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Starting Your OwnBusiness

An introduction to different aspects of Norwegian

regulations

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2/35 Copyright Bedin - 2 - Written and compiled by the Bedin team (www.bedin.no)

Table of Contents

PREFACE .....................................................................4

INTRODUCTION .............................................................5

Business climate in Norway ......................................... 5

Type of Business ......................................................... 5

BUSINESS OR HOBBY ACTIVITIES?.......................................6

Preconditions .............................................................. 6

Will your plans lead to real business or are you actually

a wage earner? ........................................................... 6

By own expenses and risks .......................................... 6

REGISTER YOUR BUSINESS................................................7

Initial registration ....................................................... 7

How to register the business? ..................................... 7

The name of your enterprise ....................................... 8

Register of Business Enterprises .................................. 8

The Central Coordinating Register for Legal Entities -

foreign entities ........................................................... 8

D-number ................................................................... 9

Authorisation ............................................................ 10

CHOICE OF BUSINESS ENTITY........................................... 11

Sole Proprietorship (Self-employed Business) ............ 11

General Partnerships ................................................. 12

Business with Limited Liability ................................... 12

Cooperatives (SA) ...................................................... 15

Norwegian branch of a foreign enterprise (NUF) ...... .. 16

Other types of enterprises......................................... 16

VALUE ADDED TAX (VAT) ............................................. 17

VAT - who and when ................................................. 17

VAT rates .................................................................. 17

Registration in the VAT Register ................................ 17

Registration by the use of a representative ............... 18Obligations and rights ............................................... 18

More information ..................................................... 18

Special conditions ..................................................... 18

ACCOUNTING AND AUDITING .......................................... 19

Legal Basis ................................................................ 19

Accounting ................................................................ 19

Required documentation ........................................... 19

Accounting principles ................................................ 19

Documentation of expenses and income ................... 20

Making your business documents valid ...................... 20

Annual report ........................................................... 21

Storage of records ..................................................... 21

Auditing .................................................................... 21

ILLNESS BENEFITS,OCCUPATIONAL INJURIES,PENSION SCHEME 22

Calculation of the basis for illness benefits ...... ...... ..... 22

Maternity benefits ..................................................... 22

Mandatory occupational pension ............................... 22

EMPLOYMENT ............................................................ 24

Registering the employee .......................................... 24

The Employee Register .............................................. 24

Employment contract ................................................ 25

Employers deduction of withholding tax ................... 25

How to report and pay the taxes withheld ................. 25

Responsibility ............................................................ 25

Duties ........................................................................ 25

TAXATION ................................................................. 26

Sole proprietorship (Self-employed business) ............ 26

Taxation of general partnerships (ANS or DA) ............ 26

Taxation of limited companies and shareholders ...... .. 26

MANDATORY LICENCES ETC. ........................................... 27

Authorization ............................................................ 27

Travel agencies, travel organizers etc. ........................ 27Catering businesses ................................................... 27

Transport business .................................................... 27

Currency regulations ................................................. 27

Building licence ......................................................... 27

Identity cards in the building and construction

industries .................................................................. 27

Schemes for entrepreneurs........................................ 28

IMPORT AND EXPORT OF GOODS ..................................... 29

Information from the Directorate of Customs and Excise

................................................................................. 29

BUSINESS PLAN .......................................................... 30

Before you start ........................................................ 30

Vision, mission statement and business idea .............. 30

Marketing .................................................................. 30

Further advice ........................................................... 31

The different sections of the business plan ................ 31

TAX AUTHORITIES ....................................................... 32

GLOSSARY ................................................................. 33

Who can tell ........................................................... 35

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Copyright Bedin - 3 - Written and compiled by the Bedin team (www.bedin.no)

AcknowledgementsThe text in this document is produced by Bedin based

on information from a number of different sources. Insome instances, the information has been somewhatshaped to suit the purpose of the guide. In others,such as references to legislation and regulations, andwhere the information already is available in English,we have given priority to precision and consequentlychosen to reproduce the contents from the properauthority. Nevertheless, all mistakes - both factualand with respect to language - are solely ourresponsibility.

Copyright Bedin

If you find errors or perhaps have other comments,please don't hesitate to contact us viawww.altinn.no

start and run business. Your contributions will beappreciated.

Our main sources:www.bedin.nowww.altinn.no

The Brnnysund Register Centre -www.brreg.no

The Tax Administration -www.skatteetaten.no/www.taxnorway.no/www.voesnorway.com

The Ministry of Finance -government.no (MF)The Ministry of Foreign Affairs -government.no

(MFA)andwww.norway.org.uk/

www.norway.no

Statistics Norway -www.ssb.no

The Norwegian Labour and Welfare Organisation(NAV) -www.nav.no

The Norwegian Labour Inspection Authority -www.arbeidstilsynet.no

The Ministry of Labour and Social Inclusion -government.no (MLSI)
http://www.altinn.no/http://www.altinn.no/http://www.altinn.no/http://www.bedin.no/http://www.bedin.no/http://www.bedin.no/http://www.altinn.no/http://www.altinn.no/http://www.altinn.no/http://www.brreg.no/http://www.brreg.no/http://www.brreg.no/http://www.skatteetaten.no/http://www.skatteetaten.no/http://www.skatteetaten.no/http://www.taxnorway.no/http://www.taxnorway.no/http://www.voesnorway.com/http://www.voesnorway.com/http://www.voesnorway.com/http://www.regjeringen.no/en/ministries/fin.html?id=216http://www.regjeringen.no/en/ministries/fin.html?id=216http://www.regjeringen.no/en/ministries/fin.html?id=216http://www.regjeringen.no/en/ministries/ud.html?id=833http://www.regjeringen.no/en/ministries/ud.html?id=833http://www.regjeringen.no/en/ministries/ud.html?id=833http://www.regjeringen.no/en/ministries/ud.html?id=833http://www.norway.org.uk/http://www.norway.org.uk/http://www.norway.org.uk/http://www.norway.no/http://www.norway.no/http://www.norway.no/http://www.ssb.no/http://www.ssb.no/http://www.ssb.no/http://www.nav.no/http://www.nav.no/http://www.nav.no/http://www.arbeidstilsynet.no/http://www.arbeidstilsynet.no/http://www.regjeringen.no/en/ministries/aid.html?id=165http://www.regjeringen.no/en/ministries/aid.html?id=165http://www.regjeringen.no/en/ministries/aid.html?id=165http://www.arbeidstilsynet.no/http://www.nav.no/http://www.ssb.no/http://www.norway.no/http://www.norway.org.uk/http://www.regjeringen.no/en/ministries/ud.html?id=833http://www.regjeringen.no/en/ministries/ud.html?id=833http://www.regjeringen.no/en/ministries/fin.html?id=216http://www.voesnorway.com/http://www.taxnorway.no/http://www.skatteetaten.no/http://www.brreg.no/http://www.altinn.no/http://www.bedin.no/http://www.altinn.no/

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There are few restrictions on starting a

business in Norway.

If you are at least 18 years old, not

declared incapable and not under

bankruptcy quarantine, you may establish

an enterprise. You don't have to live in

Norway yourself; however, the enterprise

must have a Norwegian address.

On the surface it seems uncompli-cated to start your own business.Registration is achieved by submittinga single form to the authorities. But ofcourse, there are a number of rulesand regulations that affect bothstarting up and running your business.And it is your responsibility to knowall aspects relevant to your business

enterprise.In addition to knowing the impli-

cations of the relevant legislation, youhave to make some decisions that willinfluence both formal aspects such asaccounting and auditing, and yourstatus as businessman or -woman.You may for instance be the owner ofand work in a sole proprietorship or,you may be employed by a companythat you in fact own. In this guide wewill outline how this will affect taxa-

tion, social benefits etc.

This guide is meant primarily for youwho are on the brink of starting yourown business, operating in Norway.

Admittedly, all aspects of thelegislation and the correspondingregulations are not easily accessed,particularly since a great part of therelevant material is available inNorwegian only. We have, however,done our best to use relevant sources,verify the terminology and explain theessential implications for the

entrepreneurs in a straightforwardmanner.

