Using an aksjeselskap (AS) to even out self-employed income over different years in Norway

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Topic Author
wineandplaya
Posts: 306
Joined: Fri Sep 14, 2018 9:42 am

Using an aksjeselskap (AS) to even out self-employed income over different years in Norway

Post by wineandplaya »

My wife is considering taking a (most likely) two-year academic position in Norway, which would require us all to move there. I'm trying to figure out how get it to best work out with my self-employed income, avoiding too much of a tax hit if possible.

I currently make about 300k USD per year as a self-employed consultant and I believe I could continue doing this work remotely from Norway. Since many of the people I work with are in Asia and Europe, it would even be an advantage to be in a European time zone. Work authorization should be no issue since I'm a dual EU/US citizen.

We would most likely move to Norway in the summer, so the two-year stay would divided over 3 years, roughly:

Year 1: 6 mo or about $150k gross income
Year 2: 12 mo or about $300k gross income
Year 3: 6 mo or about $150k gross income

Since Norwegian tax code is very progressive, I figured that I can save a lot of taxes if I'm able to even out my income over the three calendar years:

Year 1: $200k gross income
Year 2: $200k gross income
Year 3: $200k gross income

The idea I had to achieve this is to register a single-member Norwegian LLC (aksjeselskap, AS) with $50k capital and then pay myself a salary corresponding to $200k gross income during the first calendar year, thus generating a $50k capital loss the first year. Then, the second year, I would turn that $50k loss into a $50k profit by retaining $50k in the company until year three. Together, it allows me to even out my salary income evenly over the years.

Would this be allowed in principle?

A $200k gross income corresponds to about 1.7M NOK. With 14.1 % employer tax (arbeidsgiveravgift), that corresponds to a gross salary of around 1.5M. Or less, if I choose to pay myself less salary and instead take a profit distribution. In any case, I would be able to make the most of Norwegian tax deferral opportunities, by maximizing my contribution to both state pension (folketrygden) and to an elective pension (innskuddspensjon). If I've understood the rules right, the maximum salary that can be used for elective pension is 1.276M NOK (12 times "Folketrygdens grunnbeløp", which is about 106k NOK in 2021).
halfnine
Posts: 2405
Joined: Tue Dec 21, 2010 12:48 pm

Re: Using an aksjeselskap (AS) to even out self-employed income over different years in Norway

Post by halfnine »

Before going too far down the rabbit hole I'd look at:

- The IRS tax implications and reporting requirements of being an owner of a foreign LLC as an American taxpayer.
- Whether you would still need a US branch if you are being paid for your service via a USA client.
- If the above which, country's system will you be paying social security tax into as this can actually vary based on a whole host of individual circumstances.
- And, finally, once all that has been considered making sure whatever tax savings you generate in either the USA or Norway isn't clawed back in the other country.
Topic Author
wineandplaya
Posts: 306
Joined: Fri Sep 14, 2018 9:42 am

Re: Using an aksjeselskap (AS) to even out self-employed income over different years in Norway

Post by wineandplaya »

halfnine wrote: Thu Oct 14, 2021 10:08 am Before going too far down the rabbit hole I'd look at:

- The IRS tax implications and reporting requirements of being an owner of a foreign LLC as an American taxpayer.
- Whether you would still need a US branch if you are being paid for your service via a USA client.
- If the above which, country's system will you be paying social security tax into as this can actually vary based on a whole host of individual circumstances.
- And, finally, once all that has been considered making sure whatever tax savings you generate in either the USA or Norway isn't clawed back in the other country.
Those are all good points and suggest a different solution - keeping my business registered in the US while working in Norway. I understand that in principle, I can elect S Corp status for my existing LLC and pay myself a salary while abroad. Though that comes its own set of issues. Whether I will need a US branch probably depends on which client(s) I'll be working for at the time.
halfnine
Posts: 2405
Joined: Tue Dec 21, 2010 12:48 pm

Re: Using an aksjeselskap (AS) to even out self-employed income over different years in Norway

Post by halfnine »

wineandplaya wrote: Thu Oct 14, 2021 12:22 pm
halfnine wrote: Thu Oct 14, 2021 10:08 am Before going too far down the rabbit hole I'd look at:

