While not being a member of the European Union, Norway is a member of the European Economic Area (EEA) with access to the European Union single market’s basic principles of free movement of goods, services, persons, and capital. The EEA free trade rules came into effect for Norway in 1995 and have resulted in the EU single market being an even more relevant trade partner for Norway. While Norway historically has also had strong international trade relationships outside the EU/EEA area (for instance with Russia, China and Japan, to these countries mainly as a consequence of Norway’s oil & gas production and its strong position within the global shipping and fishing industries), we believe that – in light of the sanctions against Russia and an enhanced international insecurity – the relevance of Norway’s interdependence and trade relation with the EU will increase even further. 

The EEA free trade rules came into effect for Norway in 1995, and Norway has since liberalised its foreign investment legislation to conform with the EU free movement principles and that of national treatment to EU members and the other EEA members Liechtenstein and Iceland. Beyond the EEA, Norway’s foreign investment legislation towards third countries is governed by principles of reciprocity and by bilateral and international trade agreements. While Norway follows the relevant EU or US sanctions regime at all times, it has not shown any aggressive postures in regulating foreign investors. However, within certain sectors, we have seen indications of Norway being more aware of protecting natural resources and critical infrastructure, for instance through declining investment in or supplies to the Norwegian oil and gas sector and/or critical infrastructure from state-owned or state-near companies in Russia as well as China (for instance 5G).

Due to the economic crisis triggered by the COVID-19 pandemic, foreign direct investment (FDI) in Norway dropped sharply to almost USD -2.4 billion in 2020, down from USD 16 billion in 2019. Sweden, the U.S. and the Netherlands almost consistently rank as top investors in Norway, accounting for more than 40% of inflows, whereas mining and quarrying, manufacturing and financial services are the main sectors in terms of FDI stock. The Norwegian economy is largely based on the petroleum and gas sector. Consequently, the decline in the price of hydrocarbons led to a drop in investment in Norwegian oil companies in recent years. Most recently, the Norwegian government pension fund has enhanced its efforts to move towards sustainable investments, for example by announcing the divestment of carbon-related assets from its portfolios. 

While there are no general restrictions on foreign direct investment in Norway, there are certain general restrictions or concession requirements within specific industries, applying irrespective of nationality. Further, there are restrictions due to national security interests and competition law rules. None of these rules are specifically targeted towards foreign direct investors. 

As regards foreign direct investment screening, with the entry into force of the EU FDI Screening Regulation on 11 October 2020, all 27 EU Member States are required to implement national FDI screening mechanisms. Norway is not a part of this cooperation but has chosen to introduce its own national rules in the National Security Act (NSA). According to this Act, Norwegian authorities are, on an exceptional basis, entitled to intervene in the acquisition of shares and interests in Norwegian companies or business company assets, if the investment qualifies as being relevant to Norwegian national security. The NSA is intended to help prevent, detect and counter activities that present a threat to national security, and ensure that security measures are implemented in accordance with the fundamental legal principles and values of a democratic society. Typically, undertakings in the defence, telecommunications, transport and energy sectors, food and water supply and health services are covered by the provisions of the Act. However, there is no public list or record of which companies have been made subject to the national security regime. If the investment is related to the acquisition of a qualified majority stake in the target company, the investment is subject to a mandatory notification requirement, irrespective of the amount of turnover of the target company in Norway. In addition, and irrespective of the notification requirement, the Norwegian authorities can at any time, and at their sole discretion, decide upon any target in Norway qualifying as being relevant to the national security of Norway.

Within the agriculture sector, a concession is required for the purchase of farmland above 3.5 hectares if the purchase occurs outside the family of the current owner. Typically, local municipalities also impose a requirement for a buyer to register their permanent residence at the farmland. This concession requirement is irrespective of the nationality of the purchaser. 

Within the hydropower sector, one of Norway’s key energy resources, the legal framework is based on the premise that Norway’s hydropower resources belong to, and shall be managed in the best interest of, the general public. This is reflected in a requirement for two thirds public ownership of major hydropower plants, i.e. plants with a capacity above 10 megawatts. Minor hydropower plants (i.e. with less than 10 megawatts) are only subject to a licence. 

