Employee Share Plans: Norway

A Q&A guide to employee share plans law in Norway.

The Q&A gives a high level overview of the key practical issues including, whether share plans are common and can be offered by foreign parent companies, the structure and rules relating to the different types of share option plan, share purchase plan and phantom share plan, taxation, corporate governance guidelines, consultation duties, exchange control regulations, taxation of internationally mobile employees, prospectus requirements, and necessary regulatory consents and filings.

To compare answers across multiple jurisdictions, visit the Employee Share Plans Country Q&A tool.

The Q&A is part of the PLC multi-jurisdictional guide to employee share plans law. For a full list of jurisdictional Q&As visit www.practicallaw.com/employeeshareplans-mjg.

Espen Nordbø, Sten Foyn and Amund Fougner Bugge, Advokatfirmaet Haavind AS
Contents

Employee participation

1. Is it common for employees to be offered participation in an employee share plan?

It is fairly common for employees to be offered participation in employee share plans, particularly in the form of:

  • Incentives for senior executives and executive directors in listed companies.

  • Incentives/remuneration packages in start-ups with a limited cash base.

 
2. Is it lawful to offer participation in an employee share plan where the shares to be acquired are shares in a foreign parent company?

It is lawful to offer participation in an employee share plan concerning shares in a foreign company. However, the foreign company may have to comply with prospectus requirements (as with any offer of shares in Norway) (see Question 23).

 

Share option plans

3. Please list each type of share option plan operated in your jurisdiction (if more than one).

Employers can issue share option schemes to employees on any terms. Typical Norwegian share option schemes are relatively unsophisticated. There are few distinct types of share option plans, apart from the distinction between schemes offered only to a group of managers and key personnel, and schemes offered to all employees.

There are no share option plans that provide specific tax advantages.

 
4. In relation to the share option plan:
  • What are the plan's main characteristics?

  • Which types of company can offer the plan?

  • Is this type of plan popular? If so, among which types of company is this plan particularly popular?

Share option plan

An employer can grant share options to any employee on any terms.

Any type of company can operate a share option plan.

Share options are common as incentives for senior executives and executive directors in listed companies and as incentives/remuneration packages in start-ups with a limited cash base.

 
5. In relation to the grant of share options under the plan:
  • Can options be granted on a discretionary basis or must they be offered to all employees on the same terms?

  • Is there a maximum value of shares over which options can be granted, either on a per-company or per-employee basis?

  • Must the options have an exercise price equivalent to market value at the date of grant?

  • What are the tax and social security obligations arising from the grant of the option?

Share option plan

Share option plans can be granted to any employee, on certain conditions or on a discretionary basis, and over any amount of shares. General legislation prohibiting discrimination in the employment relationship must be complied with.

There is no limit to the number of shares that can be held.

Share options can be granted at, above or below market value.

Tax or social security charges are not payable on grant. However, the employer has an annual reporting obligation to the tax authorities regarding its employees' economic benefits from share option plans issued by the employer.

The net value of the share option is subject to net wealth tax from the time the option becomes unconditional until it is exercised or lapses.

 
6. In relation to the vesting of share options:
  • Can the company specify that the options are only exercisable if certain performance or time-based vesting conditions are met?

  • Are any tax/social security contributions payable when these performance or time-based vesting conditions are met?

Exercisable only on conditions being met. The employer can set performance or time-based conditions that must be met before the option can be exercised.

Tax/social security. Tax or social security charges are not payable when the vesting conditions are met, but the net value of the share option is subject to net wealth tax from the time the option becomes unconditional until it is exercised or lapses.

 
7. Do any tax or social security implications arise when the:
  • Option is exercised?

  • Shares are sold?

Tax/social security on exercise. When an option is exercised, personal income tax and social security charge arise on the difference between the shares':

  • Market value on the date of exercise.

  • Exercise price.

The income is treated and reported as wage income and therefore subject to income tax and social security charges. The employer must:

  • Report and withhold personal income tax and the employees' social security charges.

  • Report and pay its own social security charge.

The marginal combined rate is 47.8% for the employee. The employer's social security charge is 14.1%.

Tax/social security on sale. Capital gains tax is payable at the ordinary rate of 28% on the difference between the shares':

  • Sale price.

  • Market value on their acquisition date (that is, the date of exercise of the share option).

