Starting the business in Norway – how to do it (legal, tax, VAT) Frode Olsen, Senior Lawyer Vilnius 13 June 2012 1

14 June 2012

Kluge advokatfirma DA • Approximately 120 business lawyers in the three largest Norwegian cities (Oslo, Stavanger, Bergen) • Very strong on real estate / construction • Oil and gas • Corporate including tax/VAT • Public procurement • Dispute resolution • Other business law 2

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Purpose, agenda • Purpose: Practical information - how to start the business in Norway • Often not very difficult to do correctly, very expensive and risky if not handled in a good way

• Agenda • Some background information • Minimum salaries in certain sectors • Using your Lithuanian company or establishing a Norwegian company • Tax considerations • Setting up a Norwegian company • Accounting and auditing • VAT considerations and registration

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Norwegian economic outlook is good • 3 % unemployment – finding and attracting skilled people difficult • Generally strong economy – massive infrastructure investments in coming years (public procurement) • High costs, high efficiency • Lithuanians in Norway on 1 January 2012: 22 700 (increase of 7 200 during 2011) • Possible to find employees with relevant experience and language skills that have already been working in Norway?

• Clear opportunities for Lithuanian companies but challenging • Legal and regulatory framework • High costs, requires enough capital 4

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Value chain – getting a good share of the value creation!

“Raw materials”

• Supply of labor/people • Standardized products STAGE 1 5

100%

VALUE CREATION

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“Engineering + supply”

• Sub-contractor • More sophisticated STAGE 2

Direct supplier

• Full responsibility • “Better than the local” STAGE 3

CUSTOMER

0%

Minimum salaries in certain sectors • No general minimum salary in Norway • Background: EU expansion – fear that Norwegian companies would not be able to compete – “unfair competition” (?) • Result: collective agreements between employers organisations and unions have to be applied – minimum salaries HAVE to be paid • Not paying the minimum salary is a criminal offense – and will often lead to massive negative publicity

• Sectors: Construction, ship and offshore yards, cleaning (changes regularly) • Minimum wage varies, often hourly wage of approx NOK 150 (EUR 20) • This has to be taken into consideration when calculating bids! • Prefabrication in Lithuania should be done whenever possible

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Use Lithuanian company or establish Norwegian company? • Commercial view – what does the customer think? • Customers may not be willing to deal with foreign company (possibly not very rational view – better to deal with Lithuanian main company than a “small” Norwegian subsidiary…) • Using a Norwegian company may be a signal of long-term commitment to business in Norway

• Test the market using Lithuanian company, then establish a Norwegian company? • May be a good idea if a low-cost introduction to the market • But: Do not grow the Norwegian business in the Lithuanian company too much – changing to a Norwegian company can have Norwegian and possibly Lithuanian tax costs (normally seen as a “business sale”)

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Be present “on the ground” in Norway? • Necessary to have people in Norway for commercial success? • This can lead to your company becoming taxable in Norway! • Often useful to avoid/control tax presence in Norway during an early phase • Norwegian tax higher than Lithuanian tax • Risk of double taxation • Administration costs

• Assumptions below: (1) local presence in Norway necessary, and (2) Norwegian tax should be avoided if possible

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Assumption: Using your Lithuanian company in Norway (1) • In many cases possible to avoid taxation in Norway in an early phase • When does a Lithuanian company become taxable in Norway? The concept of Permanent Establishment (“PE”) • Background: Short/temporary projects in another country should be possible without tax consequences • Definitions in tax treaties between the different countries – they are similar but with differences, has to be checked for each country

• Note: Contracts with a foreign company has to be reported to the Norwegian tax authorities – who will then ask questions

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Assumption: Using your Lithuanian company in Norway (2) • 1. “Normal” Permanent Establishment • Norway – Lithuania tax treaty article 5: “…a fixed place of business through which the business of an enterprise is wholly or partly carried out…” • Examples: a) a place of management, b) a branch, c) an office d) an office e) a workshop … • Important exception: Storing materials etc does not lead to Norwegian tax

• How to avoid a “normal” Permanent Establishment in Norway • Do not rent an office – use temporary solutions (hotel rooms, use facilities with customers etc) • Be very careful with renting a flat/house for yourself or employees – tax authorities can claim this is an office! • Be careful with details – use correct Lithuanian address on invoices etc

