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6Investing in Real Estate in Norway2.5. Financing2.7. Cost related to the purchase of real estateWhen purchasing real estate it is typical that theacquisition is carried out through a mix of equityand debt. In order to obtain relief for interestexpenses, foreign investors often use an existingholding company or establish an acquisitioncompany in Norway to efficiently leverage theacquisition structure. It may also be possible toobtain an interest deduction in Norway if acquiringreal estate directly by a foreign taxpayer.As a main rule, costs incurred in order to obtain, maintainor secure taxable income are deductible. Acquisitioncosts are generally required to be capitalised on theacquired asset. If the acquisition is carried out as adirect acquisition of a property (“asset deal”), the costis generally deducted through depreciation of the capitalasset. If the acquisition relates to an acquisition of sharesin a property holding company (“share deal”), then theacquisition cost in generally capitalized on the shares andno tax deduction is in effect obtained.As a starting point, all interest paid is deductiblefor the calculation of the taxable income ofthe taxpayer. A general arm’s length principleapplies both with respect to the level of interestcharged on related-party debt and the debt/equityratio (“thincap”). In addition, an EBITDA-basedearnings stripping rule applies, also with respectto debt on unrelated-party debt (see section 4.1.3.below). Debt-levels, allocation of debt, interestrates applied and the mix between external andinternal financing must be carefully structured.There is currently no interest withholding tax inNorway but a public discussion paper to this effectis expected in 2020 (although already subjectto a number of delays). It may therefore be thatan interest withholding tax is introduced in thefuture. Currently, most Norwegian tax treatiesoffer a full exemption from interest withholdingtax, subject to a beneficial ownership test.2.6. Financial assistance regulationsAs a starting point, a target company mayonly provide collateral, loans or other fundingor security to an acquiring entity (financialassistance) within the headroom of itsdistributable equity. A practical exceptionapplies, however, if the target company, afterthe acquisition, forms part of the same group asthe acquiring company (provided the acquiringentity is resident within the EU / EEA). Financialassistance can in such cases be grantedregardless of the distributable equity of the target,but a number of procedural requirements must bemet, hereunder the board of directors must affirmthat the financial assistance is in the interest ofthe target company and that the company willmaintain a reasonable equity and liquidity afterhaving granted the financial assistance.Whether a Norwegian taxpayer can claim tax deductionsfor costs paid to an affiliated party in an acquisitionprocess depends on whether such costs can beallocated to the Norwegian taxpayer. Broadly, thedeductibility is contingent on the fulfilment of a “benefittest”, whereby it must be demonstrated that the costshave been incurred as remuneration for services that willbenefit the taxpayer, as opposed to the shareholders.If the costs can be charged to the Norwegian company,it must be assessed whether the costs are deductibleimmediately, or whether they must be capitalised (addedto the tax book value of the assets of the company). Ifcosts must be capitalised, they will become deductibleat a subsequent realisation of the acquired object(by reducing a future gain/increasing a future loss) orthrough depreciation. An increased tax book value wouldnormally be deductible by way of depreciation. Costsincurred in connection with the acquisition of sharesmust as a general rule be capitalised on the shares. Theyare in effect non-deductible, as gains on shares are taxexempt and losses are non-deductible.When assessing whether to deduct or capitalise anexpense, the deciding factor will be the purpose forwhich the expense is incurred. For instance wherea service is acquired with an objective to utilise ittowards the future operation of the target company,the associated costs will normally be immediatelydeductible (e.g. cash flow and tax structuring). If theexpenses are related to the acquisition as such (i.e.brokerage fees, legal advice in relation to contracts), oran up-to-date assessment of the company (historical duediligence), such expenses must normally be capitalisedon the acquired shares. An exception to this principle isfinancing fees, which are unconditionally deductible.For broken deals, costs must be treated in the same wayas for completed transactions, which means that costswhich would have been capitalised on the shares if theywere acquired, are non-deductible. 2020 KPMG Law Advokatfirma AS, a Norwegian limited liability company and a member firm ofthe KPMG network of independent member firms affiliated with KPMG International Cooperative(“KPMG International”), a Swiss entity. All rights reserved.