Within the oil and gas sector, considered in income Norway’s most important sector, the acquisition of participating interest in Norwegian petroleum licences is subject to the approval of Norwegian authorities, however this requirement is not specifically targeted towards foreign direct investment. 

Finally, Norwegian merger control and competition rules, which are mainly based on the EU merger control and competition rules, may set acquisition restrictions.

Norway’s pandemic-led economic downturn remained limited compared to most European countries: after losing only 0.8% in the aftermath of the pandemic, the country’s GDP was estimated at +3% in 2021, thanks to a strong rebound in private consumption and an increase in employment, which offset declining investments. Benefitting from higher oil and gas prices (Norway’s main exports), the 2022 economic output is projected to be running slightly around the pre-pandemic path. The economy is forecast to grow by 3.8% in 2022, before slowing to 2.9% in 2023 (IMF), although uncertainty remains due to new waves of the pandemic, the weak or reduced global economic trends and the historically high household debt level.

The Norwegian government’s response to the economic downturn relied mainly on the implementation of employment support measures as well as economic stimulus measures. On the employment side, the Norwegian government implemented a 20-day furlough scheme in March 2020. Usually when an employee is made redundant, the employer is responsible for paying the first 15 days of unemployment and then the employee, following a three-day stop in pay, can receive unemployment benefits from the Norwegian state. The new furlough scheme reduced the period the employer was responsible to pay to two days, followed by an 18-day period where the Norwegian state provided the payment; beyond the 20-day period an individual could apply for unemployment benefits. A further flexibility for employers was that employees could be furloughed part-time (up to 50%) and therefore could continue to be in contact with and contributing to their workplace. The intention was to support companies to rotate staff on furlough within a business to try to limit unemployment. 

In addition to the furlough scheme, the Norwegian government heavily increased its support to local business through loan guarantees to the private sector. Government loan guarantees for small and medium enterprises were announced in March 2020, and the scheme was extended to all private firms including those with more than 250 employees in April 2020. Further to this, a NOK 6 billion loan guarantee package for the aviation industry was agreed including specific protection for particular domestic routes and the abolition of the air-and airport passenger taxes. In addition to these support schemes, the government also followed a reluctant approach in terms of the collection of outstanding taxes, duties and social contributions. 

In May 2020, the Norwegian government initiated a new scheme, where movement control measures were scaled back, and economic measures were revised to increase economic activity and help the unemployed return to work. These included a temporary subsidy scheme for companies to take back temporarily laid off workers, measures to underpin activity in the construction sector and a green transition package. 

From 2023, Norwegian economic activity looks set to rise further going forward. Recent data from a survey by the Norwegian Central Bank show that Norwegian businesses are planning to expand capacity in the period ahead. For many, capacity constraints and labour shortages have become an increasing problem. The war in Ukraine from February 2022 has led to increased uncertainty about the future economic performance of Europe and many of Norway’s main trading partners. 

The Norwegian economy is relatively shielded from the direct consequences of the war and sanctions as Ukraine and Russia only account for a small share of Norwegian foreign trade. However, Russia’s invasion has underscored the need for alternatives to Russian oil and gas. Many European countries now see Norwegian oil and gas as a key element in their efforts to reduce Europe’s dependence on Russian energy over time. Coupled with high oil and gas prices, this will underpin growth in Norwegian oil investment, which even before the war was set to rise significantly ahead. Higher oil investment will be a key driver of growth in both the Norwegian manufacturing industry and the economy in the coming years. 

M&A transactions involving assets located in Norway, or shares in Norwegian target companies, are customarily and predominantly governed by Norwegian law. Parties may occasionally agree that foreign law shall apply to share purchase agreements, however this is not common unless both seller and buyer are based outside Norway. Norwegian law is based on the principle of freedom of contract, subject only to limited restrictions. Despite this, mandatory rules of Norwegian law typically apply on M&A transactions involving a Norwegian target and are relevant in terms of a foreign buyer’s due diligence and risk assessment of the Norwegian target. Consequently, foreign parties involved in a transaction in the Norwegian market will normally have to obtain Norwegian legal advice to determine their contractual rights and obligations, and to be able to perform their due diligence and risk assessment properly. 