The gain on sale of the share is treated as capital gain. There are no social security charges and no reporting obligations for the employer.

 

Share acquisition or purchase plans

8. Please list each type of share acquisition or purchase plan operated in your jurisdiction (if more than one).

The Norwegian market does not recognise different specific types of share acquisition or purchase plans. Employers are free to issue share acquisition or purchase plans on any terms. Typical Norwegian share acquisition or purchase plans are relatively unsophisticated. There are few distinct types of such schemes, apart from the distinction between schemes offered only to a group of managers and key personnel, and schemes offered to all employees.

All-employee purchase plan

An employer can provide share acquisition or purchase plans under which 20% of the benefit is tax free, provided the shares are distributed under a comprehensive programme covering all employees.

 
9. In relation to the share acquisition or purchase plan:
  • What are the plan's main characteristics?

  • Which types of company can offer the plan?

  • Is this type of plan popular? If so, among which types of company is this plan particularly popular?

All-employee purchase plan

Main characteristics. If the shares are distributed under a comprehensive programme covering all employees, the taxable benefit on the acquisition can be reduced by 20%. However, the benefit reduction is limited to NOK1,500 (as at 1 August 2010, US$1 was about NOK6) per person per year.

Types of company. Any limited liability company can operate share acquisition or purchase plans.

Popularity. The use of these plans is fairly limited due to the restricted scope of the tax beneficial treatment.

 
10. In relation to the initial acquisition or purchase of shares:
  • Can entitlement to acquire shares be awarded on a discretionary basis or must it be offered to all employees on the same terms?

  • Is there a maximum value of shares that can be awarded under the plan, either on a per-company or per-employee basis?

  • Must employees pay for the shares and, if so, are there any rules governing the price?

  • Are any tax/social security contributions payable when the shares are awarded?

All-employee purchase plan

Discretionary/all-employee. The entitlement to acquire shares must be offered to all employees on the same terms for the tax beneficial treatment to apply.

A programme is considered sufficiently comprehensive even if the distribution of shares is restricted to employees with a minimum length of employment, and even if the shares are distributed between the employees in correspondence to their length of employment and/or their level of salary.

Maximum value of shares. The tax beneficial treatment is restricted to NOK1,500 per employee per year.

Payment of shares and price. The employers have discretion over whether employees pay for the shares and the price that they must pay.

Tax/social security. The taxable amount of the benefit is taxed as wage income and is subject to income tax and social security charges. Therefore, the employer must:

  • Report and withhold personal income tax and the employees' social security charges.

  • Report and pay its own social security charge.

The marginal combined rate is 47.8% for the employee. The employer's social security charge is 14.1%.

 
11. In relation to the vesting of share acquisition or purchase awards:
  • Can the company award the shares subject to restrictions that are only removed when performance or time-based vesting conditions are met?

  • Are any tax/social security contributions payable when these performance or time-based vesting conditions are met?

Restrictions removed only on conditions being met. Employers can place restrictions that are removed when conditions are met. It is common to have restrictions continuing after the employees have acquired the shares, as they relate to what employees can do with the shares when they leave employment. The employer/employees can request the taxable benefit to be reduced by the negative value of the restrictions.

Tax/social security. Tax or social security charges are not payable when the vesting conditions are met, but the net value of the share option is subject to net wealth tax from the time an option becomes unconditional until it is exercised or lapses.

 
12. What are the tax and social security implications when the shares are sold?

When the shares are sold, capital gains tax (28%) is charged on the difference between the shares':

  • Market value when the employee acquired them.

  • Sale price.

No social security is payable on sale of the shares.

 

Phantom or cash-settled share plans

13. Please list each type of phantom or cash-settled share plan operated in your jurisdiction (if more than one).

Phantom or cash-settled plans are operated in the Norwegian market, although there are no specific types of these. Employers are free to issue phantom or cash-settled share plans on any terms. Typical Norwegian phantom or cash-settled share plans are relatively unsophisticated. There are few distinct types of such schemes, apart from the distinction between schemes offered only to a group of managers and key personnel, and schemes offered to all employees.

 
14. In relation to the phantom or cash-settled share plan:
  • What are the plan's main characteristics?

  • Which types of company can offer the plan?