The early chapters deal with theformalities: How to register the busi-ness, the implications following thetype of business entity, taxation (inparticular Value Added Tax),accounting and duties as an employer.- Note that accounting and VAT are

dealt with in separate guides fromwww.bedin.no. Following that, weintroduce restrictions, i.e. businessesthat require some authorization orlicence. Also some aspects of importand export are introduced. Onechapter deals with the business plan,an important document in yourdealings with others, such as creditinstitutions. Finally, we provide ashort glossary where we explain andgive you the original Norwegian term

of some of the concepts used.

This guide is somewhat voluminous.Still, we cannot claim that we are ableto give you the full picture. We do,however, hope it will serve as asatisfactory starting point. And wemost certainly wish you the best ofluck with your plans as an entrepre-neur in Norway.

Remember that if you need furtherinformation, the Narvik BusinessInformation Services (800 33 840) isonly a toll free phone call away.

Preface
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Business climate in Norway

In Norway, stimulation of the

entrepreneurial spirit is a policy ofnational priority. Not surprising,knowing that the majority of thebusinesses our welfare will dependon 10 - 15 years from now do notyet exist.

Whether it can be attributed tothe industrial policies or not, willnot be discussed here, but it is a fact- according to the Global Entrepre-neurship Monitor (GEM) - thatNorway is among the top entrepre-

neurial countries in Europe. Thegeneral interest in starting onesown business is stimulated forinstance by competitions forprospective entrepreneurs and evenTV programmes on how totransform business ideas intosuccessful enterprises.

In simple terms one may say thatNorways economic policy is based

on the following pillars: Stabilize and counteract unem-ployment and inflation. Stimulate industrial growth in allparts of the country. Influence the structure ofindustry. Influence the distribution ofincome.

Regions with little industry aresubject to more lenient taxationthan other areas, for instance in theform of differentiated employers

contribution. Also, creditinstitutions have been established toprovide support to the regionalindustrial sector as well asagriculture, fisheries and certainother industries. The purpose ofthese schemes is to promoteinnovation and maintain localindustry

In addition to their financial andcredit policies, the centralauthorities have implemented an

income policy which involvestaking measures to influence theoutcome of the wage, agricultural

and fisheries settlement negotia-tions and more.

The distribution of income isachieved primarily through theregulation of and rates for incometax and social benefits, includingthe National Insurance Scheme.

Tax agreements for research anddevelopment expenditures, as wellas state support for research havebeen implemented to promote thegrowth of new industry.1

1

Source:www.norway.org(Edited fromAschehoug and Gyldendal 's Norwegian

Encyclopaedia)

Type of Business

For you, about to start your own

business, the choice of businesstype is often the first question toarise.

Starting a new business, thealternatives are normally:

Sole proprietorship / self-employedbusiness (In Norwegian "enkelt-personsforetak").

Partnerships (ansvarlig selskap -ANS or "Delt ansvar" - DA). In thisguide, we often refer to this type ofentity as unlimited

company/general partnership.A private limited liability company

(aksjeselskap - AS). In this guidemainly referred to as limitedcompany.

A branch of foreign enterprise

The choice has bearing on theresponsibility you assume as ownerof the business and your freedom tocontrol the assets of the business.

The company category should

match both the business sector andyour financial situation.

The type of business entity

affects:

Your responsibility as owner

The extent by which you may

control the assets of the business

Your personal responsibility for the

business debts

The formal bodies of the business,

i.e. general assembly, board or a

business manager

The standard types of businessenterprises are discussed in somedetail later. Note that this guidecannot give specific advice on whattype will suit your purposes. Wewill, however, try to cover theimplications on income, taxation

and possible debts associated witheach type of business entity.

Introduction
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Preconditions

For your actions to be regarded as

business activities, they mustinvolve transactions of an economicnature. What you do must show thepotential of producing a profit.However, not necessarily immedia-tely; - business resulting in lossesover the first few years is stillconsidered business as long as theactivities may generate a profit inthe future.

The tax authorities2 decide onhow your activities will be

regarded. They will consider theperiod over which the activities arecarried out, as well as the extent ofthese activities when deciding onthe nature, i.e. business or hobby.

Note that these conditions arenot absolutethere are no definitethresholds that must be exceededfor the hobby to be regarded asbusiness. However, in one case(business) all costs related to theactivities are deductible on your taxreturn, in the other (hobby) they arenot. It is therefore very importantthat you engage in a dialogue withthe Tax Office at an early stage toprevent any surprises later on.

Will your plans lead to realbusiness or are you actually awage earner?

The distinction between one and theother may be hard to detect.However, if you are going to ownthe operating assets, decide theworking hours yourself andpossibly experience losses, then youare most likely running a businessin the perspective of the taxauthorities.If you, on the other hand, only workfor a single principal who provides

2The organisation of the tax authorities

is explained in a later chapter.

Regarding the question of business orhobby, the Tax Office is the proper

authority.

all necessary tools/operating assetsand furthermore, decides on when

and how the work is to be carriedout, then you probably will beconsidered as an employee of theprincipal even if you haveregistered a self employed business.

By own expenses and risks

An important condition is that theactivities of the business enterpriseshall be carried out on the execu-tive's - often the owner's - own

expenses and risks.By own expense means thatthe executive covers the expensesrelated to the work. These can becosts of materials, purchasing costsand running expenses, etc.

By Own risks means that theexecutive has the responsibility forthe results of the assignment. Theprincipal can, for instance,complain if not satisfied with theresults.

Financial profit

The business must be able to gene-rate a financial profit over someperiod of time. It is not necessary tohave a profit immediately if it isconceivable that a profit will occurat some later stage.

Activity

The business must carry out someform of activity. Passive capitaldispositions such as stock

investments and letting of ownresidence do not constitute abusiness enterprise. However, theself-employed person does not haveto be active himself/herself, butmay instead have employees whocarry out the work.

One of the decisive conditionsfor acceptance by the TaxAuthorities is that the business bothinvolves activities of a certainextentand duration of a certain

period of time. Neither term isactually defined. The extent and

duration will be assessed by the TaxAuthorities. Single assignments or

casual assignments are not enoughto constitute a self-employedbusiness.

If several of the following pointsare true, you are most likelyrunning a business:

You have several principals on aregular basis, consecutively or atthe same time.

You have your own office orworkshop.

You provide the necessary rawmaterials yourself.

You use your own operating assetssuch as machines, transportation,computers.

Your turnover/revenue is generatedby delivered goods or servicesrather than per time unit. However,as a consultant, you may very wellbe paid by the hour.

The work does not necessarily haveto be carried out by you. Instead

you may use someone employed byyou.

The assignment is limited, bothwith respect to time and extent.

When the assignment is completed,you cannot demand another fromthe principal.

The principal has no professionalnor managerial authority over you.

The principal may complain andseek compensation if not satisfiedwith the result.

The principal pays for theassignment as a whole, not for theindividual elements such asmaterials, management, use ofmachinery etc.

The above list is not complete. Notethat there is no single point that isconsidered decisive. In fact, youmust expect the tax authorities toexamine your business as a wholebefore deciding whether you are

engaged in business or hobbyactivities.

Business or Hobby Activities?

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Initial registration

Central Coordinating Register for

Legal Entities3

In order to run a business enterpriseyou have to be registered in theCentral Coordinating Register forLegal Entities (CCRLE). Followingregistration, you will receive a nine-digit organization number used inbusiness documents and in yourinformation exchange with theauthorities. Unless you have a validorganization number, you cannotopen a bank account on behalf of

the enterprise. Furthermore, youcannot engage employees norregister in the Value Added Tax(VAT) Register.

How to register the business?

Having considered the differentaspects of becoming a businessmanor -woman, you are now ready totake the next step - registering yourbusiness.

The authorities must be notifiedwhen you found a company, whenemployees are hired and when youstart selling goods and/or servicessubject to VAT and other taxes. Ifat least one of the mentioned condi-tions applies, you must register thebusiness with the CCRLE. TheCoordinated register notification(see below) will save you fromreporting the different applicableissues to individual authorities.

If you have a Norwegian birth-number or a D-number theregistering can be doneelectronically throughwww.altinn.no

3

Seewww.brreg.no/english/registers/entities/

Prepare the Coordinated register

notification4

Obtain the form Coordinatedregister notification. Use theform's part 1 (main form), whichcan be downloaded fromhttp://www.brreg.no/ or orderedfrom the Narvik Business Hotline800 33 840 or BrnnysundRegister Centre by telephone, +4775 00 75 00.In the process of entering the data,it will normally become clear ifyour entity must be registered as abusiness enterprise, if you are anemployer and if you are eligible topay VAT on the goods and/orservices you sell.

