VAT is a tax collected by the state on sales of goods and services. VAT is added to the value of the goods or services at every level of production or distribution. There is differentiation between ingoing and outgoing VAT. The company calculates outgoing VAT on sales, and can deduct ingoing VAT on its acquisitions if it is VAT-registered. In principle, all sales of goods and services are VAT-applicable. But there are also sales that are exempted according to the law. Some businesses can therefore work inside and outside VAT coverage. They will have to accommodate the different procedures for VAT for buying and selling, which means that they do not get the full deduction on their purchases.
Different VAT rates
- 25% is the standard rate
- 15% on foods
- 12% on transportation or renting accommodation, e.g. in a hotel.
The rates are set annually by the Norwegian Parliament’s tax budget, and change at regular intervals.
The company sells goods and services ex-VAT, but is VAT-registered and therefore deducts incoming VAT.
The company sells goods and services ex-VAT, but is not VAT-registered and therefore does not deduct incoming VAT.
Limits to deductibles
The VAT Act sets limits for deductibles for catering, subsistence and hospitality. The rules for VAT deduction differ here, and allow greater freedom for deductions. Non-business expenses will not be VAT-deductible either.
VAT is calculated and payable to the authorities at two-monthly intervals. Businesses with a turnover of less than 1 million can apply for annual VAT returns once they have been registered for one year. Annual returns apply to primary industries.
Purchasing services from abroad
When buying services from abroad, VAT-registered businesses have to
calculate and pay VAT themselves. If they are not VAT-registered, VAT is only payable if a limit of NOK 2,000 per period is exceeded.
When should you register with the Tax Administration?
Only once your business has turned over more than NOK 50,000 in a 12-month period. A second requirement is that you must be running a business. Charitable and non-profit organisations have a threshold of NOK 140,000.
The Tax Administration have their own solution for the most common registration forms on their website. A business has to be registered in the Central Coordinating Register for Legal Entities first. Coordinated registration still has to be used for joint registration, NUF or separate registration. Actual registration can take several weeks, during which time, VAT has to be collected on anything you sell.
Retrospective VAT statements
Once you are registered, you can apply for a retrospective VAT statement. This means that you can claim VAT back on the purchases the business made before it was VAT-registered. Remember that you must still have the purchases in use within a VAT-registered business to qualify for a refund.
Does your business qualify for pre-registration?
When appropriate for a business to be registered from the start, the Tax Administration can pre-register it. In such instances, the following requirements have to be met:
- Turnover expected to exceed NOK 50,000 within 3 weeks of start up
- When large-scale purchases will be involved, i.e. over NOK 250,000 including VAT, and when the turnover threshold will be reached within 4 months of the application being sent
If there is continued uncertainty concerning how to deal with VAT in your business, contact an Accountant
Errors in reporting VAT to the authorities can cause financial problems, even for businesses in good financial health. It’s therefore very important for business owners to know the rules, and to follow the strict requirements of the Tax Administration. If you are still unsure how to deal with VAT, a good tip is to contact an accountant who knows the rules well, and can help you in this area.