Further to this, environmental, social and governance (ESG) issues continue to grow in influence. The Norwegian Transparency Act came into force 1 July 2022., the Act is based on the principles laid down in the OECD Guidelines for Multinational Businesses as well as the OECD Guiding Principles on Business and Human Rights, both of which implementing the United Nations “Protect, Respect and Remedy” Framework. The Act imposes significant requirements on approximately 9,000 Norwegian and foreign companies offering goods and services in Norway. However, foreign enterprises offering goods and services are only subject to the Act, if they are liable to pay taxes pursuant to Norwegian tax legislation. The Transparency Act establishes duties with the aim of promoting respect for human rights, decent working conditions and ensuring access to information. We believe this increased focus on human rights will be significant in many M&A due diligence processes. It will be increasingly important for the buyer to assess whether the Norwegian target company has sufficient processes in place to be able to comply with the Transparency Act.

In addition, national security considerations are becoming more and more important in transactions. The authorities are to a greater extent assessing potential threats to national security interests and may require suspension, blockage or impose measures to mitigate the risk of threats to such interests. The authorities are currently discussing which sectors are particularly important from a national security perspective and may subject additional areas, such as data centres, to regulations.

Investing in real estate in Norway may be carried out either directly or indirectly. 

For indirect investments, the most common Norwegian vehicle used is the Norwegian private limited liability company (AS), with the Norwegian limited/unlimited partnerships as additional options. That particularly applies to foreign investments in Norwegian commercial real estate. The choice of the investment vehicle is mainly due to avoidance of capital gains tax of 22% at a share sale under the participation exemption method for corporate shareholders, as well as to avoid stamp duty of 2.5% on the fair market value upon registration of title. Further, dividend withholding tax (WHT) is not imposed on repayment of paid-in capital or on liquidation dividends. 

The framework for taxation of ownership of shares is not significantly complex, with some exceptions for cross-border investments. A Norwegian multi-tier structure is often simple to establish and to administer during the investment period. Norwegian corporate shareholders are 100% exempted from taxation of capital gains on the disposal of shares in a Norwegian limited liability company, irrespective of the ownership percentage or the holding period. Dividends are 100 per cent tax exempted as well, provided that a Norwegian or EEA resident company has more than 90% ownership. However, 3% of received dividends are subject to 22% taxation, i.e., effectively, 0.66 % tax on dividends if the ownership is not more than 90%. When foreign investors expect annual distributions from the real estate, a Norwegian partnership between the foreign investor and the Norwegian real estate company may be established to reduce the exposure for WHT.

For direct investments, registration of title to a property triggers, with few exceptions, 2.5% stamp duty calculated on the gross fair market value of the property. Previously, it was common to let an empty holding company hold the title to a commercial real estate. By purchasing the real estate and the shares in the title holding company, it is possible to avoid triggering stamp duty on a transfer. However, acquiring a property with such a structure should be subject to thorough due diligence of both the history of the real estate and the title company.

A foreign company making a direct investment in Norwegian real estate must register in Norway and file a corporate income tax (CIT) return. Net income from the real estate business carried out in Norway is subject to ordinary taxation at a rate of 22%. In calculating taxable income, book income shown in the annual financial statements is used as a starting point. However, the timing of CIT is based on the realisation principle. The basic principle is that an income is taxable in the year in which the recipient obtains an unconditional right to receive the income, and an expense is deductible in the year in which the payer incurs an unconditional obligation to pay the expense. In general, all expenses, except gifts and entertainment expenses, are deductible.

Investments in fixed assets are to be capitalised and depreciated according to a declining balance method at any rate up to a given maximum. Commercial buildings, industrial buildings and installations, hotels, boarding houses, restaurants and certain other structures can be depreciated by different depreciation rates. Land and ordinary residential buildings are not tax depreciable. If such assets are sold with a capital gain, the taxation can be deferred, and a loss must be deferred. 