Obtain the form Coordinated register

notification ("Samordnet

registermelding") from:

The Brnnysund Register Centre

The Norwegian Labour and Welfare

Organization (NAV)

The Tax Office

or

The Narvik Business Services,

tel. 800 33 840

The different authorities cooperateby exchanging the information witheach other. Hence, all informationmay be submitted to the Brnn-

ysund Register Centre, theNorwegian Labour and Welfare

4In Norwegian "Samordnet

registermelding". The form can be

downloaded from this website (in

Norwegian)

www.brreg.no/blanketter/hovedblankett.

html

A guide in English on how to fill in the

form is available on this link:http://www.brreg.no/blanketter/bin/BR10

18_en.pdf

Organization (NAV)5 or the TaxOffice. These offices may also

provide the form and help you fill itin.

At a later stage you will use thesame form for announcing changesrelated to the business. All the co-

operating bodies will have theirrecords corrected when you havenotified one office.

The following registers are associa-ted with the CCRLE:

The employee section of theEmployer/Employee Register

The Register of BusinessEnterprises

The Foundation Register

The Value Added Tax Register

The Statistics Norway's Register ofCompanies and BusinessEnterprises

The Norwegian Directorate ofTaxes' Register of limitedcompaniesA legal entity shall notify, and beregistered in, the CCRLE at thesame time as, or earlier than, it is

5NAV is the organization handling social

security services.

Register Your Business
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registered in one of the associatedregisters (see above).

The name of your enterprise

The name of a company is regulatedby the Business Name Act6. Theminimum requirement is a nameconsisting of at least three Norwe-gian letters, numbers, orthographicsigns and possibly the abbreviationidentifying the type of company.Thus, ABC AS and 2BIAS DA arelegal names. The name cannot beidentical to names already Regis-

tered in the Register of BusinessEnterprises. The term identicalshould be understood quite literally,taking into account all letters,spaces, numbers and signs.However, the letters identifying thetype of company are not included.Consequently, the names KARI ASand KARI ANS are consideredidentical. Note also that theassessment of identical enterprisenames is independent ofmunicipality (location of thebusiness) and business sector.

For sole proprietorships (self-employed) businesses, the rulesdiffer somewhat. The family nameof the owner must be included, e.g.HANSENS BAKERY and CARREPAIR OLE OLSEN. The familyname may be used alone, meaningthat HANSEN, MOER andVREGRD may be registered. Ifonly the family name is used, there

is no check for or prohibiting ofidentical names.Foreign companies registering abranch in Norway may use the samename as in the country of origin,even if the name consists of lessthan three letters and/or is identicalto the name of a municipality, acounty or a country. One restrictionthough, the name cannot includeletters or signs that are notidentified as accepted letters/signs

6In Norwegian called "Foretaksnavne-

loven".

in the Register of BusinessEnterprises.

Register of BusinessEnterprises

The Business Enterprise Registra-tion Act7 lists a number of differenttypes of organizations that have toregister. Generally, the registeringin the Register of BusinessEnterprises is mandatory for all whoconduct business activities and allenterprises with limited liability.

The register serves different

purposes. And an important one isto maintain a correct record ofpeople that may be held responsiblefor actions in the name of thecompany.

In sole proprietorships, there canbe no doubt as to who is the respon-sible person. Therefore, such enter-prises are exempt from the generalregistration duty. However, soleproprietorships either selling goodspurchased for such purposes and/oremploying more than fiveemployees in full-time posts arerequired to register. Sole proprie-torships not required by the act todo so, may register on a voluntarybasis.

Foreign entities are obliged toregister in the Register of BusinessEnterprises if they conduct businessactivities in Norway or on theNorwegian continental shelf.

Registration in the Register of

Business Enterprises ensures thefollowing to a business enterprise:

The right to operate a business

enterprise.

Legal protection of the businessname.

A certificate of registration asidentification for lenders, legalregistration authorities, and customsand excise authorities.

A business enterprise

organization number as important

7In Norwegian: Foretaksregisterloven.

identification to authorities and forcoordinating private and public

business registers.Identification of the executives of

a business enterprise.

The Central CoordinatingRegister for Legal Entities- foreign entities

For foreign entities, the CentralCoordinating Register for LegalEntities and the Register ofBusiness Enterprises shall comprise

the following information:1.Name, type of organization and

business address of the foreignentity.

2.Owner, participants with fullliability or fully liable partners orthe board of directors; their names,dates of birth, addresses and therelevant signature authorisations.

3.Share capital if the entity is alimited company and how much ispaid up. If the share capital is notfully subscribed, only the sub-scribed capital can be stated asshare capital.

4.The memorandum of associationand the articles of association of themain business enterprise.

5.The state by whose legislation theentity is bound. Whether the entityis registered in a public register ofbusiness enterprises in its homecountry, and if so, the name andaddress of this register and the

registration number.6.Name and address of any business

premises or permanent establish-ment in Norway or on theNorwegian continental shelf.

7.The type of business activities thatwill be conducted.

8.The board and general manager ifelected or employed specifically forthe activities, and if so, whether

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they are entitled to bind the entityby signature or per procurationem8.

Note that 2, 3 and 4 above may beomitted if recorded in a foreignregister of legal entities as stated inno. 5 above. The foreign registermust be approved by the King ofNorway. If applicable, the registerwill also contain information relatedto dissolution of the main company.

Special requirements for entities

that carry out VAT-eligible

activities in Norway:

Foreign entities without a perma-nent establishment in Norway andwhich are subject to the stipulationsof the VAT Act, must appoint andreport a Norwegian representative.The VAT representative can be aphysical or legal person. Therepresentative must have a residen-tial/business address in Norway.The representative is jointly andseverally liable for payment of VATtogether with the foreign entity.

The required information must berecorded in the Coordinated registernotification, partly in the MainForm, partly as attachments (seebelow).

Signature

If the register return only refers tothe Central Coordinating Registerfor Legal Entities, it shall be signedby the general manager, business

manager or another responsiblecontact person.Notice of first time registration

in the Register of BusinessEnterprises shall be signed by theboard members of the Norwegianenterprise. If such a board does notexist, the general manager shallsign. If there is no general managereither, the register return shall besigned by an authorised signatory inthe country of residence.

8A legal term often abbreviated p.p.

meaning by agencyor by proxy.

Register Return attachment

requirementsMemorandum of Association and

Company Articles of Association.Certificate of registration from the

register of business enterprises orregister of companies in the countryof residence.

Minutes from the competent bodyin the entity documenting theelection of any board and generalmanager specifically for theactivities in Norway.

Minutes from the competent bodyshowing the allocation of signaturesor authorisations for the entity whensuch information is not stated on thecertificate of registration from thecountry of residence.

Foreign entities that will operate viaa VAT representative must attachminutes from the competent bodydocumenting the appointment of therepresentative, and a statement fromthe representative that he/she

accepts joint responsibility with theentity for ensuring that VAT iscalculated and paid.

Information that does not appear oneither the certificate of registrationor the articles of association mustbe verified in the form of minutesfrom the competent body in theentity.

Registration in the Register of

Business Enterprises also requires:

Minutes from the competent bodyin the entity verifying the decisionto establish activities in Norway. Ifthe notice is signed by an authorisedsignatory in the entity, it is notnecessary to submit theaforementioned minutes from thecompetent body in the entity.

Documents that contain registrationinformation shall be in Norwegian.In extraordinary circumstances,documents in other languages willbe accepted at the discretion of theregistrar. It may be required to

submit a translation confirmed by atranslator authorised by the

Norwegian authorities.

D-number

All persons holding positionsidentified by the Coordinated

register notification, e.g. the generalmanager and those authorized tosign for the company, shall beidentified by a personal identitynumber/D number/organizationnumber, personal name/name ofenterprise and address. Foreigncitizens without a Norwegianpersonal identity number must statetheir D-number (11 figures). If a D-number has not been allocated, theCentral Coordinating Register forLegal Entities will requisition onefrom the Norwegian NationalCensus Register (PersonregisteretSkatt nord). Use the form "Request

for assignment of D-number" andattach a signed copy of the foreignperson's passport.