  • Is this type of plan popular? If so, among which types of company is this plan particularly popular?

Phantom share option plan

Main characteristics. Employees receive a cash amount by reference to share price growth. The plan is structured so that participants receive the same financial reward as they would have received if they had been granted a share option, exercised it later, and sold the shares acquired.

Types of company. Any type of company can offer cash-settled share option plans.

Popularity. Phantom or cash-settled share plans have no particular tax benefits, and are therefore taxed in the same way as a normal bonus arrangement. Therefore, these plans are not particularly common.

 
15. In relation to the grant of phantom or cash-settled awards:
  • Can the awards be granted on a discretionary basis or must they be offered to all employees on the same terms?

  • Is there a maximum award value that can be granted under the plan, either on a per-company or per-employee basis?

  • Are any tax/social security contributions payable when the award is made?

Phantom share option plan

Discretionary/all-employee. Phantom share options can be granted on a discretionary basis. General legislation prohibiting discrimination in the employment relationship must be complied with.

Maximum value of awards. There is no maximum award value.

Tax/social security. No tax or social security charges or reporting obligations arise on grant.

 
16. In relation to the vesting of phantom or cash-settled awards:
  • Can the awards be made to vest only where performance or time-based vesting conditions are met?

  • Are any tax/social security contributions payable when these performance or time-based vesting conditions are met?

Phantom share option plan

Award vested only on conditions being met. Phantom share options can be structured to vest only when performance or time-based conditions are met.

Tax/social security. Tax and social security becomes payable when the employee has an unconditional and immediate right to the cash payment. The amount payable is treated as wage income.

 
17. What are the tax and social security implications when the award is paid out?

Phantom share option plan

The payment is taxed as wage income and therefore subject to income tax and social security charges. Therefore, the employer must:

  • Report and withhold personal income tax and the employees' social security charges.

  • Report and pay its own social security charge.

The marginal combined rate is 47.8% for the employee. The employer's social security charge is 14.1%.

 

Institutional, shareholder, market or other guidelines

18. Are there any institutional, shareholder, market or other guidelines that apply to any of the above plans, and which types of companies are subject to them? What are their principal terms?

Public Limited Liability Companies Act no. 45 of 1997 (PLCA)

The PLCA requires the board of directors of all Norwegian public limited liability companies (allmennaksjeselskap (ASA)) (including, among others, all Norwegian companies listed in Norway) to prepare a declaration on the determination of the general manager's and other leading personnel's salaries, and other remuneration. Any remuneration in the form of share option plans, share acquisition plans or phantom share plans must be included in this declaration. The statement must be presented before, and discussed at, the annual general meeting.

The declaration must include information on existing salary and existing remuneration in the form of:

  • Payment in kind.

  • Bonuses.

  • Allocation of shares, subscription rights, options or other forms of remuneration linked to shares or the development of the official share price in the company or in other companies within the same group of companies.

  • Pension schemes.

  • Severance pay arrangements.

  • Any form of variable element in the remuneration, or special compensation in addition to the basic salary.

The declaration must also contain:

  • Guidelines for the fixing of salaries and other remuneration as mentioned above for the forthcoming annual year.

  • The main principles of the company's policy on senior executive officers' remuneration.

  • Whether the company can compensate (at all) in addition to basic salary, and details on (any) conditions or limits that apply for these fees.

  • Performance criteria or allocation/allotment criteria.

Any guidelines for share option schemes, share acquisition schemes and phantom share schemes are binding on the board unless otherwise set out in the articles of association.

The declaration must contain an account on the remuneration policy for leading personnel during the previous financial year, including how the guidelines for fixing the remuneration of leading personnel have been implemented.

The board's policy on remuneration should aim to ensure the convergence of the executive management and shareholders' financial interests.

There is no requirement for a similar board declaration in Norwegian (private) limited liability companies (aksjeselskap (AS)).

Code of Practice for Corporate Governance of 4 December 2007 (Code)

The Code applies to all companies listed in Norway and uses the "comply or explain" principle. The company's annual financial report must include information on the remuneration to each individual board member and specify any remuneration in addition to the regular board remuneration, such as share options or entitlements under share acquisition schemes or phantom share option schemes.

