By Maia Eriksrud
Over the past few years, Norway has witnessed a significant exodus of its wealthiest citizens, driven primarily by tax considerations. This trend prompted the Norwegian government to implement more stringent exit tax regulations, essentially aimed at curbing capital flight.
In recent years, Norway’s centre-left government increased its wealth tax to 1.1%, a move that led to a notable departure of high net-worth individuals. In 2022 alone, over 30 NOK billionaires and multimillionaires relocated to tax havens, particularly Switzerland, resulting in a significant loss of tax revenue for the government.
To address the drastic capital flight, Norway introduced an exit tax in 2022, targeting unrealised gains on shares and other assets when individuals ceased to be tax residents. Prior to this decision, if assets remained unsold after five years subsequent to emigration, the tax was waived. However, the government found this approach ineffective in ensuring tax compliance and thereafter closed the tax loophole.
Key changes in 2022 to close the loophole included raising the threshold for exit tax to NOK 3 million in net capital gains upon emigration; limiting the deferral period for paying the exit tax to 12 years; and requiring that exit tax be paid in tandem with dividend distributions to prevent tax avoidance through asset stripping.
The tightening of exit tax regulations has sparked major debate. Retail estate and Salmon farming investor, Tord Ueland Kolstad (net worth of NOK 1.5 billion) was one of many Norwegians who moved to Switzerland. He stated that while it was not his preference, the regulation left him with ‘no choice’: the increase in wealth tax meant he faced liabilities exceeding NOK 6 million, requiring him to take out a dividend of approximately NOK 10 million to cover both wealth and dividend taxes.
Whilst Kolstad’s case reflects the pressure on individuals with established wealth, the experience of Fredrik Haga highlights how the current tax system also majorly impacts start-up founders and early-stage entrepreneurs. Haga, founder of a successful Norwegian start-up, was another individual who was ultimately forced to relocate to Switzerland. He arrived at this decision after facing substantial wealth tax liabilities based on the high ‘paper’ valuation of his cryptocurrency data business despite the company being loss-making and not in a position to distribute dividends. Haga’s case demonstrates how such tax measures deter entrepreneurship and innovation, particularly in the start-up sector. The wealth tax makes it practically unfeasible to scale up businesses that often run for years without making a profit and in turn forces them to drain capital to pay taxes. Beyond the loss of tax revenue and capital, critics argue that Norway also risks a broader ‘brain drain’.
Whilst levying an exit tax is based on the principle that states are entitled to tax income within their jurisdiction, it remains questionable whether such taxes can exist simultaneously with EU and EEA rules regarding the free movement of persons and capital. Many argue that exit taxes violate such principles by imposing financial liabilities and effectively limiting one’s ability to settle freely within the EU and EEA. As exit taxes are levied on unrealised gains, the emigrating taxpayer faces a tax liability earlier than they otherwise would. This indisputably has a deterrent effect as recognised by the European Court of Justice.
While the European Commission has accepted that member states are entitled to impose exit taxes, this is conditional upon taxpayers being granted the possibility of ‘unconditional deferral’. In the case of Norway, payment can be deferred but only for a limited period of up to 12 years – falling short of the standard endorsed by the European Commission.
The exit tax furthermore sends a clear signal to international entrepreneurs and investors: ‘do not come here, and do not stay here’. Such signals risk discouraging foreign direct investment and weakening the start-up ecosystem, with potentially significant long-term economic consequences. Many argue that one of the most important things for Norway in the future is in fact making it a place that makes wealth creation attractive, yet it seems to be a ‘country that sends away people’. This is particularly concerning in light of comparisons with neighbouring Sweden, which abolished its wealth tax in 2007 and has since fostered a strong start-up ecosystem. While the debate surrounding wealth taxation remains inherently political, the effects on business activity are increasingly visible. On the other hand, some contend that these tax measures are essential for maintaining a fair and equitable tax system, ensuring that all citizens contribute proportionally to public services.
Norway’s tightening of wealth and exit tax regimes reflects legitimate attempts to protect its domestic tax base and ensure fairness. However, the evidence suggests that these measures may produce significant unintended consequences. Ultimately, by deterring entrepreneurs and capital, it may undermine the very economic growth and tax revenues it seeks to preserve.
The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.
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