The form can be downloadedfrom the Brnnysund RegisterCentre (D-number form). Personalidentification numbers and D-numbers are confidential and willnot be disclosed to unauthorised

persons.
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Authorisation

Some types of businesses require

authorisation before starting up orthe business is conducted. Authori-sation is for instance required forbusinesses like: Driving instructors,doctors, physiotherapists, auditors,accountants, lawyers, stockbrokers,real-estate brokers to mention some.

If your business falls within theabove categories, is a matter thatshould be raised with the properauthorities. Admittedly, it is some-times difficult to identify the correct

authorities, and if in doubt, contactthe Narvik business hotline (800 33840).

You will find further information onlicenses in a later chapter.

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Init ial considerations

One of the first questions arisingwhen establishing a new business,is; what type of entity will be most

beneficial? Unfortunately, there isno single, definite answer to thatquestion. You will have to considerthe pros and contras, and perhapsseek advice from someone who hasbeen in the same position.

Representatives of theauthorities will, in general termsand to the best of their abilities, tryto outline the consequences of thedifferent alternatives, but youcannot expect advice with regard to

your particular situation.Note that your choice willinfluence aspects like the extent ofyour personal responsibilities, risks,taxes, rights and duties, and yourliberty to manage the assets of thecompany.

It is therefore natural (in somecases even necessary) to seekadvice from accountants, auditors,lawyers or other professionalsbefore the final choice is made.

When you start a new and probablysmall company, you normally facethe following alternatives:

Sole proprietorship (self-employedbusiness)

General Partnerships (ANS andDA)

Limited liability company (AS)Cooperative (SA)

Sole Proprietorship (Self-employed Business)

The sole proprietorship is a type oforganization where a single and realperson is responsible for thebusiness. As the name suggests, asole proprietorship will have justone owner.

In such a company you haveextensive financial freedom. Youare, however, also financiallyresponsible for all debts andobligations incurred by thecompany. Note that there is no

distinction between personal andenterprise liabilities: You arepersonally responsible for thecompany's debts, even with yourpersonal wealth and possessions.

In order to establish a sole proprie-torship, you must be at least 18years old, and you must not berestricted by bankruptcy quarantine.You do not have to be a resident ofNorway. However, the businessenterprise must have a Norwegianaddress.

All sole proprietorships may (butare not required to) register in theCentral Coordinating Register forLegal Entities. The registration isfree of charge. Sole proprietorshipsalso have the right to register in theRegister of Business Enterprises,but a fee is charged. If the businessengages at least five employeesand/or is conducting trade,

registration is mandatory.You may experience that manysuppliers will ask for yourorganization number in the CentralCoordinating Register for LegalEntities, perhaps to check if the newenterprise is real, i.e. another incen-tive for registering your business.

Many entrepreneurs start theirbusinesses as a sole proprietorship,but reorganize to a limited liability

company (AS) at a later stage, forinstance when the business grows.Doing so is simple. The opposite

however, transforming an AS to asole proprietorship, is much more

complicated.There are no restrictions on recei-ving a wage or salary and at thesame time running your own soleproprietorship. Inform the LocalTax Assessment Office that yourtotal income will consist of incomefrom paid work and profit onbusiness activities. On the basis ofthe information from you, the taxoffice will estimate your totalincome, thereby determining the

advance tax9 payments.

In sole proprietorships the net profitis subject to taxation, together withpossible income from paid work.On the other hand, given an overallpositive income, loss from thebusiness enterprise is deductible.The latter may be a great help in thestart up process, if you hold on toyour position in another companywhile trying to make your sole

proprietorship a success.

A common misunderstanding is thatyou only pay tax for the amount ofmoney you withdraw from yourcompany. This is not correct. Evenif you withdraw nothing, the netprofit of the company is taxeligible.

Income from the sole proprietorshipis calculated as part of yourpersonal income. Together with thestandard personal tax return10, youhave to fill in a business enterprisereturn that informs the tax authori-ties about the financial situation andperformance of your company. Theprofit of the company is transferredto the income part of your personaltax return.

9

The glossary gives an explanation ofadvance tax.10

See the glossary

Choice of Business Entity

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The deadline for submitting thereturn(s) follows the deadline for

business enterprises.As the sole proprietor by definitionis not a wage earner, he or she isnot, in case of illness or sick leave,automatically entitled to socialbenefits from the first day ofabsence. Note that a medicalinsurance is not mandatory. Neitherdoes the proprietor have to set asidemoney for holiday leave for him- orherself. The sole proprietor has norights regarding the state guarantee

concerning wage claims in case ofbankruptcy, nor compensation fortemporary or permanent lay-off.

General Partnerships

A general partnership is a companywith unlimited liability where thereare two or more owners, oftenreferred to as companions(partners). In such a company theowners have a personalresponsibility for the overallliability of the company, in full orin part, however, in a way thatcollectively covers the debt of the

company.

In practical terms we distinguishbetween two main types ofunlimited companies:

ANS (responsible company):

In this kind of partnership theowners are jointly and severallyliable for all debts. The amount ofdebt one owner is unable to cover,may be charged each one of the

other owners.

DA (Collective responsibil ity):

In this kind of unlimited liability

company the owners arecollectively responsible for alldebts. However, each owner isresponsible only for a partcorresponding to his/her part of theownership.

A creditor cannot, for instance,charge more than 10 per cent of thedebt from the owner holding only10 per cent of the ownership, evenif the other owners are unable tocover their parts.

When an ANS or DA type ofcompany is established, a companyassembly is mandatory. You andyour partners are required to make awritten and dated agreement signedby all partners. The minutes fromthis meeting, signed by all partners,together with the companyagreement must be submitted to theRegister of Business Enterpriseswhen you want to register thecompany. You should be aware of

some formalities: The companyagreement must as a minimumstate:

(a) The name of the enterprise.(b) Names and residential addressesof all active partners. Note that thecompany also may have so calledsilent partners, i.e. partners who donot represent the company in anyexternal relations nor have a sub-stantial ownership/responsibility.

(c) The purpose of the company.(d) The municipality where thecompany has its main office.(e) If the partners are makingcapital investments, in which casethe value of the investments mustbe stated.

In addition, the owners/partnersoften draw an agreement thatregulate the relations between them.Note that it is up to the partners todecide if any valuables should be

deposited in the company or not.The act does not require a cash or a

nominal start-up capital. You maydecide to make investments not

consisting of cash, for instance anoperational asset required for thebusiness.

In an unlimited liabilitycompany, the deposit or start-upcapital does not hold the samesignificance as it does in a limitedliability company. The reason is ofcourse that if necessary, you andyour partners are obliged to coverany debts with your personal assets.

It is simple to transform an ANS or

DA to an AS (limited liabilitycompany), the reverse however, ismuch more complicated.

Unlimited liability companies aresubjected to partner taxation. Thismeans that each partner is apersonal tax payer, where his/herpart of the profit (or loss) is treatedtogether with other personal incomeand deductible expenses. If yourownership in the company is 25 per

cent, then 25 per cent of the netprofit is added to your personalincome. Also, 25 per cent of thevalue of the company capital assetsis added to your personal property.

The actual ownership, i.e. yourpart of the company is stated in thecompany agreement.

Business with Limited Liability

Private limited liability companies -

identified by AS - or public limitedliability companies - identified byASA - are enterprises where noneof the participants are personallyliable for the company's obligations.

The founding and operation of alimited liability company isgoverned by Act no. 44 from 1997,The Limited Liability Company

Act (In Norwegian: Aksjeloven). In a limited liability company,

none of the owners are responsible

for more than the sum paid as sharecapital. You may, however, berequired to secure the company

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loans by a personal guarantee,collateral or some other form of

surety. In case of bankruptcy, yourliability is then the share capitalplus the collateral.

The actual responsibility islimited to the share capital itself,i.e. the nominal value of the sharesany owner owns. The company'screditors may only seekcompensation from the assets of thecompany.

Should a bankruptcy occur, thecreditors cannot demand compen-

sation from the shareholders.Neither can the creditors demandthat the shareholders pay up addi-tional capital into the companybeyond the sum required as thenominal value of the shares.

