If you’re working in Norway, you’ll encounter one of two taxation systems: the Pay-As-You-Earn (PAYE) scheme or the ordinary taxation system. Knowing which applies to you can make a big difference in how much you pay, what deductions you qualify for, and whether you need to file a tax return. This guide explains both systems, who qualifies, and how to maximize your net income.
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📌 What Is the PAYE Scheme?
Introduced in 2019, the PAYE scheme simplifies taxation for non-resident workers temporarily employed in Norway. It’s a flat 25% tax rate (including social security contributions), applied directly to your salary.
- Eligibility: Non-residents with annual income below NOK 670,000 (2024), excluding offshore workers and seafarers.
- No Deductions: Unlike ordinary taxation, you cannot claim deductions such as interest expenses, union dues, or housing costs.
- No Tax Return: Your tax is final at payment; you don’t need to submit an annual return.
- Best For: Short-term foreign workers who want a simple, predictable tax process.
💼 What Is Ordinary Taxation?
The ordinary taxation system applies to residents and higher-income non-residents. It involves more complex calculations but allows for valuable deductions.
- Tax Rate: Ordinary income taxed at 22% plus bracket tax rates on personal income (1.7% to 17.7%).
- Deductions Available: Minimum deduction (up to NOK 92,200), personal deduction (NOK 108,550), mortgage interest, union dues, and charitable donations.
- Filing Required: Residents and many non-residents must submit a tax return by 30 April each year.
- Best For: Workers with higher salaries, mortgages, or family-related deductions that reduce taxable income.
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⚖️ PAYE vs. Ordinary Taxation: Key Differences
| Feature | PAYE Scheme | Ordinary Taxation |
|---|---|---|
| Tax Rate | 25% flat (includes social security) | 22% on general income + progressive bracket tax (1.7%–17.7%) |
| Eligibility | Non-residents earning below NOK 670,000 | Residents and high-earning non-residents |
| Deductions | Not allowed | Allowed (mortgage, union dues, minimum deduction, etc.) |
| Tax Return Filing | Not required | Mandatory by April 30 |
| Best For | Temporary workers seeking simplicity | Long-term residents, families, homeowners |
🌍 Can You Switch Between PAYE and Ordinary Taxation?
Yes. If you qualify for PAYE, you can choose to opt out and be taxed under the ordinary system if you expect deductions to reduce your tax liability. However, once you choose ordinary taxation, you must file a tax return and follow the standard rules.
📊 Example Comparison
Let’s compare a non-resident earning NOK 500,000 in 2025:
- PAYE: 25% flat = NOK 125,000 tax. No filing, no deductions.
- Ordinary Taxation: After minimum deduction and personal deduction, taxable income drops significantly, potentially lowering tax to ~NOK 110,000 (depending on deductions).
Takeaway: If you have large deductible expenses, ordinary taxation may save you more.
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