of the shareholder.

One of the reasons Switzerland has become the preferred jurisdictions is that Switzerland has a wealth tax and this is a tax treaty requirement to avoid paying the Norwegian wealth tax after your emigration.

The Government have tried to stop this exodus of wealthy people by naming and shaming them and by tightening the exit tax rules.

Historically, the exit tax, the tax on the capital gains made while resident in Norway, would not be charged if the individual remained non-resident for at least 5 years. A relocation within EEA would not require a security to be posed.

This time limit on the exit tax has now been abolished and latent capital gains made while resident in Norway will have to be paid within 12 years of the relocation. It will not be charged if the individual return to Norway and become tax resident again. It will also be reversed if the shareholder passes away and his or hers heirs are resident in Norway.

Only latent capital gains of more than NOK 3M will be subject to exit tax. If you simply transfer the shares to a non-resident individual or entity, then this threshold is reduced to NOK 100K.

There are three alternative methods of paying the exit tax:

1) Payment of 100% upon emigration. The tax payment must be made by end May in the year following the emigration

2) Payment by interest free instalments over twelve years (1/12 every year)

3) Payment at the end of the 12-year period with added interest.

Any dividend received from the shares included in the exit tax calculation will be subject to a 70% tax on dividend which will be used as payment of the exit tax provided payment option 1) has not been chosen.

If the shareholder returns to Norway and become tax resident again during the 12-year period, this exit tax on dividends will not be refunded but the value of the shares held will be increased accordingly.

We are strongly opposed to any type of exit tax as we believe this to be an obstacle for the free movement of persons. We would expect shareholders considering leaving Norway to become non-resident before the threshold of NOK 3M in latent capital gains is reached.

For start-ups it would be useful to do some international structuring in the early stage of their business venture. Foreigners looking to become tax resident in Norway should equally consider some pre-immigration planning and thereby ensure that they are not caught by an exit tax when they decide to leave Norway. The real danger is of course that many investors will simply make sure they don’t become tax resident in Norway and may opt to invest elsewhere.