Since the creditors may onlydemand payment from the valuablesand assets of the company, fromtheir point of view it is importantthat the company is sound and has afair working capital that is not

likely to be withdrawn from thecompany. The Limited LiabilityCompany Act therefore states thatall the shareholders have to pay aminimum amount of money theshare capitalthat the ownersnormally cannot withdraw from thecompany.

In addition, the act states anumber of conditions limiting theowners' right to use the capital andvaluables of the company. Thereare, for instance, rules limiting theamount given as share dividends.

Likewise, there are limitations tothe amount of money the ownersmay lend from the company.

The Act states that the share capitalshall be at least NOK 30 000. Onemight say that this is the entrancefee for establishing and running abusiness where the owners enjoylimited liability.

The share capital may be linked

to a single or a number of shareswith the same nominal value. Any

one shareholder may own one ormore shares.

The liability of a shareholder islimited to the capital paid to thecompany.

The exception is when theowners violate the conditions statedin the Act, in order to protect theshare capital or in the instanceswhere the owners clearly haveconducted acts that jeopardize thevaluables of the company or put thecreditors at a risk of suffering aloss.

If that is the case, the share-

holders may be held responsible andliable to pay compensation for theloss suffered by the company or thecreditors.

Beware also that the standardrule of limited liability may beoverruled by agreements. In casesof mortgages or loans, it iscustomary that the banks demandthe shareholders to personallypresent guarantees that secure theloans established in the name of the

company. Such a guarantee meansthat if the company is unable tomeet its obligations, the bank maydemand the shareholders who havesigned the guarantee to personallyhonour the obligations.

The shareholders

The shareholders are the owners ofthe company. The term "share"simply means a part ownership ofthe company. One or more personsmay own the company, and a singleperson may own one or more

shares.When a share of the company isacquired, one particular responsibi-

lity is assumed, - the responsibilityto pay for the share within the time

limit expressed in the Act. Ascompensation, the shareholder getsa number of "rights" in his/herdealings with the company.

The shareholder is for instanceentitled to his/her share of theprofit, and he/she may attend thegeneral assembly and vote on theissues raised.

The share is, as previouslymentioned, a part ownership in acompany and may as such beregarded as an asset. Shares may be

traded or mortgaged, but note theconditions that may apply. When ashare is sold, the buyer alsoreceives the rights associated withthe share.

As shareholder in a companyyou may withdraw money as sharedividend or receive a salary for yourwork in the company. There arestrict rules regarding the amountgiven as share dividend.Many entrepreneurs starting limited

liability companies also work intheir own businesses, receivingcompensation in the form ofsalaries/wages. In such a case youare a wage earner in your owncompany and will enjoy the benefitsas well as the drawbacks of such aposition. For instance, the companydeducts tax according to the tax ratedecided for you. In addition, thecompany will have to pay payrolltax on your gross wage/salary. Onthe other hand, being a wage earnermeans social benefits, for instancein case of illness, not available tothe sole proprietor.

Company articles

All companies with limited liabilitymust have Company Articles ofAssociation. The Act states certainminimum conditions that thearticles must fulfil. In addition, theCompany Articles may coveraspects not explicitly stated in the

Act.

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Note that the Act in fact givesextensive rights to state other

Company Articles than those thatotherwise would apply according tothe words of the Act. The CompanyArticles may only be altered by theGeneral Assembly.

Among other things, the company

articles should state:

The name of the company.

The name of the municipality from

where the company will operate.

The type of business.

The share capital. The nominal value of each share.

The number of members of the

board.

A list of issues to be addressed by

the general assembly.

Memorandum of Association

In addition to the CompanyArticles, the Act requires certainadditional contents of theMemorandum of Association:Primarily, all founders must beidentified by name, address andpersonal identification number(fdselsnummer).

The memorandum must also statehow many shares each founderbuys. One person may buy severalor even all shares, and the foundersmay buy different number of shares.

The memorandum must state theprice for each share. It may bedecided that the share subscriptionbe paid in the form of money or inother goods/valuables. If the latter,there are certain rules as to thedocumentation of the value of thegoods/valuables.

Note that the sum paid for the sharecan never be lower than the nominalvalue as indicated by the Company

Articles. However, it may behigher.

In such a case, it is said that theshares are bought at a premium.

The Memorandum of Associationdeclares the latest date for paymentof the share capital into the com-pany's account. The Act states thatthe share capital must be paid in fullbefore the company is registered inthe Central Coordinating Registerof Legal Entities. The companymust be registered within 3 monthsafter the signing of the Memoran-dum of Association. Consequently,it is advised that the final date for

payment of the share capital isbefore the 3 months have passed.In addition, the memorandumdecides the members of the boardand the auditor of the company.

General Assembly, board of

directors and managing director

The top-level body of the companyis the General Assembly. All theshareholders have the right to attendthe General Assembly, and nor-

mally, the right to vote. Usually oneshare gives one vote.

In addition, the company musthave a board (of directors). Themembers of the board are respon-sible for the day-to-day businessaffairs of the company.

The company may also have amanager. For companies with ashare capital of less than NOK 3million it is not necessary toappoint a general manager.

In small companies, organisingthe management of the companymay be very simple. Often it issufficient that the company hasappointed a board (of directors).The board may even have only onemember, possibly, but notnecessarily one of the shareholders.

In general, the enterprise may itselfdecide on the number of memberson the board. However, if the sharecapital is NOK 3 million or more, at

least three members are required.The actual or minimum number of

members must be stated in theCompany Articles.

The board is elected by thecompanys General Assembly. The

General Assembly decides onelecting/appointing deputies to theboard members. At least one deputyis required if the board only has oneor two members.

At least half the number of theboard members must either havepermanent residence in Norway orlive in and be subjects of EuropeanEconomic Area (EEA) states.

The members of the board arenormally elected for two years. TheCompany Articles may decidelonger or shorter service times, butfour years are the maximum. Theservice time ordinarily starts at thetime of election, and lasts until theconclusion of the General Assemblyin the last year of service.

The board has the actual leadershipof the company, not only the

business part, but also the overalloperations and conduct of thecompany.

According to the LimitedLiability Company Act, the boardhas the responsibility to ensure thatthe company is adequatelyorganized. In addition, the boardmust see to that necessary plans andbudgets are worked out.

Managing Director

Appointing a director or not, shouldbe decided based on the bestinterests of the company. The boardwill normally look for the type oforganization that is both sound andbest suited to the expected businessoperations.

Managing director is the LimitedLiability Companies Acts term for

the person in charge of the day-to-day operations of the company.

Different terms may be used,e.g. in Norwegian administrerende

direktr, forretningsfrer,"daglig leder", etc. The Act applies

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whatever title is given to themanager.

The managing director is nor-mally employed by the company. Inaddition, the manager may well be amember of the board. That isentirely left to the discretion of theGeneral Assembly.

The manager must be a residentof Norway, or be a subject andresident of one of the EEA membercountries.

Summing up:

Private limited companies arerequired to start with a share capitalof minimum NOK 30 000. In addition to cash, the sharecapital may consist of assets, suchas machinery, cars and office equip-ment. The founders must prepare astatement of such share capitalentries. An auditor must confirmthe statement. One shareholder is sufficient. At least 50 per cent of the boardmembers must be residents ofNorway. In addition, the managingdirector must be a resident ofNorway. The provisions do notapply to citizens of states within theEEA when named citizens areresidents of these states. The company must be founded,must prepare company articles andhold the forming general assemblyin accordance with the LimitedLiability Company Act. The company must be registered

with the Central CoordinatingRegister of Legal Entities within 3months of the forming generalassembly. The company is required toengage an auditor. The company must submit theannual report to the Register ofCompany Account at theBrnnysund Register Centrebefore 1 August the year after theend of the financial year.

Cooperatives (SA)

By a cooperative is meant a group

whose main objective is to promotethe economic interests of itsmembers by the members takingpart in the society as purchasers,suppliers or in some other similarway, when

1.the return, apart from a normalreturn on invested capital, is eitherleft in the society or divided amongthe members on the basis of theirshare of the trade with the group,and

2.none of the members are personallyliable for the groups debts, either

in whole or for parts which togethercomprise the total debts.