Although not a member of the EU, Norway is a member of the European Economic Area (EEA). The EU General Data Protection Regulation (GDPR) entered into effect on 25 May 2018. The GDPR was incorporated into the EEA agreement and became effective in Norway on 20 July 2018. Norway is thus bound by the GDPR in the same manner as all other EU Member States. The GDPR was incorporated into national law by means of the new Norwegian Personal Data Act which has been in effect since 20 July 2020.

As regards protection of intellectual property rights, Norway is part of all major international property treaties such as the Paris Convention on the Protection of Industrial Property (relevant for foreign patents and trademarks), the Madrid System Concerning the International Registration of Marks (relevant for trademarks), the Berne Convention for the Protection of Literary and Artistic Works (relevant for copyrights) and the Hague System for the International Registration of Industrial Designs (relevant for foreign design rights). Furthermore, the Norwegian Marketing Control Act and the Norwegian Trade Secrets Act protect against the unreasonable exploitation of a company’s goodwill and confidential information. At the same time, there are requirements for the company’s own marketing and secrecy. 

Norway has a predictable business climate and the set-up of companies and legal structures is comparably easy and straight-forward. 

The most common legal entity chosen by foreign investors is the legal form of the private limited liability company (AS). From a tax perspective, it is often beneficial to also establish a holding structure, especially in cases where the foreign investor resides and is incorporated within the EU/EEA area.

For less permanent activities, foreign investors often chose to establish a Norwegian branch of its foreign company (NUF). However, the threshold for a foreign entity becoming subject to Norwegian taxation is rather low if the entity “conducts business activities” in Norway. When being subject to Norwegian taxation, the tax reporting and filing obligations on the Norwegian branch are almost the same as for a Norwegian limited liability company, which might explain why Norwegian limited liability companies are preferred by foreign investors. If a double taxation treaty is in place between Norway and the home state of the foreign investor, Norwegian taxation is only applicable if the business activities of the foreign investor’s branch office from a tax perspective constitutes a permanent establishment.

The corporate tax is based on extract of accounts which reflects the business operations carried out in Norway. The corporate tax rate of a NUF equals the tax rate of a limited liability company. Norway does not levy withholding tax on distributions of branch profits to the foreign head office.

According to a 2022 analysis made by McKinsey Norway (“Norway tomorrow”), business attractions arise particularly along the following three opportunities: 

• The energy transformation in Europe, where Norwegian energy recourses and industries in areas such as hydrogen, offshore wind, batteries, carbon capture, and storage and green maritime industry provide promising opportunities. Hydrogen in particular will be one of the world’s most important solutions to the climate and energy crisis. Norwegian gas, water, and wind resources for energy production enable Norway to produce green and blue hydrogen less expensively than its competitors, Norway will play a leading role in, and set standards for, the world’s green transformation.
• The digital transformation, where Norway, although not historically but recently, has asserted itself on the global stage, in both consumer platforms and software for major industry, Norway has built a number of global winners, and the accelerating digital transformation has provided Norway with several opportunities. Deals with the IT and tech sector lead the way in Norwegian M&A activities. 
• The sustainability transformation (in addition to the energy industries), where Norway has leverage due to its traditions, natural resources, and a strong focus on sustainability in all industries, including those not pertaining to the energy sector. Tourism, aquaculture, and circularity in general are opportunities here. Environmental, social and governance (ESG) issues continued to grow in influence in 2022. The Norwegian Transparency Act entered into force on 1 July 2022. The Act imposes significant requirements on approximately 9,000 Norwegian and foreign companies offering goods and services in Norway (foreign enterprises offering goods and services are only subject to the Act, if these are liable to pay taxes pursuant to Norwegian legislation). The Transparency Act establishes duties aiming to promote respect for human rights and decent working conditions and ensure access to information. An increased focus on human rights will be significant in many transaction due diligence processes. It will be increasingly important for the buyer to assess whether the target company has sufficient processes in place to be able to comply with the Transparency Act.

As Norway has no specific foreign direct investment legislation, there are also no specific laws or mechanisms on the protection of foreign direct investors.