Capital increase in real estate companies to reduce wealth tax for 2023

What are the rules for wealth tax?

Individuals are subject to wealth tax, but this doesn’t apply to companies. The tax base is net worth, meaning assets minus liabilities. For 2023, the wealth tax rate is 1% on wealth exceeding 1,700,000 Norwegian kroner. For wealth surpassing 20 million kroner, the wealth tax rate is 1.1%.

The general rule is that wealth is valued at its market value at the end of the income year. This applies, for instance, to listed shares. However, for unlisted shares, the valuation is typically based on the value at the start of the income year. Therefore, for the tax year 2023, the valuation of shares in a holding company within a property group will be based on values as of January 1, 2023, not December 31, 2023.

There are specific rules for calculating the assumed value of commercial property based on the average gross rental income minus 10% in owner expenses divided by a discount rate. The discount rate for 2023 is determined retrospectively in January 2024 based on the annual average of the interest rate for 10-year government bonds in 2023, plus an additional 5 percentage points. Due to the increased interest rates in 2023, it’s expected that the discount rate will be higher for 2023 compared to 2022 when it was 0.078%. This might result in lower property valuations for commercial real estate at the end of 2023 compared to valuations as of January 1, 2023.

Shifting the valuation period due to capital increases

It’s possible to shift the valuation period to the end of the year in the case of a capital increase. The capital increase must be substantial and not merely symbolic in size. It needs to be reported to the Companies Register by December 4, 2023, to ensure registration and implementation before the year-end.

Capital changes require consideration. Property actors should assess whether executing a capital change is advantageous in their specific circumstances.