Tax Guide 202072.8. VAT related to the purchase of real estateCosts incurred inconnection with theacquisition of sharesmust as a general rule becapitalised on the shares.For VAT purposes, the costs must be broken down andclassified as VAT recoverable, VAT non-recoverable orVAT exempt. As a main rule, input VAT charged on costsrelated to a company’s VAT liable activities (i.e. businessoperations subject to VAT) may be recovered, whileinput VAT charged on other costs may not be recovered.Certain services, e.g. financing, are VAT exempt,meaning that no VAT should be invoiced (and no VATshall be calculated according to the reverse chargemechanism). Broadly, costs must be split betweenthose related to the financing operation, and thoserelated to the acquisition itself. Only the latter maybe deductible. In all instances it will be necessary toclosely review the costs to ensure correct classification.The purchase of shares is deemed to be of a financialnature end outside the scope of the VAT-act. As such,VAT incurred on acquisition costs is non-recoverable,regardless of the potential VAT-liable businessundertaken in the target company itself.The purchase of real estate is likewise outside thescope of the VAT-act, and as with a share deal VAT onacquisition, costs are non-recoverable.However, if the acquisition takes the form of an assetpurchase, and the underlying asset can be qualified asan ongoing activity (typically in the form of the buildingand a set of active rental agreement, this may qualifyas TOGC (transfer of going company)). TOGC is subjectto VAT, but zero rated. This may however allow for thededuction of VAT on the acquisition costs.2.9. Anti-avoidanceNorway has a general and a specific anti-avoidanceprovision which may apply if the transaction or aseries of transactions is deemed mainly motivatedby obtaining a tax benefit / advantage. In real estatetransaction, the most practical issue would beacquisition of companies with significant tax loss carryforwards or other tax attributes. Provided there is agenuine business rationale behind the transaction, therisk of being in scope of the anti-avoidance provisionsshould be limited.2.10. OtherThere are specific regulations concerning acquisitionsof land in Norway, mainly these are properties for theexploitation of natural resources, such as farmland,hydropower and forests. 2020 KPMG Law Advokatfirma AS, a Norwegian limited liability company and a memberfirm of the KPMG network of independent member firms affiliated with KPMG InternationalCooperative (“KPMG International”), a Swiss entity. All rights reserved.

88Investing in Real Estate in Norway3 Sale ofreal estate3.1. Sale of real estateIn general, capital gains/losses onthe sale of real estate (asset deal)are taxable/deductible regardless ofthe seller’s tax residence.The gain is taxed at 22%. Normally, gainsfrom a sale of real estate can be transferredto a gain and loss account, where at least20% of a positive balance on the accountmust be recognized as income annually ona declining balance basis. Gains relatingto technical installations are recognisedunder the same method, but on a separateaccount.Due to the exemption method, the sellerwill normally prefer to sell his shares orparticipation to avoid tax on the latent gainon the real estate.3.2. VAT – Adjustment obligationsFor VAT, the key issue is adjustment obligations.Upgrades exceeding a set threshold are subject toadjustments, meaning that the level of deductionis dependent on use within a VAT liable line ofbusiness for the next ten years.A sale of the property will trigger an obligation topartially reverse the deduction. The percentage ofthe reversal will depend on the number of yearsleft of the ten years period. This reversal may,however, be avoided, provided that the buyeraccepts responsibility for the remaining period.From a seller’s point of view, it is preferable totransfer the obligation to the buyer in order toavoid having to repay VAT. If the buyer is unwillingto accept the transfer, this should be reflected inthe price.It should, however, be noted that for the buyer,the adjustment obligation represents a potentialrisk, and the buyer will likely keep this risk in mindwhen making an offer.When selling real estate, it is particularlyimportant to note that for the sale of developmentproperties where no physical work has beenperformed at the site, it will not be possible totransfer adjustment obligations for servicesrelated to non-physical development work. Theconsequence could be that any input VAT incurredwill be a final cost without the possibility ofreclaiming the input VAT.Note also that it has been indicated by the VATAdministration that when transferring projectsunder construction and empty buildings, the selleris obliged to reverse all VAT deducted to date. ThisVAT may be transferred as a latent deduction,and claimed by the buyer at a later date, once thepremises are occupied.3.3. Sale of shares or participationCapital gains on shares in a Norwegian companyor participation in a transparent Norwegian entityowned by a Norwegian limited liability companyor a Norwegian transparent entity are tax exemptunder the Norwegian exemption method, andlosses are non-deductible (see section 4.1.6.below). For foreign investments the gains may becovered by the exemption method. 