Executive management's performance-related remuneration in the form of employee share plans should be linked to value creation for shareholders or the company's earnings performance over time. These arrangements, including share option arrangements, should, according to the Code, incentivise performance and be based on quantifiable factors over which the employee in question can have influence.

 

Employee representatives

19. Is consultation or agreement with, or notification to, employee representative bodies required before an employee share plan can be launched?

The Working Environment Act (WEA) imposes information and consultation obligations on companies regularly employing at least 50 employees. These employers must inform or consult employee representatives on employee share plans, if the employee share plan significantly affects employment agreements (or employment relationships). A duty to inform and consult may also arise under collective agreements. Even if no legal obligation to inform and consult exists, information and consultation with relevant employee representatives is recommended.

 

Exchange control

20. Do exchange control regulations prevent employees sending money from your jurisdiction to another to purchase shares under an employee share plan?

There are no general currency control restrictions in force, and as a member of the European Economic Area (EEA), Norway has adopted the EU's rules on free movement of capital.

However, dealing with certain countries is restricted and subject to specific reporting obligations. If the currency's destination is a country that has difficult relationships with the wider international community, it is prudent to check that no prohibition or other obligations apply.

 
21. Do exchange control regulations permit employees to repatriate proceeds derived from selling shares in another jurisdiction?
 

Internationally mobile employees

22. What is the tax position when:
  • An employee who is resident in your jurisdiction at the time of grant of a share plan award leaves your jurisdiction before any taxable event affecting the award takes place?

  • An employee is sent to your jurisdiction holding share plan awards granted to him before he is resident in your jurisdiction?

Resident employee

Any person whose combined stays in Norway amount to either of the following is considered resident for tax purposes and subject to global Norwegian taxation:

  • 183 days in any 12-month period.

  • More than 270 days in any 36-month period.

Bilateral tax treaties usually put limitations on Norway's right to tax employees who, according to the relevant treaty, are considered resident in other countries.

Any gains realised while the employee is resident in Norway are taxed in Norway as personal income at normal rates (which are progressive up to 47.8%). Employers' social security contributions (14.1%) are calculated on 100% of the net gain. Special rules allow spreading the tax over the years following the grant for calculation purposes. This can reduce the marginal rate of the tax, because part of the income can be allocated to years in which there was no other Norwegian income.

When the resident employee leaves Norway, different rules apply depending on whether the tax residence has lasted for more or less than ten years. For those with residence for less than ten years, Norwegian taxation terminates when:

  • Permanent residence is established abroad.

  • The stay in Norway has not exceeded 61 days in the calendar year.

  • The employee (or his family or close relatives) does not have any housing unit available in Norway.

For those with residence in Norway of more than ten years, taxation continues for at least three years after permanent residence is established abroad. Bilateral tax treaties usually restrict Norwegian taxation in these cases.

Leaving Norway does not in itself trigger any tax on employee share plans, unless the total, unrealised net gains on all of the employee's share/option holdings exceeds NOK500,000, in which case the net is taxed. Double tax treaty provisions may also apply.

This tax is provisory, and there are many complicated exceptions and claw-backs. In particular:

  • The tax is refunded if:

    • the employee re-enters Norway;

    • the shares are not realised; or

    • an option is not executed at all within five years.

  • The tax is reduced retroactively if the shares are realised or the option exercised with a lower gain.

Non-resident employee

Non-resident employees may be subject to taxation on a limited basis, and the employer may be liable for social security contributions (14.1%) for amounts directly related to the relevant tax basis, if any. If share options or plans are included, they are taxed on the same basis as for residents.

Non-resident employees, who stay in Norway for less than 183 days in any 12-month period and 270 days in any 36-month period are taxed only if the:

  • Remuneration comes from Norwegian sources.

  • Remuneration is for personal work.

  • Work is performed in Norway.

  • Work is performed in paid work employment.

Remuneration from Norwegian companies to, among others, board members is taxable, regardless of stay in Norway.

Employees are subject to Norwegian taxes (and the employer to social security contributions) regardless of the length of the stay, if contracted for work to be done in Norway. Workers on the Norwegian continental shelf are also subject to Norwegian taxation.

Special regulations apply to, among others:

  • Professors.

  • Students.

  • Sailors.

  • Artists.

  • Employees of certain international organisations.

  • Diplomats.