The members are not obliged tocontribute capital to the cooperativeunless the individual member hasagreed to this in writing whensubscribing for membership or in aseparate agreement. Any duty tocontribute capital must be limited

either to a certain amount or insome other way. The requirement ofagreement does not apply to a dutyto pay a membership contribution ifso stipulated in the statutes.

A cooperative may be establishedby at least two persons and mustalways have at least two members.Should there be fewer members, theenterprise is to be dissolved.

Both natural persons and legalentities may be founders of the

society. Those who are not of legalage and capacity may not befounders.

The founders must date and sign amemorandum of incorporation.Once all the founders have signedthe memorandum of incorporation,the membership has beensubscribed for and the enterprisehas been established.

Requirement as to the content of the

memorandum of incorporation

The memorandum of incorporationshall contain statutes for thecooperative, see below.

The memorandum of incorporationshall also state:1. the founders names or business

enterprise names, addresses anddates of birth or organisationnumbers,2. the names, addresses and dates ofbirth of those who are to be boardmembers.

If the founders are to contributecapital in connection with theestablishment of the enterprise, thememorandum of incorporation shallalso state:1. the amount that each founder isto pay and the total capital that thefounders are to contribute,2. the date when the capital is to becontributed.If one or more of the founders are tosettle a capital contribution in assetsother than money, the memorandumof incorporation shall state theassets concerned, the name andaddress of \the founder concernedand the terms that are to apply.

The statutes shall as a minimum

contain provisions regarding:

the enterprises name,

the municipality in Norway wherethe enterprise is to have itsregistered office,

the activities to be carried out bythe enterprise,

the size of any membershipcontributions, whether interest is tobe paid on these, and whether theseare to be repaid if a memberwithdraws from the enterprise,

whether a membership fee ispayable,

how the annual profit may beutilised,

the number of, or the lowest and

highest number of, board members,

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the issues that are to be discussed atthe ordinary general meeting and

how the net assets are to be dividedif the enterprise is dissolved.

European Cooperative Societies

a new kind of enterprise entity in

Norwegian legislation

The Act on European CooperativeSocieties (the SCE Act) will make iteasier for a cooperative to move itsheadquarters from one EEA countryto another without having todissolve the enterprise in the first

and re-establish it in the nextcountry.

Norwegian branch of a foreignenterprise (NUF)

A foreign enterprise that wishes toextend its operations to Norway,may register a branch of theenterprise in this country.

If a branch is established in

Norway, it is the main office(headquarter) that is responsible forthe Norwegian part of theoperations.

If the branch has no employees,a Norwegian representative must beappointed. The representative willbe responsible for tax obligations.The branch is normally obliged topay taxes to Norway, and mustotherwise operate according to theNorwegian legislation. If foreigncitizens are employed, these musthave work and residence permits.

There are no equity capitalrequirements in order to set up thebranch. To register the business,one submits the form Coordinatedregister notification to theBrnnysund Register Centre. Thefollowing documents mustaccompany the return:

A certificate of registration from theauthorities in the country where themain office is located.

The main office's memorandum andarticles of association.

Minutes from the managing boardof the enterprise showing that a

decision has been made to set up theNorwegian branch.Name of the person responsible for

the Norwegian branch, oralternatively, the Norwegianrepresentative and a declaration ofconsent from him/her.

All documents and attachmentssubmitted to the Register ofBusiness Enterprises must be in theNorwegian language.

The business address (inNorway) of the branch must bestated.

Note that the Coordinated registernotification must be signed by themembers of the board and themanager in Norway. If neither isappointed, the return must be signedby the person authorized to committhe enterprise by his/her signature.

A Norwegian branch of a foreign

enterprise must submit the annualreport of both the Norwegianbranch and the foreign enterprise tothe Register of Company Accountat the Brnnysund Register Centrebefore 1 August the year after theend of the financial year.

Bankruptcy in a Norwegian branch

of a foreign enterprise (NUF)

The manager or representative of

the branch may petition forbankruptcy. Only the part of theenterprise located in Norway will betaken under bankruptcyproceedings. The trustee (appointedby the court) will notify the foreignenterprise register about thepossible liquidation of the branch.

Other types of enterprises

Associations and Societies

There are types of organizationswhich are not regulated by specific

acts, but nonetheless, are subjectedto certain rules and conditions. Such

organizations may be societies,associations and for instance charityorganizations (often referred to asNGOs - non-governmentalorganizations).

If you want to register a societyin the Central Coordinating Registerfor Legal Entities, you have tocertify that the organization isfounded and currently exists.Hence, you need to submit both theArticles of association and thefounding document in order to

register.

You may find other types ofenterprises like limited partnerships(in Norwegian "kommandittsel-skap") and foundations. These typesof companies are rarely used forbusiness activities conducted bysmall and medium sized enterprises(SMEs). Hence, they are notconsidered here.

When you:

establish a company

hire employees or

sell goods and services liable to

VAT and other taxes

the authorities must be notified

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VAT - who and when

The Tax Office maintains records of

businesses that are obliged to payVAT (the VAT Register), and isresponsible for the administrationand control of VAT.

The part 2 of the Coordinatedregister notification is dedicated tocompanies that are affected by theVAT regulations.

All people running businessesthat sell goods or VAT eligibleservices are obliged to register inthe VAT register when the turnover

exceeds NOK 50 000 over a periodof 12 months.If you are registered in the VAT

register, you are allowed to deductVAT from the cost of the goods andservices used in your own VATeligible business.

For charity and publicinstitutions and organizations, theregistration limit is NOK 140 000.

General rule

A complete presentation of the rulesgoverning VAT is found in theVAT Act. The general rule is that

VAT (output tax) is calculated onall sales of goods and services,..VAT on purchased goods andservices (input VAT) aredeductible.

Certain expenses do not qualifyfor deduction of input VAT. Amongthese are food expenses, payment innatural goods and representationexpenses.

All input VAT deductibles mustbe qualified by genuine documenta-tion, e.g. invoices, sales documentsetc.

When goods are imported, thecustoms declaration11, together withan account statement from thecustoms treasurer, serve as docu-mentation of deductible input VAT.

11The declaration is received from the

TVINN system (the Directorate ofCustoms and Excise's information

system for business enterprises)

If a cash payment has been madefor the imported goods, the import

declaration, stamped by the customstreasurer/office will serve as docu-mentation of deductible input VAT.

Foreign businesses engaging inactivities which are liable to VATregistration shall calculate and payVAT according to the same rules asNorwegian businesses.

VAT shall be paid on the salesof all goods and services, unlessthey are specifically exempted fromVAT liability. VAT is also charged

on the withdrawal by the owner ofgoods and services from his ownbusiness when such goods andservices are for private use or forother purposes falling outside thescope of the VAT Act.

The supply of certain goods andservices are exempted from VAT,for example sales and letting of realproperty and rights to real property,financial services, health care

services, social services andeducational services. A wide rangeof services in the cultural area areexempted. The same applies tocertain services in the touristbusiness, like guide services.Taxable entities with only exemptedsales shall not register for VAT anddo not get credit for input tax onpurchases.

Some sales of goods and servicesare exempted from output VAT, butqualify for deduction of input VATunder certain conditions. Suchconditions include for instanceexport of goods and services, salesand services to foreign ships orNorwegian ships engaged in foreigntrade, to aircrafts in internationalroutes and sales and services for usein the offshore petroleum industries.Note that companies engaged insuch sales still are obliged toregister for VAT.

VAT shall be calculated and paidon the importation of goods. For the

purpose of VAT liability, it isirrelevant whether a consumer or ataxable entity imports the goods.VAT must also be paid on thepurchase of services from abroad.Liability for VAT exists if thepurchaser is a taxable entity or apublic institution and the servicewould be liable to VAT if suppliedin Norway.

VAT rates

The standard rate of VAT is 25 percent. The rate of VAT on the salesof foodstuff is 15 per cent. The rateon public transport, on letting ofrooms in hotels, motels and touristcabins etc., and the hiring out ofcamping areas, cabins, and holidayflats is 8 per cent.

