Proposal to increase taxation of investments through fund accounts (unit link)

The Norwegian Ministry of Finance has proposed to increase the taxation of share investments made through fund accounts (unit link) to the same level as for shares owned directly by shareholders being natural persons.

A fund account is a combined investment and insurance product commonly known as Unit Link, Investment Account or Extra Pension in the Norwegian market. In a proposal issued 27 October 2016, the Norwegian Ministry of Finance suggests an increase in taxation of such products to the extent the insurance element of the product is secondary.

Today, shares owned directly by shareholders being natural persons are taxed at an effective rate of 28.75 percent (the tax base is multiplied with a factor of 1.15 and then taxed at a rate of 25 percent). In the state budget for 2017, the effective tax rate is proposed increased to 29.76 percent (factor increased to 1.24 and tax rate reduced to 24 percent). In contrast, under current rules, shares deposited on fund accounts are taxed at 25 percent flat (proposed reduced to 24 percent from 2017).

To obtain equal taxation, the Ministry proposes that share investments through fund accounts are taxed under the same rules as other share investments to the extent the insurance element of the relevant fund account product is deemed secondary. The Ministry proposes that the insurance element shall be deemed secondary when, upon an investor's death or disability, an insurance supplement constituting less than 50 percent of the remaining savings on the investment account is paid out. Under applicable rules, an insurance supplement of one percent is sufficient.

In the Ministry's view, the new general tax rules for securities funds are suitable also to regulate the taxation of fund accounts. It is therefore proposed that all payments from the fund account that are not related to the closing of the account are taxed in the same way as payments from a securities fund. Payments from a securities fund consisting of more than 80 percent shares are taxed as directly owned shares at an effective rate of 28.75 percent (2016 rate). Payments from a securities fund consisting of less than 20 percent shares are taxed as interest income at a rate of 25 percent. If the securities fund consists of both shares and debt instruments (i.e. a mix between the 80/20 thresholds), the taxation methods will be applied proportionally on the two income categories.

Upon closing of a fund account, tax will accrue upon the realisation of the shares in the same way as in a realisation of investments in a securities fund.

In line with the general taxation of payments made from securities fund, the Ministry further proposes to impose withholding tax on payments from the funds account to account holders tax resident outside of Norway to the extent the insurance element is deemed secondary and the underlying investment is shares.

The new rules are proposed to have effect from 1 January 2018. A transitional rule is also proposed implying that the share ratio as of 1 January 2018 will be applied when determining the tax category (as debt instrument or shares) as explained above.

You can read the entire proposal here (in Norwegian).