Employer of Record services (EOR) – potential implications in Norway

Employer of Record (EOR) services are widely utilized across jurisdictions, particularly by foreign businesses with a limited local presence. An EOR provider formally employs staff on behalf of another company and assumes responsibility for employment-related administrative requirements. The purpose is often to reduce the administrative burden of registration and tax reporting obligations in the respective country. Although this model is common internationally, its application in Norway is considerably more complex.

Challenges in Norway

Foreign businesses considering EOR arrangements in Norway should be aware that such structures may not deliver the anticipated benefits and could result in unintended consequences. Rather than avoiding obligations, foreign companies may find themselves subject to both registration and tax reporting requirements. In addition, such hiring may constitute a breach of Norway’s strict regulations governing the hire of personnel. 

Regulations on hire of personnel

An EOR provider will in most cases be classified as a staffing agency. Entities classified as staffing agencies must obtain approval and be registered with the Norwegian Labour Inspection Authority. Any hiring of employees from EOR providers not registered with the Labour Inspection Authority is not permitted.

Furthermore, hiring personnel from staffing agencies is strictly regulated and permitted only in the following circumstances:

Temporary replacement of an absent employee
Agreement with the company’s employee representative
Temporary requirement for specialist expertise in advisory or consulting services
Need for healthcare personnel to ensure proper operation of health and care services

If the hire is of construction workers, this might not be legal at all as hire from staffing agencies for construction work is prohibited in certain areas in Norway. 

Prior to any engagement, it should be carefully assessed whether the hire complies with applicable regulations. If not, the employee may be entitled to permanent employment with the foreign business using the EOR service and could potentially claim compensation from the hirer.

Registration, tax and permanent establishment

Foreign businesses using hired personnel in Norway often seek to avoid registration and tax reporting obligations. However, the mere use of hired personnel will generally trigger such obligations.

When hired personnel are engaged to work in or from Norway, this will in most cases result in the foreign business being regarded as conducting business activity in Norway. Under the Norwegian Taxation Act, foreign businesses are deemed taxable when conducting business activity in Norway. The threshold for when considered taxable is generally very low. As a result, the foreign business will be required to submit a corporate income tax return.

When considered tax liable the business must also register in Norway with a NUF (Norwegian registered foreign business). A NUF is regarded as the same legal entity as the foreign main company. 

Depending on the scope and nature of the activity, the use of hired personnel may result in the foreign company being regarded as having a permanent establishment under the double tax treaty. Importantly, even if a permanent establishment is not deemed to exist, the foreign business will still be obliged to submit a corporate income tax return to the Norwegian tax authorities.

Other tax reporting obligations

The use of hired personnel could also lead to other tax reporting obligations. The possible tax reporting obligations will depend on the factual activity carried out by the hired employee, and could e.g., lead to the following tax reporting obligations:

-          VAT

-          Financial statement

-          Contracts reporting 

-          Transfer pricing requirements

-          Reporting of beneficial owner(s)

-          Audit

When using hired personnel, the hirer will be jointly and severally liable for salary, withholding tax, and employers’ national insurance contributions in connection with the hired employee.

Further, it is important to be aware that even if hiring workers, there is a risk that the hired workers could be considered as employees of the foreign business. This applies both in terms of the Norwegian Labour legislation and for tax purposes. 

Conclusion

Employer of Record arrangements may appear to offer a straightforward solution for foreign businesses seeking to operate in Norway without establishing a local entity. However, the Norwegian regulatory and tax framework imposes significant obligations that cannot always be circumvented through EOR structures. The use can lead to a NUF registration, tax obligation, other tax reporting obligations as well as labour law implications. 

Foreign companies considering EOR solutions in Norway should therefore conduct a thorough legal assessment before entering into such arrangements. Seeking professional advice at an early stage is strongly recommended to ensure compliance and to mitigate the risk of unintended consequences.