Registration in the VAT

RegisterBoth foreign and Norwegianbusinesses supplying goods andservices in Norway, shall register inthe VAT register when their sales orwithdrawals of such goods andservices exceed NOK 50 000 over aperiod of 12 months. A writtennotice of the business activitiesshall be sent to The CentralCoordinating Register for LegalEntities (CCRLE) or to the TaxOffice where the foreigner (or hisrepresentative) has his place ofbusiness/residence. The writtennotice shall be given by filling inthe registration form "Coordinatedregister notification" part 1 and 2. Ifthe business is already registered inCCRLE and has given all thenecessary information to thisregister, only part 2 of theregistration form shall be filled in.

The registration can also be done

electronically throughwww.altinn.no

Value Added Tax (VAT)

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Registration by the use of arepresentative

A foreign non-established businesswith taxable activities in Norway,must register for VAT through arepresentative. When registeredthrough the use of a representative,the foreigner gets the same rightsand obligations as those that followa normal VAT registration.

The only requirement therepresentative must satisfy is that heor his business is resident inNorway. For instance, it is not

required that the representative is aqualified auditor or accountant etc.Both the foreign business and

the representative shall sign theregistration form.

The foreign business must keep acomplete account of its taxableactivity in Norway. Therepresentative shall keep a separatecomplete account of the activities inNorway (purchases and sales) bythe foreign business.

The invoices for the foreignbusiness sales in Norway shall besubmitted by the representative. Thename and address of therepresentative as well as the foreign

business registration number(organization number) followed bythe letters MVA should be evidentin the invoice. The calculated VAT(output tax) must also be specified.The invoices shall be issued in at

least 3 copies, and at least one ofthem shall be kept by therepresentative.

Both the foreign business and therepresentative are responsible forthe calculation and the payment ofthe VAT.

Obligations and rights

A business established or resident

in Norway must carry out itsbookkeeping according to the

Norwegian accounting acts.Norwegian and foreign businesses

that are registered in the VATregister shall calculate and payVAT (output tax) on their sales ofgoods and services in Norway. Aforeign business is entitled todeduct VAT paid on goods andservices which are to be used in hisNorwegian business (input tax). Theright to deduction also includesVAT collected by the CustomsAuthorities at the importation ofgoods and VAT paid on thepurchase of services from abroad.

VAT-registered persons mustsubmit returns on a bimonthly basisto the Tax Office. The use ofshorter periods may be granted ifinput tax regularly exceeds outputtax by 25 percent or more. Taxablepersons with supplies of underNOK 1 million per year may applyto submit VAT returns annually.

The VAT return must be submitted

and VAT be paid one month and tendays after the end of each period,see the VAT Act Chapters 8 and 9.

More information

For additional information, pleaserefer to the brochure titled Guide toValue Added Tax in Norway. TheVAT provisions are laid down inthe Act relating to Value AddedTax of 19 June 2009 no. 58. Both

are available from the NorwegianTax Administration website atwww.skatteetaten.no/. Note that theguide and translated Act may notreflect the latest amendments to theAct.Further information can be obtainedfrom the Tax Office.

Special conditions

Foreign suppliers of electroniccommunications services are

obliged to calculate and payNorwegian VAT when such

services are supplied to privateindividuals and other persons that

are not engaged in business orpublic institutions, and who areresident in Norway. In these casesVAT shall be calculated andcollected by the foreign supplierthrough a representative who musthave his residence or his place ofestablished business in Norway.
http://www.skatteetaten.no/http://www.skatteetaten.no/http://www.skatteetaten.no/

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Legal Basis

Accounting and bookkeeping

obligations are determined by twoseparate acts, the Accounting Actand the Bookkeeping Act. In simpleterms the former states the types ofbusiness entities that are required toproduce annual accounts and theobligatory contents of theseaccounts. The latter states thebookkeeping duties and records. Allbusiness entities regulated by theAccounting Act are also obliged toapply bookkeeping pursuant to the

Bookkeeping Act. In fact, all legalentities carrying out businessactivities or participating in suchactivities in Norway are obliged tobookkeeping.

Note that accounting and book-keeping are addressed in a separateguide found in Bedin: TheAccounting Guide.

AccountingThe Accounting Act states thatforeign enterprises carrying outbusiness activities or participatingin such activities in Norway, andwho are subject to Norwegiantaxation according to domesticlegislation, are obliged to keepaccounts pursuant to theAccounting Act.

This implies, among otherthings, that enterprises must registertransactions that are of importanceto the size and composition of theirassets, liabilities, income andexpenses in an accounting system.

The registration must compriseall information that is of importanceto the preparation of the annualaccounts and other financial reportsthat are required by acts andregulations (statutory reporting).

The accounting system must itemiseall registered information that forms

the basis for the amounts stated instatutory reporting.

Accounting records, includingannual accounts, the board of

directors' report, auditor's report,vouchers, time sheets, businessagreements, correspondence etc.must be stored for either 10 or 3.5years, depending on the nature ofthe document.

Many businesses use externalaccountants and the accountantmust have the requiredauthorization.Apart from the bookkeeping and theyearly financial statement (balancesheet), the accountant may also

assist with filling in and transfer ofthe periodic VAT returns, PAYE12and the employers nationalinsurance contribution.

The actual legal basis is found inthe Accounting Act and correspond-ing regulations.

According to the Act, self-employed businesses/soleproprietors (having a balance sheettotal of up to NOK 20 million and

up to 20 employees) and liablecompanies (having a turnover of upto NOK 5 million and less than 5employees) do not have to work outa financial statement as defined bythe Act.

When so requested by the taxauthorities, the books shall be madeavailable for control.

Required documentation

All businesses with a statutoryobligation to keep accountspursuant to the Accounting Act alsohave a bookkeeping obligationpursuant to the Bookkeeping Act.The purpose of the bookkeepingregulations is to ensure thepreparation of reliable and punctualfinancial statements and enablesubsequent control of thesestatements. External controlrequirements are thus a primary

12Pay-as-you-earn tax withdrawn from

the employees wages

concern of the bookkeepingregulations, however, up-to-date

and adequate bookkeeping willalways be a precondition forfinancial management and control.The minimum requirement consistsof the following:

Outgoing invoices

Incoming invoices and completeddocumentation of expenses

Cash register for registration ofcash sales

Ledger for cash payments

Ledger for personal usage of goods

and/or sales to the shareholdersRegister appointments (e.g. if you

run a studio or medical centre)

Register orders

Register time spent on assignmentsor projects

Register changes in the stockRegister transactions with respect to

project/assignmentPerform the annual stock counting

and produce the stock overview

Registration of transactions can bedone abroad, but documentationmust be kept in Norway after thefinancial year statements have beenprepared.

Accounting principles

The Norwegian Bookkeeping Act isharmonized with the accountingdirectives of the European Union.

The expressed and governingprinciple is that the financialstatements shall be in accordancewith generally accepted accountingprinciples.

The standards are issued by theNorwegian Accounting StandardsBoard (Norsk RegnskapsStiftelse).The bookkeeping requires that allincome and expense be entered inthe books when it occurs. In mostinstances, the pay by date on the

invoice is the date used.It is important that the book-keeping is carried out continuously,

Accounting and Auditing
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making the books up to date at alltimes. Cash income and with-

drawals are entered on a daily basis,and all the books should be revisedand updated at least every secondmonth.

All transfers between customerand supplier, including cash buysand sales between businesses areentered in the debtors and

creditors ledger.

Documentation of expensesand income

All records in the income statementmust be documented by receipts(vouchers). It is recommended thatthe file be organised as follows:

Outgoing invoices

(sales)

Numbered

Incoming invoices

(buys)

By date or

alphabetic

Cash sales receipts By date

Bank transactions By dateUncategorized

vouchers/receipts

By date

Note that all expenses andprocurements must be documentedby receipts in their original.

When goods are sold to otherbusiness enterprises, the docu-mentation consists of a numberedand dated sales document (invoice).

The Act is strict with respect toboth the contents and format of theinvoice. It must include thefollowing:

A pre-printed number

The date of the issue of thedocument

Name and address of the seller

The business registration numberName, address and registration

number (if existing) of the buyerThe nature and volume of the

services provided

Time and place for the deliveryPayments and date of maturityTaxes connected to the transactionFor sales between VAT registered

companies the sales document shallindicate the price excluding VATand the amount of VAT.Companies selling primary toprivate customers may choose tospecify the price including VAT inthe sales document, but the VATshall be specified separately.

