Norway is associated with a high cost of living. This is in large part due to having some of the highest taxes in the world.
Norway has a progressive tax system. A Norwegian making a median salary of 550 000 NOK per year can expect to pay about 33.25% in combined income taxes and value-added tax.
In this article, we will take a look at the Norwegian tax system on whether it is true that Norwegians pay so much in taxes.
How the Norwegian tax system works
Norway has different types of taxation. We can separate between direct and indirect taxes.
Direct taxes arise from having taxable income, which includes salary, income from business ventures and investments, and interest income. Taxable income is subject to a progressive taxation system.
Indirect taxes are taxes that are paid whenever you purchase goods and services in Norway. This is most commonly the value-added tax which is 25% on most goods and services, and 15% on groceries.
The taxes are then spent on state infrastructure, as well as welfare benefits, the Norwegian healthcare system as well as the virtually free educational system.
What is the income tax in Norway?
Taxable income is subject to a combination of fixed and progressive income tax rates.
All income above 65 000 NOK (about 7400 USD or 6500 EUR) is subject to income taxes. The general income tax rate is 22% which is applied after 2 general deductions.
The first deduction is the personal allowance which currently stands at 52 450 NOK ( about 6000 USD or 5245 EUR).
The second is the minimum standard deduction which is automatically deducted from your salary. Currently, the rate stands at 46% up to a maximum of 106 750 NOK (about 12200 USD or 10675 EUR).
All income is subject to a national insurance contribution. In 2021, it has a rate of 8.2% which is applied to gross income.
Depending on how much you make, you can also be subject to a progressive bracket tax. There are 4 different brackets, and the bracket tax rates are applied to gross income without any deductions.
|Bracket||Income||Bracket tax rate|
|NOK 0 – 184 800||No bracket tax|
|1||NOK 184 800 – 260 100||1.7%|
|2||NOK 260 100 – 651 250||4.0%|
|3||NOK 651 250 – 1 021 550||13.2%|
|4||Income over 1 021 550||16.2%|
Average income tax in Norway
So how much do the income taxes applied above actually amount to? Let’s find out.
In 2020, the median average gross income for a Norwegian was about 550 000 NOK (about 62 850 USD or 55 000 EUR).
To calculate the general income tax we have to deduct the personal allowance of 52 450 NOK and the minimum standard deduction of 106 750 NOK.
This leaves us with 390 800 NOK to which the general income tax rate of 22% is applied. This amounts to 85 976 NOK.
Next, we have to deduct the national insurance contribution which is 8.2% of gross income, which amounts to 45 100 NOK.
Next, we have to deduct the progressive bracket tax. This salary is high enough to get hit with both the first and second-bracket tax.
75 300 NOK will be subject to a bracketed tax of 1.7%, and 289 900 NOK will be subject to a bracketed tax of 4%. Together it amounts to 12 876 NOK.
If we add these taxes up, the total taxes paid for a median Norwegian salary is 143 952 NOK, which amounts to a tax rate of 26.17%.
Below you can see a table of the estimated income tax for different salary levels in Norway.
|Income||250 000 NOK||350 000 NOK||450 000 NOK||550 000 NOK||650 000 NOK||750 000 NOK|
|Total income tax||41 584 NOK||77 552 NOK||109 752 NOK||143 952 NOK||178 152 NOK||221 437 NOK|
The average tax rate for these income levels is 24.3% and the median is 25.3%
If you consider the fact that 69% of Norwegian make between 200 000 and 800 000 NOK a year. It is fairly accurate to say that the average or median Norwegian income tax rate is about 25%.
Value-added tax in Norway
In addition to the income tax, Norwegians also pay value-added taxes on every purchase of goods and services.
The general VAT tax rate is 25%, this applies to most goods and services, except groceries, where the VAT rate is 15%.
There is also a lower VAT rate of 12% on transportation services, lodging and hotel services, movie tickets, and other cultural arrangements.
So how much does this add up to for the average Norwegian? Obviously, it will vary, depending on the spending pattern of any individual. However, we can do an estimation, based on a yearly Norwegian reference budget, provided by the Oslo metropolitan university.
For an adult between the age of 30-50, it estimates an average monthly spend of about 13 300. This excludes common expenses such as insurance costs and utility bills, so a more accurate estimation would be around 15 000.
Out of these 15 000 NOK, about 4000 NOK will be spent on groceries which has a VAT rate of 15%, about 800 NOK on transportation services with a VAT of 12%, while the rest are costs to which the general VAT of 25% is applied.
In total, this amounts to about 3 246 NOK per month, which amounts to 38 952 NOK per year.
If we add this to the total income taxes paid by a Norwegian with an average median income of 550 000 NOK per year. The combined income and value-added taxes paid amount to about 182 904 NOK, which translates to a total tax rate of 33.25%.
Other taxes in Norway
While income tax and value-added tax are the most common forms of taxation in Norway, other tax laws apply to other forms of income.
Norway also taxes people with valuable assets such as property and high net-worth individuals with a wealth tax.
Taxes on investments in Norway
All gains and income from the sale of stocks or equity mutual funds are subject to an effective capital gains tax of 31.68%. The same goes for dividends income from equities.
Gains from bonds and bond funds are subject to a lower tax rate of 22%.
While these are the general tax rates, there are investment accounts that offer delayed taxation. There is also a capital gains deduction when selling equities that you have held for a longer period.
Property taxes in Norway
The majority of Norwegian municipalities have introduced a property tax. With regards to the property tax, the rate varies between municipalities and the type of property.
As a general rule, the tax rate, which can vary between 0.1 to 0.4% is applied to 70% of the estimated property value.
The property value is determined either by the municipality, using either an appraiser or estimates. Alternatively, the municipality can use the estimated property value from the owner’s tax returns.
Wealth taxes in Norway
Individuals with a net worth of more than 1 700 000 NOK (about 194 300 USD or 170 000 EUR) and legally registered couples with a net worth of more than 3 400 000 NOK (about 388 600 USD or 340 000 EUR) are subject to a wealth tax in Norway.
The rate is a combined 0.95%, where 0.7% goes to the municipality and, 0.25% goes to the state.
The wealth tax is only applied for the sum that exceeds the minimum amounts specified above.
For example, an individual with an accumulated net worth of 2 000 000 NOK, that person is subject to a wealth tax of 0.95% on 300 000 NOK which amounts to 2850 NOK.
A person’s net income is based on the cumulative market value of their assets against debt. The various assets that are taken into account are appraised differently.
For example, cash in the bank is appraised at 100% of the value, while equity assets are only appraised at 70% of the market value.
Tax rates in Norway compared to other countries
While varying tax codes makes comparing one country to another difficult, it is possible to compare the tax rates on an average salary from one country to another.
The OECD provides data on this, comparing All-in average personal income tax rates at average wage by family type.
According to this, the tax rates in Norway are fairly modest. In fact, the tax rate turns out to be lower than many other comparable European countries such as Germany, Belgium, Denmark, and the Netherlands.
Even when comparing the Norwegian tax rates to that of the US, the difference is not that great (27.5% vs 24.4%).
That being said, according to the data, many countries have better tax benefits for individuals with children which decreases their effective tax rate more than what is the case in Norway.
Also, you have to take into account that Norway has one of the higher value-added tax rates across Europe, which are generally much higher than those in both the US and Canada.
While you pay a fair amount of taxes in Norway, the rate at which you are taxed is not extremely high even when compared to other countries.
In addition, considering what you get in return for your taxes you can argue that the current rates are not unreasonable.
At the same time, you could argue that people should have more control over their own money through lower taxation instead of being taxed for benefits that they might not want or need.