- The IRS tax implications and reporting requirements of being an owner of a foreign LLC as an American taxpayer.
- Whether you would still need a US branch if you are being paid for your service via a USA client.
- If the above which, country's system will you be paying social security tax into as this can actually vary based on a whole host of individual circumstances.
- And, finally, once all that has been considered making sure whatever tax savings you generate in either the USA or Norway isn't clawed back in the other country.
Those are all good points and suggest a different solution - keeping my business registered in the US while working in Norway. I understand that in principle, I can elect S Corp status for my existing LLC and pay myself a salary while abroad. Though that comes its own set of issues. Whether I will need a US branch probably depends on which client(s) I'll be working for at the time.
It's all very complicated. I should make sure to note that I have no experience with Norway but these same issues are quite typical. Here is one such chart in regards to social security which shows how some of it could play out

https://www.ssa.gov/international/Agree ... l#coverage
Topic Author
wineandplaya
Posts: 306
Joined: Fri Sep 14, 2018 9:42 am

Re: Using an aksjeselskap (AS) to even out self-employed income over different years in Norway

Post by wineandplaya »

halfnine wrote: Thu Oct 14, 2021 1:23 pm It's all very complicated. I should make sure to note that I have no experience with Norway but these same issues are quite typical. Here is one such chart in regards to social security which shows how some of it could play out

https://www.ssa.gov/international/Agree ... l#coverage
Thanks. Those charts pretty clearly spell out that when you are self-employed, you should pay taxes where you reside, in this case Norway. Which I suppose means registering either a sole proprietorship ("enkeltpersonforetak" in Norway) or an LLC ("aksjeselskap, AS"). I am tending towards "aksjeselskap" because of the limited liability protection and the ability to shift income from one year to another.
deepvalleys
Posts: 80
Joined: Sat Dec 06, 2014 6:38 am
Location: Norway

Re: Using an aksjeselskap (AS) to even out self-employed income over different years in Norway

Post by deepvalleys »

wineandplaya wrote: Thu Oct 14, 2021 9:27 am ...
Year 1: 6 mo or about $150k gross income
Year 2: 12 mo or about $300k gross income
Year 3: 6 mo or about $150k gross income

Since Norwegian tax code is very progressive, I figured that I can save a lot of taxes if I'm able to even out my income over the three calendar years:

Year 1: $200k gross income
Year 2: $200k gross income
Year 3: $200k gross income

The idea I had to achieve this is to register a single-member Norwegian LLC (aksjeselskap, AS) with $50k capital and then pay myself a salary corresponding to $200k gross income during the first calendar year, thus generating a $50k capital loss the first year. Then, the second year, I would turn that $50k loss into a $50k profit by retaining $50k in the company until year three. Together, it allows me to even out my salary income evenly over the years.

Would this be allowed in principle?
...
You've probably studied these regulations better than me.
You are allowed to shift and pay out salary as you wish when you've got an AS. But the progressive tax on income has 4 levels, the highest level being 1,021,550 NOK. With a salary of 150k USD you are above that anyway.
https://www.skatteetaten.no/satser/trinnskatt/

One option might be to pay yourself 100k the first and second year, and the rest the last year?
Topic Author
wineandplaya
Posts: 306
Joined: Fri Sep 14, 2018 9:42 am

Re: Using an aksjeselskap (AS) to even out self-employed income over different years in Norway

Post by wineandplaya »

deepvalleys wrote: Sat Oct 16, 2021 2:44 am You are allowed to shift and pay out salary as you wish when you've got an AS. But the progressive tax on income has 4 levels, the highest level being 1,021,550 NOK. With a salary of 150k USD you are above that anyway.
https://www.skatteetaten.no/satser/trinnskatt/
I think the shifting of income can result in a quite substantial decrease in tax. I might only start working in Norway in September the first year so maybe only four months. Payments from clients also don't arrive right away, it might arrive 75 days later. Then I might have almost no income the first year if I don't shift income.

As a self-employed person, I think you have de facto more than 4 tax levels. For example, my understanding is that at 7.1 times "Folketrygdens grunnbeløp" (750k NOK), your income no longer adds to your future pension, which is worth 18 % of your salary. That's quite different from the US: once you hit the social security maximum in the US, your tax rate drops to zero. In Norway, you just keep paying, but don't get any benefits, so it's really just a tax increase when you hit that income. You also have a de facto tax level when you're no longer able to able to set aside up to 25 % (or is it 7 %? Have a hard time understanding the rules) of your income tax free into pension (innskuddspensjon). That de facto tax level increase happens at 12 x grunnbeløp, or 1276k NOK.
SeaScape
Posts: 21
Joined: Sun Jul 11, 2021 5:16 pm
Location: Norway

Re: Using an aksjeselskap (AS) to even out self-employed income over different years in Norway

Post by SeaScape »

Keep in mind that once you move to Norway you will be taxable on global income, including everything earned in the US. Also, if you invoke the totalization agreement to avoid paying the trygdeavgift then you must cover your own health insurance. You still need to pay the employer tax even you avoid the trygdeavgift.
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