Foreign companies conducting sales in Norway may be subject to obligations under Norwegian VAT, bookkeeping, and accounting legislation.
When an invoice needs to be credited because a transaction does not happen as planned, additional VAT requirements apply. In this article, we look at a few key VAT considerations your company should be aware of when conducting sales and creating invoices, and how to avoid costly pitfalls.
A business enterprise will be obligated to register in the VAT Register if it has VAT liable turnover in Norway exceeding NOK 50 000 within a 12-month period.
Also read: Should your business register for VAT in Norway?
If the company is obliged to register in the VAT Register, the company will have an obligation to collect VAT at correct rates for its VAT liable sales in Norway, as well as remit the due VAT amount to the Norwegian state. The VAT amount must be specified on the invoice from the seller.
A particular challenge arises where the purchaser of a VAT-liable good or service fails to remit payment, as the VAT obligation to the Norwegian state remains enforceable notwithstanding such non-payment.
Example:
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Seller A, a VAT-registered company, supplies a VAT liable service in Norway to buyer B. A issues an invoice to B for the price of the service (NOK 1,000,000) + VAT of 25% (NOK 250,000). B fails to pay the invoice. A remains obligated to report the turnover in its VAT returns and remit the VAT amount to the Norwegian state. This represents a cost of NOK 250,000 for Seller A. The VAT payment is due within the deadline for the VAT return for the period in which the supply of goods or services took place. If Seller A is unable to remit the VAT amount in time, default interest will accrue on the outstanding amount until payment is made. The tax authorities may also initiate collection proceedings to recover the amount if it is not paid on time. |
A credit note is a document that nullifies all or part of a previously issued sales document. The legal effect of issuing a credit note is to formally document the cancellation of the original invoice.
Common reasons for issuing a credit note include correcting errors in the original invoice, such as:
If the original invoice lacked VAT or the wrong VAT amount was calculated
If the original invoice was issued with the wrong invoice recipient
If the original invoice lacks other mandatory content required under applicable bookkeeping legislation
In addition, a credit note may be used if there are grounds to cancel all or part of the sale that the original invoice was based on, for example if a price reduction is to be given or the purchase is to be cancelled.
The credit note shall, consistent with the original invoice, accurately reflect the factual circumstances and contractual obligations between the parties. Where a VAT-liable good or service has been delivered to a purchaser, and no legitimate grounds exist for price reduction or cancellation of the sale, there is no legal basis for nullifying the original invoice.
Where an original invoice has been issued, any subsequent amendment to the invoiced amount must be documented through the issuance of a credit note. This requirement applies regardless of whether the original invoice was transmitted to the customer.
Example:
| Buyer B in the example above complains to Seller A based on defects in the service. A gives a price reduction to B of NOK 200 000. Seller A must issue a credit note cancelling the original invoice and issue a new invoice reflecting the revised consideration. The VAT amount is calculated based on the revised consideration, being NOK 800 ,000 plus VAT of NOK 200 ,000. |
The VAT Act establishes strict requirements for writing off an outstanding receivable where delivery has already taken place.
The company may correct the calculation basis for an outstanding receivable if the debtor's lack of payment ability is deemed as finally lost.
For an outstanding receivable to be considered finally lost, at least one of the following requirements must be met:
enforcement or collection has been attempted and has been unsuccessful.
The receivable is a trade receivable that has not been settled six months after due date, despite at least three reminder demands with normal reminder intervals and such activity from the creditor's side as circumstances dictate,
public debt mediation, bankruptcy, liquidation or winding-up proceedings in the debtor's estate make it clear that the estate assets do not provide or will not provide coverage for the receivable, or
the receivable, otherwise, based on an overall assessment, must be considered clearly uncollectible.
The company that is obligated to calculate and pay the VAT is also responsible for being able to document the actual circumstances underlying the VAT calculation. The tax authorities may conduct audits going back 5 years, and in some cases up to 10 years for each VAT return, where they raise objections and claims related to this. This applies to both independent and related parties.
In a recent case, the Court of Appeal held that documentation requirements are heightened where the parties have common interests vis-à-vis the tax authorities. For related parties, there is therefore a higher risk that contractual arrangements underlying the VAT calculation are not sufficiently documented. If there is insufficient documentation of the circumstances, this will be to the detriment of the VAT liable company.
In this case, the VAT liable company was assessed both added tax and aggravated added tax, which had significant financial consequences for the company.
Related companies engaged in intercompany sales of goods or services face a particular challenge: where receivables remain outstanding for extended periods, there is a risk that the receivable may be recharacterized and classified as a loan or capital contribution to the purchasing entity.
To address this risk, the authorities have introduced a 24-month limitation period for writing off outstanding receivables between related enterprises. This period is calculated from the date on which the VAT was originally assessed. Related companies must therefore actively monitor intercompany receivables to ensure that any necessary write-off is completed before this deadline expires.
It is essential for a company to maintain comprehensive oversight of outstanding receivables and the purchaser's payment capacity. This is necessary not only to secure collection of the consideration due for goods and services delivered, but also to mitigate liability for VAT amounts that would otherwise be recoverable from the purchaser.
It is also essential for a company to ensure sufficient documentation of any sales agreements and any changes in the agreements that can document the basis for the VAT calculation in case of an audit.
Key oversight areas:
When was the receivable created and VAT calculated?
When should output VAT be reported to the tax authorities?
What collection measures has the company taken against the buyer?
Are there grounds for complaints or grounds for write-off?
Are the seller and buyer related parties?
Navigating Norwegian VAT can be complex, and non-compliance may have significant financial consequences. We have solid experience assisting foreign companies with their VAT obligations when doing business in Norway. Please feel free to contact us for advice tailored to your business.