Norwegian employees who work abroad for at least one year may, in certain circumstances, qualify for a reduction in Norwegian tax on employment income earned during their foreign assignment. The rules can be highly advantageous, but they are frequently misunderstood.
An overseas assignment does not necessarily mean that Norwegian tax residency comes to an end. Many individuals who work abroad for a limited period—particularly those seconded by a Norwegian employer—remain tax resident in Norway throughout their stay abroad.
For these individuals, the one-year rule can be an important mechanism for mitigating double taxation.
The rule does not provide a general exemption from Norwegian tax. Instead, it allows for a limited reduction of Norwegian tax on qualifying employment income earned during the foreign assignment.
What Is the one-year rule?
The One-Year Rule is set out in Section 2-1, tenth paragraph, of the Norwegian Tax Act.
Under the rule, an individual who remains tax resident in Norway may claim a reduction of Norwegian tax on employment income if they undertake a work assignment abroad lasting at least twelve consecutive months.
It is important to emphasize that the one-year rule:
- does not mean that the individual ceases to be tax resident in Norway;
- does not terminate Norway's worldwide taxation of the individual; and
- does not apply to all types of income or assets.
It is a special provision that grants a tax reduction only for employment income earned during the foreign work assignment.
The one-year rule applies to individuals who remain tax resident in Norway
A common misconception is that the one-year rule applies to individuals who have emigrated for tax purposes. This is incorrect. On the contrary, the rule is specifically intended for individuals who continue to be regarded as tax resident in Norway while working abroad. This distinguishes the one-year rule from the rules governing tax emigration.
What conditions must be met?
Several requirements must be met before a taxpayer may claim relief under the one-year rule:
1. The stay abroad must be work-related
The foreign stay must be undertaken for employment purposes. The rule typically applies to:
- employees seconded abroad;
- employees on international assignments; and
- individuals temporarily working in another country.
A purely private stay abroad does not qualify.
The tax relief is available regardless of whether the salary is paid by a Norwegian or a foreign employer.
2. The assignment must last at least twelve consecutive months
The foreign work assignment must continue for at least one year—hence the name "one-year rule."
If twelve months have not yet elapsed when the Norwegian tax return is filed, the requirement may nevertheless be satisfied provided the taxpayer can demonstrate that the assignment is expected to last for at least twelve months.
3. Time spent in Norway must be limited
To qualify for the one-year rule, the taxpayer cannot spend excessive time in Norway during the foreign assignment. The legislation therefore imposes limits on the number of days that may be spent in Norway without losing entitlement to the tax reduction.
From the 2023 income year onwards, the permitted presence in Norway is calculated using an annual model. As a general rule, a taxpayer may spend an average of up to six days in Norway for each full month of qualifying work abroad during the relevant income year. Accordingly, the permitted number of days is calculated separately for each tax year, with a maximum of 72 days for a full income year.
Every day on which the taxpayer is present in Norway counts towards this limit, even if the stay lasts only part of the day. For example, a person arriving late in the evening and departing the following morning will generally have used one permitted day. It is therefore essential to maintain accurate records of:
- departure dates;
- trips back to Norway;
- holidays spent in Norway;
- business travel to Norway; and
- short family visits.
The permitted days do not need to be spread evenly throughout the year. They may be used consecutively if desired. What matters is the total number of days spent in Norway during the relevant calculation period.
Nor does it generally matter how those days are used. Time spent in Norway may be devoted to holidays, family visits, or other private matters.
There is, however, one important limitation. If the taxpayer uses their time in Norway primarily to perform work here, the foreign assignment may, depending on the circumstances, be regarded as interrupted. This is particularly relevant where the taxpayer spends an extended period in Norway while carrying out most of their work from Norway.
Another common misconception is that additional days in Norway are permitted simply because the employment income remains taxable in Norway. This is incorrect. The number of permitted days cannot be increased merely because part of the employment income earned during the foreign assignment is still subject to Norwegian taxation. The day-count test and the allocation of taxing rights are separate legal issues.
The legislation allows for a limited extension where the taxpayer is required to remain in Norway because of extraordinary circumstances in the country of employment. Examples include:
- war or serious civil unrest;
- border closures;
- natural disasters;
- other unforeseen external events beyond the control of the taxpayer or employer; and
- serious illness affecting the taxpayer or a close family member.
In such cases, the taxpayer may be permitted up to three additional days in Norway for each full month of the foreign work assignment.
Practical inconvenience alone is not sufficient. The circumstances must be unforeseen and outside the control of both the taxpayer and the employer.
4. Norway must not have exclusive taxing rights under a tax treaty
The one-year rule does not apply where Norway has the exclusive right to tax the employment income under an applicable tax treaty or other international agreement.
However, it is not a requirement that the country of employment actually taxes the salary. The decisive question is whether Norway has exclusive taxing rights under the relevant tax treaty.
Which income is covered?
The one-year rule applies only to employment income earned during the foreign assignment. It does not apply to:
- other employment income;
- investment income;
- wealth;
- pensions; or
- social security contributions.
Consequently, an individual may remain fully liable to Norwegian tax on other income and assets even though the one-year rule reduces Norwegian tax on employment income earned abroad.
How is the tax reduction calculated?
The one-year rule does not exclude the foreign employment income from the Norwegian tax return. As a starting point, the income remains part of the Norwegian tax computation.
The Norwegian tax is then reduced by the proportion attributable to the qualifying foreign employment income.
The calculation follows principles similar to the alternative exemption method used under certain tax treaties.
The one-year rule or a tax treaty – which is preferable?
In some cases, taxpayers may choose between relief under the one-year rule and the double taxation relief provisions contained in an applicable tax treaty. The most beneficial approach depends on the specific circumstances. Relevant considerations include:
- the country in which the work is performed;
- whether that country actually taxes the income;
- whether the tax treaty allocates taxing rights to the country of residence or the country of employment; and
- the amount of foreign employment income.
Documentation requirements
The taxpayer bears the burden of proving that the conditions for applying the one-year rule have been satisfied. The Norwegian tax authorities may request documentation such as:
- an employment or secondment agreement;
- confirmation from the employer;
- documentation of the duration of the assignment; and
- records showing the taxpayer's presence in Norway.
Special rules for employees of the Norwegian Government
Special provisions apply to certain individuals employed by the Norwegian government.
These rules cover, among others, certain public sector employees working abroad, and the required duration of the foreign assignment may in some cases be less stringent than under the general rule.
Common misconceptions about the one-year rule
Several misunderstandings arise repeatedly:
"I have worked abroad for one year, so I am no longer taxable in Norway."
Incorrect. The one-year rule concerns a reduction of Norwegian tax, not tax emigration.
"All of my income becomes tax-free in Norway while I am abroad."
Incorrect. Only qualifying employment income earned during the foreign assignment is covered.
"I can spend as much time as I like in Norway while relying on the rule."
Not necessarily. Spending too much time in Norway may cause the conditions for relief to cease to be satisfied.
Conclusion
The one-year rule is an important special provision for Norwegian employees who work abroad for at least twelve months while remaining tax resident in Norway.
The rule may reduce Norwegian tax on employment income earned abroad and thereby help prevent double taxation between Norway and the country of employment.
At the same time, the legislation is detailed. Among other things, it must be determined whether the stay abroad genuinely constitutes a qualifying work assignment, whether the minimum duration requirement has been met, whether the taxpayer's presence in Norway remains within the permitted limits, and whether an applicable tax treaty affects the analysis
For individuals planning a long-term overseas assignment, the tax implications should be considered before the assignment begins. Proper planning can be crucial to ensuring that the requirements for tax relief are satisfied.