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Assumption: Using your Lithuanian company in Norway (3) • 2. “Dependent agent” Permanent Establishent • Someone that regularly acts on behalf of your company – and concludes contracts on your behalf • This does not include an independent agent that represents several companies

• How to avoid a “dependent agent” Permanent Establishment in Norway • All contracts should be signed in Lithuania – or in Norway by you flying in from Lithuania • A local Norwegian representative should have very limited powers – formalized in writing and “do as you say” • Be careful with details – use correct Lithuanian address on invoices etc

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Assumption: Using your Lithuanian company in Norway (4) • 2. “Construction and assembly” Permanent Establishent • Article 5: “A building site, a construction, assembly or installation project or a supervisory or consultancy activity connected therewith constitutes a permanent establishment only if such site, project or activity lasts for a period of more than six months.”

• This means that it is possible to do quite some project based work in Norway without becoming taxable here – new tax treaties are often more strict – “combining” the different projects together • How to avoid a “construction and assembly” Permanent Establishment in Norway • Checking whether the project falls within the definition! • What is one project? • Time limit critical – delays? 12

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Assumption: Using your Lithuanian company in Norway (4) • If you want to avoid a Norwegian Permanent Establishment, DO NOT • Set up an office or other “fixed place of business” in Norway • Hire or contract someone that signs contracts on your behalf • Exceed the time limit for construction and assembly projects

• Note: your Lithuanian employees may be taxable to Norway even if you as a Lithuaniuan business is not • Recommended to use a Norwegian bookkeeping firm to handle salary/tax reporting

• Also social security taxes/fees in Lithuania or Norway should be considered

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Setting up your Norwegian company • Limited liability company – “aksjeselskap” or “AS” • Minimum share capital NOK 30 000 (EUR 4 000) – evaluate capital need • Costs for setting up company can be deducted from the capital • • • •

Fee to company register (NOK 5 500 – 6 600, EUR 700 – 900) Fee to auditor (normally minimum NOK 2 000 + VAT, EUR 300 + VAT) Fees to Norwegian lawyer (from NOK 8 000 + VAT, EUR 1100 + VAT), Lithuanian lawyer (VAT registration not included)

• We can provide you with a list of the information needed • Quite quick, two days if only Norwegian board otherwise approx one week • [Alternative: Registering a branch office of your Lithuanian company – which is actually more difficult] 14

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Norwegian company – accounting and auditing • Norwegian AS company has to do normal bookkeeping and prepare annual accounts • Simplified accounting rules for small companies • We can provide contact with bookkeeping companies that have experience with assisting companies from the Baltics • They have online accounting systems that you can access from Lithuania

• Normally no requirement to have an auditor until a yearly turnover of NOK 5 million (EUR 650 000) • We can provide contacts with very competent Norwegian audit firms – both small ones and larger ones depending on your needs

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Norwegian company law is rather strict • You have to wait until the annual accounts have been prepared to pay dividend • Example: Income from 2012 can be distributed as dividend in early 2013

• Restrictions on loans from Norwegian AS to Lithuanian parent/related company • All transactions with the Lithuanian company has to be on “arms-length” / market terms • Corporate law but also tax

• Important transactions with the Lithuanian company have to be based on written contracts

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Value-added tax – VAT (1) • The Norwegian VAT system is complex – and specialist advice may be required! • Threshold: NOK 50 000/year (EUR 7 000)

• 1. Lithuanian company exports a product directly to a Norwegian customer – regular import for the Norwegian customer, customer pays import VAT himself • No registration obligation for Norwegian VAT for Lithuanian company

• 2. Lithuanian company sells services from Lithuania directly to a Norwegian customer – customer has to pay VAT – “reverse charge” • No registration obligations for Norwegian VAT for Lithuanian company

• 3. Lithuanian company imports and sells products in Norway but does not have a branch in Norway • Often obligation for Lithuanian company to register with VAT representative 17

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Value-added tax – VAT (2) • 4. Norwegian AS or Lithuanian company with a Norwegian branch – regular VAT registration • May be possible to register before you reach a turnover of NOK 50 000 – present contract or other evidence that you will exceed amount • VAT related to real estate/construction particularly complex • Bi-monthly VAT returns – filed on the internet by yourself or your accountant

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Thank you! Questions?

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