2020 KPMG Law Advokatfirma AS, a Norwegian limited liability company and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Tax Guide 2020The sale of shares in a Norwegian companywill not result in any tax charges in Norway,unless the foreign entity is considered to havepermanent establishment in Norway. TheNorwegian Tax Act does not have legal basisfor imposing tax on a non-resident’s gain onshares.If a foreign investor sells a participation ina transparent Norwegian entity, the taxtreatment is somewhat unclear. According tothe Norwegian Ministry of Finance the foreigninvestor will be considered to have realisedhis share of the underlying assets, and shouldthus be taxed at 22% on any realised gains,unless the income is tax exempt. Since suchgain would be tax exempt for a Norwegianinvestor, the tax treatment may be in breachwith Norway’s obligations under the EEAagreement.The seller is not required to calculate VAT onthe fee, as sales of sharers or participation arenot liable for VAT. Note that the seller cannotexpect to gain deductions for any VAT incurredas part of the sales process.3.4. Deductions of costs related to the saleof real estateCosts directly related to a sale of real estate,such as broker commission, advertisementetc. are tax deductible, if the gain is taxable.If the real estate is sold as a sale of shares orparticipation, the costs will be linked to the saleof the shares or participation, and be treatedas non-deductible. For broken deals, the costsmust be treated similarly, which means thatmost costs are non-deductible.For VAT purposes, deductibility of input VATon costs incurred during the sale is unclearunder current law. A recent decision from thelower court indicates that VAT on sales costs isnon-recoverable. Deductions may be allowedif the sale can be viewed as winding down aVAT liable business, for instance renting outproperty under a voluntary registration. Thisgenerally means that the real estate should besold as a running business, with tenants intact. 2020 KPMG Law Advokatfirma AS, a Norwegian limited liabilitycompany and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative (“KPMGInternational”), a Swiss entity. All rights reserved.3.5. Distribution of proceeds from a sale3.5.1. Permanent establishmentIf the real estate is owned directly by a foreigninvestor (i.e. in effect through a taxable branch/property in Norway), the proceeds can bedistributed without any tax being levied inNorway.3.5.2. Limited companyThere are different ways for a limited companyto distribute the proceeds from the sale ofreal estate. The proceeds could be distributedthrough dividends, a repayment of paid-incapital, repayment of loans or liquidation.The taxation for a Norwegian investor woulddepend on the investor. For foreign investors,the tax treatment depends on the repaymentmethod. In Norway, there is currently onlywithholding tax on dividends, at a domesticrate of 25%. The rate may be reduced forcorporate shareholders within the EEA orunder an applicable tax treaty (see section4.1.7. below). Repayment of paid-in capital isnot taxable. If a company is liquidated, theliquidation proceeds will be considered ascapital gains on shares, and not a distributionof dividends for Norwegian tax purposes, andno withholding tax will be levied.3.5.3. Transparent entityDistributions from transparent entities aretax exempt for Norwegian investors, exceptfor a 3% claw back. There is no tax charge ondistributions to foreign investors.9

