Cross-border board appointments are becoming increasingly common. Norwegian entrepreneurs and investors may serve on the boards of foreign companies, while foreign investors and business executives may hold board positions in Norwegian companies.
A key question then arises: Which country has the right to tax the directors' fees?
The answer depends on several factors—most importantly where the board member is tax resident, where the company is resident for tax purposes, and the provisions of any applicable tax treaty.
What are directors' fees for tax purposes?
Directors' fees are remuneration paid for the duties and responsibilities associated with serving as a member of a company's board of directors. For tax purposes, such fees are generally treated as employment income (or earned income), although they differ in certain respects from ordinary salary.
A board position is regarded as a personal appointment. Consequently, the remuneration must generally be paid directly to the individual board member and cannot ordinarily be invoiced through a limited liability company or other legal entity controlled by the director. This reflects the fact that, under company law, the legal duties and liabilities of a director rest with the individual who has been elected to the board.
Directors' fees received by individuals resident in Norway
As a general rule, an individual who is tax resident in Norway is subject to Norwegian tax on their worldwide income, including directors' fees received from foreign companies. This applies even if:
- the company is incorporated in another country;
- board meetings are held abroad; or
- the remuneration is paid from a foreign bank account.
Accordingly, a board member who is tax resident in Norway will generally be required to report directors' fees from foreign companies in their Norwegian tax return.
Directors' fees received by individuals resident abroad
A different starting point applies to individuals who are not tax resident in Norway.
An individual who is tax resident abroad may nevertheless be subject to limited Norwegian tax liability on directors' fees received from a Norwegian company. This may apply even if the board member:
- never travels to Norway;
- performs all board duties from abroad; or
- has no other connection with Norway.
The reason is that Norway regards directors' fees as having a particularly close connection to the Norwegian company paying the remuneration.
Consequently, an individual resident abroad who receives directors' fees from a Norwegian company may be liable to Norwegian tax on those fees under Norwegian domestic law.
Tax treaties contain special rules for directors' fees
Although Norwegian domestic law may permit Norway to tax directors' fees, an applicable tax treaty may limit that taxing right. This is particularly important for individuals who are tax resident in another country.
Most of Norway's tax treaties follow the OECD Model Tax Convention. Under the relevant treaty provision, directors' fees received by a resident of one state may be taxed in the state where the company paying the remuneration is resident.
This represents an important exception to the general rules governing employment income, under which taxing rights are often allocated according to where the work is physically performed.
For directors' fees, the decisive factor is generally the connection to the company rather than the location where the services are carried out.
The location of the board meeting is usually irrelevant
A common misconception is that directors' fees are taxed in the country where the board meeting physically takes place. This is generally incorrect.
A board member may participate remotely from Spain, the United States, or any other country, but if the appointment relates to a Norwegian company, Norway may nevertheless retain taxing rights under the applicable tax treaty.
The decisive factor is normally the company to which the board appointment relates—not where the director is physically located when performing their board duties.
Directors' fees and double taxation
Where two countries both claim the right to tax the same directors' fees, double taxation may arise. This typically occurs where:
- the board member is tax resident in one country;
- the company is tax resident in another country; and
- both countries impose tax on the remuneration.
The solution is normally found in the provisions of the applicable tax treaty dealing with the elimination of double taxation. In most cases, the country in which the board member is tax resident must grant relief—typically by allowing a foreign tax credit or through another mechanism ensuring that the same income is not fully taxed twice.
