We experience that foreign Entrepreneurs believe that VAT in Norway on supplies of goods with installation can be handled by B2B customer on a reverse charge basis, similar to the VAT treatment in most EU countries. Sadly, since Norway is not a member of the EU, the reverse charge mechanism is not applicable, and the supplier will in most cases be obliged to register for VAT in Norway and charge Norwegian VAT to its customer.

 

Foreign suppliers of installation services in Norway are required to register for VAT if the registration threshold of 50k NOK is breached

 

Recent Court decision

This rule was illustrated starkly in a recent decision from the Oslo City Court. The decision establishes firmly that a foreign Entrepreneur who carries out a supply with installation contract in Norway should register for VAT if the contract revenue exceeds NOK 50k. The Entrepreneur is, as a main rule, obliged to pay Norwegian VAT on the whole contract value, including both the goods and the installation services. The Court confirmed that the Entrepreneur had to pay VAT on its supply, including 8 to 10 percent late payment interest. The Court also found that the Entrepreneur had acted with gross negligence, and confirmed that a 20% penalty charge was appropriate, despite the fact that the Customer had the right to recover VAT on the purchase.

The Court held that it is not relevant whether or not it is possible for the Entrepreneur to charge the VAT to the Norwegian Customer in retrospect. Thus; the VAT risk is entirely on the Entrepreneur’s hand.

Risks involved

Partly as a result of the Court decision Norwegian Customers in some cases withhold payment if the Entrepreneur cannot prove that it is VAT registered. It is possible to register for VAT retrospectively, but such registration processes are always more time consuming and costly to achieve.

One important question that the Court did not address in its decision is what to do with import VAT incurred by the Norwegian customer in relation to the goods because the foreign supplier did not know that he was obliged to register for VAT in Norway. It follows from the Norwegian VAT recovery rules that a buyer of Goods with Installation normally will not have the right to recover import VAT on goods that a foreign entrepreneur is going to install in Norway.

Thus; by acting as importer of record, the Norwegian Customer runs the risk of being denied the right to deduct import VAT. Since the basis for the problems is that the Entrepreneur has not fulfilled his import obligations, we often see that the ensuing VAT correction process puts a stress on the relation between Entrepreneur and Customer, in addition to being time consuming and costly.

Recommendation

Foreign suppliers who are contemplating to bid for a Norwegian supply of goods with installation project, should plan on getting registered for VAT and set up procedures to import goods. The project plan should allow for having the VAT registration in place before the goods are imported, and the costs associated with the formal obligations should be calculated into the offer.

For more information, do not hesitate to contact Espen Qvist on +47 95 26 04 07 or espen.qvist@pwc.com.

 

Bildquelle: Uwe Kunze  / pixelio.de