This memo represents a summary of some of the relevant general legal, and in specific, tax issues relating to possible implementation of a share-based reward program in Norway.
An incentive plan may give elected employees in a company the opportunity to receive either traditional Stock options, Stock Appreciation rights, Limited Stock Appreciation Rights or other Stock-Based Awards. Below follows a description of tax consequences related to traditional stock options and some issues related to alternative stock-based award plans.
Please observe that specific advice and comment can only be provided in light of known facts and circumstances. One should not, therefore, rely on this memo as definitive advice in each individual case but as mere guidance. It has been prepared in accordance with the tax legislation in force at the time of writing (2023). This may change from time to time. A general advice for any employee would always be to seek professional advice before exercising any stock based incentive arrangements, if in any doubt about tax consequences.
Norwegian taxation of stock-based awards
Tax consequences for the employee
Employer provided stock options are taxed as income from employment (salary income). Maximum marginal combined tax rate is currently 47,4 %, including social security tax at 7.9% of gross salary.
Employer’s social security contribution is currently 14.1% with an additional 5% on amounts exceeding NOK 750 000. No ceiling is applicable. Salary income is recognised as described below.
Date of grant:
There are no tax consequences for the employee at date of grant.
Date of vesting:
Vesting as such does not trigger any income tax. Date of vesting will be the first date from which the options may be exercised.
However, net wealth tax is levied on the vested options in the fiscal year the options vests, and subsequent years. Net wealth tax is normally up to 1.0 % of the deemed value of the options. The deemed value of the options for net wealth tax purposes is deemed to be the FMV of the underlying shares at December 31, less the potential costs for the employee to if the option is exercised, times number of vested options at the same date.
Date of exercise:
Employer provided stock options are taxable at date of exercise. The options are taxed as income from employment at a maximum marginal tax rate of 47,4 %, including social tax of 7.9% of gross salary.
The taxable benefit at date of exercise is deemed to be the fair market value (FMV) of the underlying shares at date of exercise, less the exercise price (Option price), less any costs at date of grant. The tax is payable at exercise.
Sale of shares
Any gain at a subsequent sale of the shares acquired by the options is treated as capital gain and taxed at a flat rate of 22 %. The taxable gain will be the difference between the sales price of the shares and the FMV at date of exercise of the option.
Any loss at date of sale is deductible in the 22% tax base.
Tax and social security – Employers obligations
The obligations described below apply both to the employer company (local subsidiary) and to possible parent company granting or issuing the shares involved in a plan. The local subsidiary may assume this responsibility, even if this does not release the parent company form its obligations towards Norwegian tax authorities.
Thus, when referring to the employer in the following, read the issuing parent and the Norwegian entity, as they are jointly and separately liable for any reporting obligation, and for withholding the tax, related to the exercise of the stock options.
Employer’s social security contributions
The employer is obliged to withhold and pay employer social security contribution of normally 14.1% of the gross taxable benefit at exercise, but up to 19.1 % provided the annual compensation to the relevant employee exceeds NOK 750 000.
Withholding tax and Reporting obligations
The company (either the employer or the foreign grantor of the options) is obliged to withhold taxes at date of exercise based on the computed taxable income. The withholding rate is stipulated at the employees’ tax withholding card (“skattekort”). All Norwegian employees have to apply for a tax withholding card. If the employee has not presented such a card, the withholding tax rate (including employee social security contribution) is 50 % of the deemed benefit.
If there is not sufficient cash compensation to withhold the tax in, the company is obliged to notify the employee’s local tax office about the event. The employer is then relieved of it’s obligation to withhold the tax. However, please note that the employer’s obligation to report remains. The tax office may then collect the tax directly from the employee.
Withholding taxes and employer social security contribution are reported every month. The monthly report is due the 5th the following month,
Withholding taxes and employers Social Security Contribution are remitted every second months. E.g. the payment of the first instalment (covering January and February) is due March 15th.