10Investing in Real Estate in Norway4 Taxation of real estate4.1. Corporate income tax4.1.1. GeneralThe tax rate on corporate income is currently 22%.Taxable income includes capital gains.As a main rule, costs are deductiblefor tax purposes provided they are forexpenses incurred in order to acquire,maintain or secure taxable income.Costs for maintaining/upholding thesame standard of the property are ingeneral deductible. If the costs arerelated to upgrading the propertystandard the costs must be capitalised.The main rule for the timing of incomeand costs is the realisation principle.For income this implies that the incomemust be recognized for tax purposes inthe same year as the taxpayer obtains anunconditional right to the remuneration.For costs, the realisation principleimplies that the costs are deductible inthe income year in which the taxpayerincurs an unconditional obligation topay the remuneration. The time ofpayment formally agreed upon is of noconsequence.4.1.2. Tax deprecationAll types of property and technicalinstallations are subject to the decliningbalance method of depreciation.The depreciation rates for real estatedepend on the type of property. Officebuildings and other commercial propertymay be depreciated at 2% per annum. Ifthe expected economic life of a buildingis less than 20 years, a 10% rate may beapplied. Other properties are depreciatedat a 4% rate. Technical installations maybe depreciated at 10% per annum. Landmay not be depreciated for tax purposes.Maintenance costs that are considerednecessary to uphold taxable incomeare tax deductible in the year of accrual.Costs for improvements to the buildingmust be capitalised and depreciatedtogether with the cost of the building.4.1.3. Transfer pricing and thincapitalisationInterest costs are as a main rule fullydeductible on an accruals basis, andthere is as a starting point no differencebetween debt from shareholders/intragroup and debt from unrelated parties.The arm’s length principle applies torelated party loans, and the tax authoritiesmay make a reassessment based on thincapitalisation or an adjustment of theinterest rate. 2020 KPMG Law Advokatfirma AS, a Norwegian limited liability company and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Tax Guide 20204.1.3. Transfer pricing and thin capitalisationInterest costs are as a main rule fully deductible onan accruals basis, and there is as a starting point nodifference between debt from shareholders/intragroup and debt from unrelated parties.The arm’s length principle applies to relatedparty loans, and the tax authorities may make areassessment based on thin capitalisation or anadjustment of the interest rate.4.1.4. Interest limitation rules / earnings strippingEffective for all financial years ending on or after 1January 2019, deductibility of net interest expenses(regard of the status of the payee, i.e. both relatedand non-related party debt) is limited to 25% of theborrower’s “tax EBITDA“, if the borrower is part of aconsolidated group (or could have been under IFRSprinciples).The main rule for thetiming of incomeand costs is therealisation principle.Broadly, the tax EBITDA can be represented as:Taxable income /- Group contributions received (/surrendered)- Use of tax losses carried forward /- Net interest expenses /- Tax depreciations “Tax EBITDA”A de minimis threshold applies at Norwegian grouplevel: If the total interest cost is less than NOK 25million, the rules do not apply.Equity escape provisionsTaxpayers may claim relief for all net interestexpenses if they qualify for the “equity escapeprovisions”. Broadly, the provisions seek toestablish whether the borrower (or the Norwegiansubgroup as a whole) is over-indebted relative to theworldwide consolidated group.The taxpayer can claim relief for interest in excessof the EBITDA threshold provided the ratio of thetaxpayer’s equity to total assets is equal to or higherthan the corresponding ratio of the worldwideconsolidated group (see below for the definition ofthe group). 2020 KPMG Law Advokatfirma AS, a Norwegian limited liability company and amember firm of the KPMG network of independent member firms affiliated with KPMGInternational Cooperative (“KPMG International”), a Swiss entity. All rights reserved.11

12Investing in Real Estate in NorwayFor the purposes of the comparison, a number ofadjustments to the borrower’s financial statements arerequired:–Goodwill (or badwill) in the consolidated financialstatements attributable to the borrower must beadded to (or subtracted from) total assets and equity.–The assets and liabilities of the borrower mustbe revalued in accordance with the consolidatedfinancial statements, and added to (subtracted from)total assets and equity / liabilities.–Deferred tax liabilities / assets relating to the revaluedassets / liabilitie

sale of real estate 2.9. Anti-avoidance 7 2.6. Financial assistance regulations 6 3.5. Distribution of proceeds from a sale 9 2.10. Other 7 2.7. Cost related to the purchase of real estate 6 4. Taxation of real estate 10 3. Sale of real estate 8 1 General Inv