If some of the services or goods

are exempted from VAT, in accor-dance with the regulations of theVAT Act, each of these categoriesmust be specified and addedseparately in the document.The same applies to sales where theVAT rates vary.

An invoice is always issued in atleast two copies, where one is keptby the seller.

The cash sales receipts must, on adaily basis, be checked against theactual contents of the cash register.The result is dated and signedbefore it is filed.

Should you withdraw cash orgoods for your own or yourfamilys personal use or for gifts,

all withdrawals must be recorded atthe standard price. The record must

be dated and contain a descriptionof the goods.

Making your businessdocuments valid

All organizations registered in theRegister of Business Enterprisesmust enter their registration numberon the stationary and businessdocuments. The number on thedocuments will authenticate theseller and add credibility betweenthe business partners and in relation

to the authorities.If you are running a businessand are registered in the VATregister, the letters MVA must beadded at the end of the businessregister number on all documents.This will indicate that your businessis obliged to include VAT to thesales price. If these identificationletters or the business registernumber are missing on the salesdocument, your customer may notget deduction for the VAT.Limited liability companies, publiclimited liability companies anddepartments of foreign companiesmust in addition add the wordForetaksregisteret in connection

to the business register number toindicate that the business isregistered in the Register of

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Business Enterprises. Otherbusinesses registered may do the

same, but are not obliged to do so.The purpose of this requirement issimply to provide information onwhich register the enterprise isregistered in.

There are additional require-ments for limited liability andpublic limited liability companiesregarding the business documents.The company entity and the headoffice address must be added, and itmust be notified if the company isunder liquidation.

Annual report

The financial year follows thecalendar year. Based on therecorded transactions as describedand the stock counting, theenterprise shall produce an annualreport consisting of profit and lossstatement, balance sheet and cashflow statement.

The annual report and financialstatement must be produced in

Norwegian language.Contact the local tax office forexplanation of the rules governingthe stock counting and assessmentof the value of the stock.

Storage of records

As mentioned, the records must bekept on file in Norway for a periodof 10 years or 3.5 years after theend of the financial year.

The 10 years obligation includeall transactions documenting thebusiness, such as annual accounts,directors' report, auditor's report,business agreements,correspondence etc.

Time sheets and vouchers mustbe kept for 3.5 years.

Auditing

You are obliged to appoint a

Norwegian auditor if the operatingincome from your business entity'soverall activities in Norway exceedNOK 5 million. If the annualaccounts show operating incomeexceeding this threshold, theobligation to appoint a Norwegianauditor comes into effect for thesubsequent accounting year. If theoperating income in the followingtwo accounting years falls belowthis threshold, the obligation to

appoint a Norwegian auditor ceasesfrom and including the thirdaccounting year.

Sole proprietorships and unlimitedliability companies with up to fiveemployees that are required tofollow the Accounting Act areexempted from the obligation toappoint an auditor if the annualturnover is NOK 5 million or less.

All limited companies mustalways appoint auditors unless theboard of directors has decided notto appoint one.

The following conditions mustbe fulfilled if the limited companyhas decided not to appoint anauditor:

The annual turnover is NOK 5million or less

The total balance sheet is lessthan NOK 20 million

The average number ofemployees not exceed 10 manlabour year

Parent companies in acorporation will always be obligedto appoint an auditor.

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The right to illness benefits for soleproprietorships and owners of

unlimited companies starts from the17th day of absence. The benefitequals 65 per cent of the ordinaryincome.

You may achieve a better com-pensation by a voluntary additionalnational insurance contribution.There are three alternatives:

65 per cent of the ordinary incomefrom day 1 if you pay an additionalinsurance premium of 1.8 per cent

100 per cent of the ordinary income

from the 17th day if you pay anadditional premium of 2.7 per cent

100 per cent of the ordinary incomefrom day 1 if you pay an additionalpremium of 10.0 per cent.(Rate per January 2012)

Regardless of the ordinary income,the upper limit for illness benefit isset to 6G, where 1G is the NationalInsurance basic amount (of money)used for calculating benefits fromthe social services. In 2011, 1Gequals NOK 79 216 per year.

If you suffer some kind of occupa-tional disability within four weeksfrom the date the social servicesreceived your application forinclusion in the national insurancescheme, you are not entitled to thecompensation or social benefitsnormally covered by the insurancescheme.

The premium for the insurance

is deductible on your tax return.

Calculation of the basis forillness benefits

The basis for the illness benefitswill normally follow the incomedefined as the basis for calculationof pension points. The benefits arethen calculated on basis of theaverage pension points for the last

three years. The definition of thepension points is not given here.

Note that it is the income defined asbasis for the pension points thatwarrants the right to illnessbenefits, not the income derivedfrom the business activities. If youhave income both as an employeeand from business activities at thesame time or in different periods, itis the combined income that formsthe basis for calculation of theillness benefits.

Maternity benefits

Parental benefits: Self-employedreceive parental benefits calculatedon the average pension-accumulating income over the lastthree years of income. Parentalbenefit amounts to 100% of thecalculated income base.Information about the scheme isavailable at the local office of theNorwegian Labour and WelfareOrganization (NAV).

Mandatory occupationalpension

The duty to have an occupationalpension scheme applies tocompanies, both taxable and tax-free, with man-labour years above acertain minimum level. The dutyapplies to companies that have:

at least two persons who both have

working hours and wages thatrepresent 75 per cent or more of afull time position,

at least one employee, withoutownership interest, who hasworking hours and wages thatrepresent 75 per cent or more of afull time position, or

persons, who each have workinghours and wages that represent 20per cent or more of a full timeposition, and together carry out

work representing at least two man-labour years.

The act does not apply to employerswho have a pension scheme inaccordance with legislation orcollective agreements that apply tostate or local authority employees.

Employers must either have adefined contribution or a definedbenefit pension scheme. Definedbenefit schemes provide pre-definedbenefits, usually a certain percent-age of the members' salary on

retirement. In defined contributionschemes, employers pay a pre-defined annual contribution.Defined contribution schemes areoffered by banks, life insurancecompanies, pension funds andcompanies that manage securitiesfunds. Defined benefit schemes areoffered by life insurance companiesand pension funds.Employers will pay contributionsinto the scheme every year, so that

employees earn pension entitle-ments. The contribution must be atleast two per cent of the employees'earnings between 1 G and 12 G in adefined contribution scheme. Acorresponding requirement appliesto defined benefit schemes. Inaddition to the contribution, thepension scheme shall also containan insurance element that ensuresthat employees continue to earnpension entitlements in the event ofdisability. It is permitted to excludeemployees under the age of 20 andthose in part-time employment ofless than 20 per cent of a full-timeposition from the pension scheme.Employees may be required to alsocontribute to their own pensions,but such contributions will notreduce the minimum requirementfor employers' contributions.Employers are also obliged to coverthe costs of administering thepension scheme.

Illness Benefits, Occupational Injuries,Pension Scheme

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The main rule is that pensionsshall be paid for at least 10 years

from the age of 67 years. The sizeof the annual pension will dependon several factors. In contributionschemes, pension payments willdepend on the size of thecontribution, the number of yearscontributions have been paid, thereturn on the pension assets and thelength of the period during which apension is paid. In defined benefitschemes, the pension will normallybe stipulated as a certain percentageof the employee's salary on

retirement.The size of the annual pension

will therefore depend on how manyyears the employee has worked andhis/her salary on retirement.

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An employer in a private enterprisemay employ whom he/she wants.

Nevertheless, the Employees Acthas some rules that must be obeyed.The employer cannot demand

the applicant to give informationconcerning political, religious orcultural questions or if he/she is amember of any employees'organizations. As a general rule,questions concerning sexualorientation or partnership areprohibited. However, if suchinformation is related to the natureof the occupation and of importance

for the work, the applicant may beasked to give information aboutthis.

If a trial period is agreed upon,this agreement must be written andthe trial period shall not last longerthan 6 months.

For work in a public limitedliability enterprise, the Administra-tive Act applies in addition to theWorking Environment Act. Foremployees of the national

authorities, the Civil Servants Actmay also apply. The Equal StatusAct also contains regulationsconcerning appointments.

The main rule is that theemployee shall be permanentlyappointed.

Temporarily appointed workingagreements are agreements that arevalid for a stated period of time or astated work

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