In addition, at the end of the year (i.e. within January 31 in the subsequent year) the employer has to submit an annual salary report (A- melding – Sammenstilling av inntekter, fradrag et al) for each individual employee. The annual salary report covers the total compensation paid and benefits offered by the employer during the year.
Share-based schemes – miscellanous questions
Related Share-Based Award Schemes
A Stock Appreciation Rights (SAR) agreement is understood as a right for the employee to a future cash bonus were the size of the bonus is linked to the increase in value of the underlying share within a certain period of time. Contrary to stock options, SAR does not entitle the employee to acquire any shares. This is why the SAR is not treated as stock options for tax purposes according to Norwegian legislation, but as a cash bonus.
The same principles as for bonuses will apply for any other compensation paid directly or benefits deriving from receiving shares at a price lower than the FMW at the time of exercise.
In respect of Employee Share Purchase Plans (ESPP) certain special favourable Norwegian tax rules were applicable to general company schemes allowing all employees to receive or purchase shares in the company below fair market value. This favourable tax regime was abolished from 2022.
Under a Sharesave plan employee’s saved amounts and accumulated interest may either be paid out or used to buy shares at a fixed discount related of fair market value at the time of exercise. Difference between market value and strike price is subject to tax as salary income.
According to Norwegian tax rules an employer may give non-taxable Occasional presents, based on a general company program and consisting of other than cash amount, when a employee reach a period of employment of respectively 20 and 30 year.. The value of such present cannot exceed NOK 8000.
Even if there is no tax practice or statement on this issue, we assume that shares within the value limit may qualify under this rules.
Share Based Reward Plans – Recognition of income principles
The main Norwegian salary income recognition principle is based on actual payment or possible access to cash or the shares which are subject to taxation.
This means that tax is levied at exercise, i.e. the date when the employee at the earliest may collect the payment from the employer or has acquired the legal ownership to shares.
If the award consists of shares the taxable income is equal to the difference between the FMW and the price paid at the time of exercise.
Reporting and withholding obligations as well as employer’s social security obligations will occur on the date of exercise according to the same regulations and rates as mentioned above.
A special issue is whether an agreement between an employer and employees which implies reduction of salary payment related to e g a Sharesave Plan may postpone the taxation of salary income.
In our opinion, such deferred taxation will occur as long as the agreement unconditionally prevent the employee from having any payment before a set date. However, interest/ capital gain will normally be subject to taxation on a running basis.
Please note that in a pending court case the Norwegian tax authority argues that also the capital gain/interest element under certain circumstances may be taxed as salary income at the time the capital sum and capital gain is paid out together.
Costs related to Stock Option plan – company’s deductibility
Norwegian tax authorities do not consider the loss on exercise a cost for Norwegian tax purposes if the Employer company itself issues the shares in order to fulfil its obligations under share-based incentive program.
However, in cases where such costs are due to a recharge from a parent company based on the latter company’s issuing of shares to fulfil its subsidiary’s obligations we assume that the conditions in respect of deductibility are fulfilled. However, because of lack of tax practice on this issue we cannot guarantee that the tax authorities will accept deductions.
In order to strengthen this position we would nevertheless suggest that the companies conclude a formal recharge agreement.
Legal issues – in general
In the following is described the general legal issues that normally are to be considered when implementing an incentive program related to shares.
Establishing a share program and granting purchase rights to employees do not normally have any exchange control consequences. Moreover, the involvement of a Norwegian stockbroker is not required in connection with purchase and sale by Norwegian residents of non-Norwegian shares.
Security Laws Restrictions
Pursuant to the Norwegian Securities Trading Act a prospectus will normally not be required in connection with employee stock-based reward plans. It is sufficient that information regarding the company plan is made available for the employees at their place of work.
Labour Law Considerations
There are no wage controls or other labour law regulations that would prohibit a company from implementing a program or limit the extent to which category of employees that may participate. Furthermore, the company should be able to discontinue the program, or terminate an employee, with little risk of giving the employee a right to compensation, severance pay or other remedy. It is however advisable that the employee signs a statement acknowledging the discretionary nature of a possible plan, in order to minimise the risk as far as possible.