Transferring shares to a holding company in Norway

In Norway, shares can be transferred to a holding company by way of a contribution in kind, a sale or a triangular merger, and normally only a triangular merger can be carried out without immediate taxation. Are you considering consolidating your shareholdings into a single holding company? Many entrepreneurs and investors – including foreign companies and owners doing business in Norway through a Norwegian limited liability company (AS) – opt for a holding structure to defer tax, secure dividends and simplify future transactions. In this article, we explain how to transfer shares to a holding company, which tax rules apply, and what you should clarify before you begin. The rules apply regardless of where the shareholders are resident, but foreign owners should also consider the tax rules in their home country.

What does transferring shares to a holding company involve?

Transferring shares to a holding company means that, as a personal shareholder, you exchange your direct ownership in the operating company for indirect ownership through a separate holding company. Following the transfer, you own the shares in the holding company, while the holding company owns the shares in the operating company. This structure is often used to bring several companies under the same ownership umbrella, or to facilitate a future sale or generational succession.

Why do many people opt for a holding company structure?

Many people opt for a holding company structure because it offers a number of practical and tax-related advantages. Dividends and capital gains from the operating company can be received virtually tax-free by the holding company under the Norwegian exemption method (fritaksmetoden), meaning that the funds can be reinvested without immediate taxation on you as the personal owner. A holding structure also makes it easier to spin off or sell individual companies at a later date, and can provide better protection of assets against risks in the operating company. For foreign owners, a Norwegian holding company can also make it possible to reinvest profits in Norway without first paying dividends abroad, which are generally subject to Norwegian withholding tax. Whether the reorganization is actually worthwhile depends, among other things, on what you intend to use the funds for.

Also read: When is a tax-free reorganization  worthwhile – and when is it not?

How do you transfer shares to a holding company in practice?

The transfer of shares to a holding company normally takes place in one of three ways:

• Contribution in kind – you contribute the shares in the operating company as a contribution in kind to a newly established or existing holding company. This will constitute a realization, and you personally must pay tax on any capital gain on your shares in the operating company. The tax is calculated as the difference between your original cost basis for the shares in the operating company and their market value at the time of transfer. If the value of the operating company is low, this can therefore be a simple way to achieve the desired structure.

• Sale of shares to the holding company – you sell the shares to the holding company in return for cash or a promissory note. As with a contribution in kind, this triggers capital gains tax at the time of sale. As above, this alternative is best suited when the value of the operating company is low, as high value will trigger high personal tax on you as the seller.

• Triangular merger – you set up a ‘shadow structure’ comprising a holding company and a subsidiary. You then merge the operating company into the subsidiary, with consideration provided by the holding company (hence the name ‘triangular merger’).

If the value of the operating company is so high that it triggers tax of some significance, most people opt for a triangular merger rather than a contribution in kind or a sale. The triangular merger method can be carried out tax-free provided the conditions are met.

When can shares be transferred to a holding company tax-free?

As a general rule, a transfer via a triangular merger can take place without immediate taxation if tax continuity is established. This means that your tax positions relating to the operating company, such as the original cost price of your shares, are carried over to your shares in the holding company. Any capital gain will only be taxed when you realize the value of your shares in the holding company. The conditions for tax exemption are strict, and the transaction should be planned carefully in consultation with an accountant or lawyer. If you are resident outside Norway, note that a transfer that is tax-free in Norway is not necessarily tax-free in your country of residence.

What should you clarify before setting up the holding company?

Before you begin, you should clarify several matters:

• Is there one or more operating companies to be placed under the holding company?

• What proportion of the shares in the operating company or companies do you own?

• Should the holding company be incorporated as a new company, or should an existing company be used?

• How will the transfer affect any shareholder agreements or loan agreements in the operating company?

• Is the consent of other shareholders or creditors required before the transfer can be carried out?

• Are any shareholders or board members based outside Norway? If so, how will the transfer be treated for tax purposes in their home country, and do they need a Norwegian D-number to sign and register documents?
  
  

Does the transfer require the consent of the other shareholders?

Yes, in practice the transfer requires agreement among the shareholders. If there are several shareholders in the operating company, you must draw up a joint plan for a triangular merger, and all shareholders must participate in the process. If any of the shareholders already own their shares through a holding company, it is conceivable that they may not wish to be part of such a reorganization. In that case, you will need to consider a demerger of the operating company in accordance with the so-called BFU 29/11 model (based on a binding advance ruling from the Norwegian Tax Administration) in order to achieve the objective of holding shares through a holding company.

Regardless of whether you opt for a triangular merger or a demerger under BFU 29/11, the decisions that need to be taken will require full agreement among the shareholders. Otherwise, you risk the planned process being derailed along the way by differing ownership structures, a lack of continuity, the exercise of pre-emption rights or other factors that have not been thought through in advance.

What documents are required for a triangular merger in Norway?

A triangular merger normally requires the following documentation:

• Articles of association for the holding company and the subsidiary

• Merger plan

•  Minutes of board meetings and general meetings

• Statement from the board of directors with confirmation from the auditor

• Report from the board on the implications of the merger for employees

• Two notifications to the Norwegian Register of Business Enterprises (Foretaksregisteret): 1) resolution on the merger and 2) the merger taking effect

• Updated register of shareholders in the holding company, and submission of a shareholder register statement (aksjonærregisteroppgave) for all companies involved
  
  

What are the most common pitfalls in a triangular merger into a holding company?

he most common mistakes are overlooking consent requirements in existing agreements, failing to take into account that there are multiple shareholders in the operating company, and failing to ensure tax continuity during the transfer process. For foreign owners, tax consequences in their home country and the time needed to obtain a Norwegian D-number are also often overlooked. In the worst-case scenario, incorrect handling can render an intended tax-free transaction taxable.

Transfer of shares to a holding company: a summary

A holding structure can give you better control over the assets in your company and a solid foundation for future growth, a sale or a generational handover – provided the transfer is carried out correctly from the outset. Are you considering setting up a holding company or transferring shares to an existing structure? Contact our commercial lawyers for a review of your ownership structure and the tax implications – whether you are based in Norway or abroad.