Taxation in Agriculture

Chapter 30. Norway

Abstract

This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.

30.1. Overview

In 2018, there were 39 500 farm holdings in Norway. Agriculture is generally supported by expenditures from the national budget but there are also special exemptions from the general tax regulation for the agricultural sector. Farmers benefit from a special tax deduction on income from agriculture, with deductions depending on their income level and a maximum tax savings of approximately NOK 42 000 (approximately USD 4 580). Subsidies provided for investment in farm buildings in less favoured areas are not deducted from the book value of the capital assets giving farmers depreciating tax advantages.

Farmers are not required to pay municipal property taxes for buildings used in the agricultural business, and on gains from land transfers to family members. Tax concessions for farmers are used to increase the income and production of Norwegian agriculture and encourage the transfer and continuity of agricultural businesses between family members. Diesel used in agricultural machinery and in machines used for construction is exempt from the road user tax included in the price of diesel. Commercial greenhouses are exempt from paying electrical power taxes.

Taxes are charged on fuel used for agricultural machinery on the basis of CO₂ emissions and there are fees for the sale of pesticides. These are part of the different measures, including direct payments, Norway has implemented to improve the environmental impact of agricultural activities.

30.2. Income taxation

The tax system in Norway is composed of direct taxes including personal income tax, corporate income tax and taxation of assets, and indirect taxes such as value added tax, excise duties, custom duties, and fees and sectoral taxes. In 2019, income tax for individuals is charged at a flat rate of 22% on “ordinary income”. Ordinary income is a net income concept which consists of all taxable income (wages, pensions, business income, taxable share income and other income) minus deductions (such as losses, interest on debts). For “personal income” a progressive tax is applied with four tax brackets. Income earned on shares and self-employment is taxed and there are special tax rules for pension income.

Most Norwegian farmers are self-employed and are eligible for a special tax concession on their income generated from agriculture which is not granted to other self-employed persons. There are no special tax rules for agro-food companies.

From 2020, farmers can earn up to NOK 90 000 of agricultural income by deducting 100% of this taxable income through the calculation of ordinary income tax. There is no deduction when calculating personal income tax. For agricultural income above NOK 90 000, farmers can deduct 38% until they reach the tax deduction ceiling of NOK 190 000 (which occurs on agricultural incomes above NOK 353 000). For income from agriculture above NOK 353 000 the tax deduction is held constant at NOK 190 000. This special tax allowance results in a maximum tax saving of approximately NOK 42 000 (approximately USD 4 580) per farmer.

In Norway, there are several schemes with additional subsidies for agriculture in rural areas. These are all subject to the general tax rules.

An exemption from general income tax rules is the depreciating tax treatment of direct financial support to farmers for investments in the construction or renewal of farm buildings in less favoured areas. In 2016, a total of approximately NOK 540 million was paid in investment grants of which approximately NOK 380 million went to the less favoured areas. Subsidies for the renewal of farm buildings in these regions can be up to 33% of the total cost. For accounting purposes benefitting farmers record the total cost of the building (including the subsidy) in their accounts and this cost provides the basis for depreciation, thereby providing a tax advantage. Such an approach deviates from the general tax rules in Norway where such grants are deducted from the book values of assets. This tax exemption is used to achieve the goal of maintaining agricultural activity across the country.

Agricultural producers can also deduct from the business’s taxable income the expense of breaking in new land.

For the production of furskins, there is a fund scheme that allows for the equalisation of income between years within certain limits. In years where the auction prices are above a certain amount, the difference can be deposited into a fund; the fund can then be used to cover for the price difference when prices are below a certain amount. From 2025 the production of furskins in Norway will be banned.

There are no other income smoothing schemes in agriculture, there is however, a fund scheme for forestry.

In Norway, private housing (including farm housing), occupied by the owner over a certain period, is exempt from gains tax. Gains from the sale of other private property are taxed as capital income at the flat rate of 22% in 2019, the same rate as tax on ordinary income. Profits from sale of commercial property are taxed both as ordinary income and as personal income to which social security contributions are levied and at progressive tax rates. For agricultural income, the social security contribution is 11.4%, while the maximum progressive tax is 11.5%. The maximum marginal tax after this is 50.9%. For companies with limited liability, the sale profits are only subject to corporate income tax (at the flat rate of 22%), but dividends to private individuals and paid dividends on shares are taxed additionally at 22% multiplied by the adjustment factor of 1.44 (2019), which gives an overall tax rate of 53.58%.

