Norway is a highly developed country with a very strong and stable economy. This could be one of the reasons why you would be attracted by setting up a business there.
There are many considerations to take into account when starting a business activity in Norway. The most simple business setup for being self-employed is the sole proprietorship (enkeltpersonforetak in Norwegian). The other option would be to register a LLC (aksjeselskap or AS in Norwegian), with a minimum capital of NOK 30,000. This article will highlight the steps and requirements for setting up as sole proprietorship.
Disclaimer: Be aware that this article is not a substitute for legal advice. Please always check official websites or seek legal advice before you take action.
- Commercial activity: carrying out a commercial activity is one condition to be met for registering a sole proprietorship. Commercial activity is considered to be an activity that has a certain duration and a certain extent. When does the activity become commercial?
If the activity is recurring, this would suggest that the activity could be considered commercial and, as a consequence, taxable.
The challenging part is distinguishing between activities that are characterized as a hobby and commercial activities. The legislation doesn't define the boundary between these two notions, but hobbies are not being taxed while commercial activity is taxable. This is the type of activity that defines whether you should be taxed and if you are entitled to deductions for your expenses.
Until 2017, the Norwegian Tax Administration (Skatteetaten) was the body that determined whether you are carrying out a commercial activity or not. Now, the taxpayers determine deduction entitlement themselves.
- The business address must be a real physical address in Norway and not a postbox.
- Finally, you must be at least 18 years old. Nevertheless, you can set up a sole proprietorship with the permission of your guardian and the County Governor if you are over 15 years old. You need to apply in order to receive the County Governor's approval, by choosing the "GA-8038 - Annet".
Fill in the form
If you have a Norwegian national ID number or D-number (below you have a description for the registration process if you don't have either), you must fill in the form called Coordinated register notification. You will receive a notification for signing in your Altinn inbox, which you will use in order to sign the form. The business will be then registered and you will be notified via your Inbox in Altinn.
N.B: Altinn is an internet portal for digital dialogue, private individuals, and public agencies.
If you are a foreign citizen outside an EU/EEA country and therefore don't have a Norwegian ID number or D-number, you need to apply for a residence permit in order to be allowed to work in Norway.
Name the sole proprietorship
As in many other countries, the name of your sole proprietorship must include your surname. You can choose a name that reflects the identity of your business. Nevertheless, be careful to always check if the business name you chose is available, and that is not subject to others' legal rights.
Register the sole proprietorship
The Register of Legal Entities (Brønnøy Register Centre) is a national register that allocates organization numbers to your business. Sole proprietorships are entitled to register in this Central Coordinating Register for Legal Entities, but it is not mandatory, unless the business is obligated to register for VAT (if turnover is exceeding NOK 50,000). The registration in the Register for Legal Entities is free of charge.
Also, if you intend to trade ready-made goods, and if you have more than five employees or use goods as collateral, you must register in the Register of Business Enterprises, as this is mandatory. The registration in the Register of Business Enterprises allows you to benefit from legal protection to your business's name, as well as a company certificate as a reference for lenders, registrars, tax, and customs authorities. Most of the information in the Business Register is public and is, therefore, an important source of information for those who need secure access to a company's key information. The registration fee in the Register of Business Enterprises is NOK 2,250 (USD 220) in the case of electronic registration or NOK 2,832 (USD 245) in the case of registration using a paper form.
Duties and Responsibilities
Bear in mind that, even though setting up a sole proprietorship is pretty easy, this comes with high responsibilities.
The biggest one is that you will be liable for all the debts. As the owner, you will be personally liable for your proprietorship's finances and obligations.
In a sole proprietorship, the owner and the business are considered the same tax-paying entity so, as the owner, you will be personally liable for paying the enterprise's taxes and the taxes apply to the total income you are making.
A sole proprietorship isn't a taxable identity, meaning that the proprietorship is an unincorporated business with only one owner. Although this is the most common form of business for a small business, such as for freelancers or self-employed professionals. You better bear in mind, therefore, that it is not necessarily the best choice when both tax and non-tax factors are considered.
A sole proprietorship must pay advance taxes. You must submit form "RF-1102 Amend tax deduction card/advance tax" in order to have your advance tax calculated. The Norwegian Tax Administration will calculate how much tax you have to pay based on the expected profit. You will then receive a payment slip for each period (you will receive four bills). They are due on 15th March, 15th May, 15th September, and 15th November. You will receive a tax deduction notice that shows your advance tax calculations based on your business income as stated in your latest tax return.
Also, you must submit the RF-1224 form as an attachment to your tax return.
The ordinary tax return for income and wealth tax reports your profits or your deficits. The Skatteetaten will send out a payment slip for the appropriate period.
The tax rate is calculated by your total income, both from your business activity and from any other income.
Here you can find the tax rate for the year 2020.
Furthermore, if the proprietorship has a turnover that reaches NOK 50,000 over a 12 months period, you must register the company to the VAT-register. The standard VAT rate is 25%, applied to most goods and services.
The operating costs of the business are generally deductible. All costs and acquisitions must be documented with original vouchers and recorded in the proprietorship's accounts.
The costs of courses to keep you up to date on the subject you are working on can normally be deducted. However, continuing education and training cannot be deducted.
In order to claim deductions for startup costs incurred during previous years, complete the form RF-1298 "Oppstart av virksomhet" (Starting a business – in Norwegian only) in order to claim deductions for startup costs incurred during previous years. Submit the form together with the first income statement after the startup of your business.
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