Sales of farms within the immediate family are exempt from gains taxes when properties have been in the family for at least 10 years. Gains from sales of farms outside the immediate family are only subject to the 22% capital tax, Gains on the sale of machinery and equipment and livestock are subject to general tax rules and are not included in this exception. There is no regional differentiation to these rules.

For many years, there has been relatively small turnover of agricultural property outside the family. Many who quit farming choose to rent out their land instead of selling the property. There are several reasons for this, with tax rules considered as an explanation. For instance over the period 2006 to 2016, gains on the sale of agricultural properties outside the immediate family were taxed both as ordinary income and as personal income under the progressive tax with higher rates applying on high incomes. As a result the tax on such sales could be up to about 50% of the gain. Therefore from 2016, gains from the sale of agricultural properties is only taxed as capital income. It is too early to say whether this has had an effect on the turnover of agricultural properties.

30.3. Property taxation

Norway has a tax on wealth calculated for all assets of a taxpayer, including property and land (under which debts are deductible). Municipalities can also choose to impose tax on the value of property (under which debts cannot be deducted). For property tax, there are state-specified maximum rates, but within these limits, municipalities can determine their rates. Of the 420 municipalities, 260 have introduced property taxes. Agricultural properties of self-employed farmers (excluding housing and agricultural buildings that are used for other activities such as processing activities, tourism or warehouses) are exempt from these municipal taxes. "Industrialised" agricultural activity is not exempt.

Norway discontinued inheritance tax from 2014 and there is no tax on property transfers by gift.

30.4. Tax on goods and services

Norway has a value added tax (VAT) set at 25% for most goods and services. A reduced rate of 15% applies to food and drinks, and 10% to passenger transport, cinema tickets and room rental. For inputs and sales of products from farms, the value added tax is set at a standard rate. Small companies with annual sales of less than NOK 1 million and VAT registered persons within the agriculture, forestry and fisheries sectors can return VAT on a yearly basis as opposed to the general rule of a monthly basis.

Included in the prices of most agricultural products is a general sales tax. The general sales tax is set by the Ministry of Agriculture and Food based on recommendations by the Norwegian Agricultural Marketing Board. The taxes, collected by the producer organisations, are held in separate commodity accounts and are used in promotional activities and to finance market balancing (i.e. paying for temporary storage or product transformation to stop excess supply on the domestic market reducing producer prices). Additionally, a research fee is levied on the sales of most primary products.

Diesel for use in agricultural machinery and other construction machines that are not used on public roads is exempt from the road user tax which is added to the price of diesel. Commercial greenhouses are exempt from paying electrical power taxes.

There is a tax on fuel for agricultural machinery calculated on the basis of CO₂ emissions.

30.5. Environmental taxes

In Norway a fee is charged on the sales of pesticides.

Violation of environmental legislation can result in farmers receiving less subsidies or having their application for production subsidies refused. This can be imposed in addition to sanctions based on environmental regulations. These rules apply equally to all farmers regardless of where their farms are located.

There are a number of different measures that aim at improving the environment in Norway. Isolating the effect of individual measures is very difficult and as such there is no research on the environmental impact of tax measures.

30.6. Tax incentives for R&D and innovation

A general tax deduction scheme for R&D called “SkatteFUNN” which was established in 2002. All Norwegian companies undertaking research and development can claim tax deductions for R&D project costs subject to the approval of the Research Council. Small and medium-sized enterprises can claim 20% of project costs and large companies are able to claim 18%. In 2017, under the SkatteFUNN there were 57 R&D projects registered in the forest and wood sector, and 521 projects focusing on land use and food.

30.7. Other taxes

Some of the Norwegian social security is financed by taxes and a national insurance scheme. The tax office collects the compulsory social security contributions from personal income including salaries, income from self-employment and pensions through tax deductions at the applicable tax rates. Employers contribute for their employees via a payroll tax. Rates employers are expected to pay vary between regions and are lower in less favoured areas.