The different tax treaties have detailed provisions for the taxation of non-residents. Employers' social security contributions are not covered by most tax treaties. Employer's and employees' social security contributions may, however, be exempted under EU regulations (E-101 requirement) or under social security treaties.

 

Prospectus requirements and other consents or filings

23. For the offer of and participation in an employee share plan:
  • What prospectus requirements (if any) must be completed and by when? What exemptions (if any) are available?

  • What other regulatory consents or filings (if any) must be completed and by when? What exemptions (if any) are available?

Prospectus requirements

A prospectus must be prepared in accordance with Chapter 7 of the Norwegian Securities Trading Act no. 75 of 2007, if all of the following apply:

  • The share option or share purchase programmes include an offer to subscribe for or purchase transferable securities (that is, for instance, shares, subscription rights, subscription shares or convertible bonds).

  • The offer is addressed to 100 or more non-professional investors in the Norwegian securities market.

  • The offer involves an amount of at least EUR100,000 (as at 1 August 2010, US$1 was about EUR0.77) calculated over a 12-month period.

The prospectus must be prepared before the offer is made and must be made available to all addressees of the offer.

An exemption from the prospectus requirements applies if the offer is addressed to current or former employees or board members by the employer or by another company in the same group, and both:

  • The company concerned has securities that are quoted on a regulated market (for instance, Oslo Børs or Oslo Axess).

  • A document is available containing information on the category and number of securities as well as the background and conditions for the offer.

The prospectus, if required under the above rules, qualifies as an EEA prospectus and must receive prior approval from Oslo Børs (as prospectus authority) if the offer either:

  • Includes transferable securities quoted on a regulated market.

  • Involves an amount of at least EUR2.5 million calculated over a 12-month period.

If offers do not meet these qualifications, the prospectus requirements are less strict. Any prospectus below the threshold does not require any formal approval, but must be filed with the Norwegian Register of Business Enterprises (Company Register) for registration.

Other regulatory consents or filings

To the extent a share option or share acquisition scheme requires the issue of new shares, any resolution to do so must, as a starting point, be made by the general meeting. The general meeting can, within certain boundaries, give the board of directors power of attorney to issue new shares. This power of attorney must be filed and registered with the Company Register.

Any resolution to issue new shares must be filed and registered with the Company Register, at the latest three months from the expiry of the subscription period for the share issue. If this deadline is not met, the resolution is null and void.

 

Developments and reform

24. Please briefly summarise:
  • The main trends and developments relating to employee share plans over the last year.

  • Any official proposals for reform of the law on employee share plans.

Trends and developments

One of the most controversial topics in Norway in recent years has been the level of top-management fees, in particular, fees including:

  • Pay-outs from share option schemes.

  • Pensions.

  • Termination payments.

Recent corporate practice on top-management fees, in particular in companies in which the Norwegian state holds a majority, has attracted considerable political and media attention. The credit crunch has made this topic even more controversial.

Reforms

The requirement under the PLCA for a statement from the board of directors on salaries and other remuneration for leading personnel has been introduced by the Norwegian Parliament as an attempt to meet some of the criticism (see Question 18). The provisions set out in the Code regarding the board's statement further reflects the public response to fee levels, which have been criticised for being too high.

 

Contributor details

Espen Nordbø

Advokatfirmaet Haavind AS

T +47 48 99 00 55
F +47 22 43 00 01
E e.nordbo@haavind.no
W www.haavind.no

Qualified. Norway

Areas of practice. Tax

Recent transactions

  • Advising Teleflex Incorporated, US on Norwegian consequences of their Long Term Cash Incentive Plan.
  • Advising EGL Nordic AS, on their Silent Partnership with executive personnel.
  • Assisting Alfred Berg Nordic, with review of potential structures.
  • Assisted several venture funds, with setting up performance based profit sharing arrangements.

Amund Fougner Bugge

Advokatfirmaet Haavind AS

T +47 911 45 982
F +47 22 43 00 01
E a.bugge@haavind.no
W www.haavind.no

Qualified. Norway

Areas of practice. Corporate

Recent transactions

  • Advising Teleflex Incorporated, US on Norwegian consequences of their Long Term Cash Incentive Plan.
  • Assisted several venture funds, with setting up performance based profit sharing arrangements.

Sten Foyn

Advokatfirmaet Haavind AS

T +47 92 83 52 78
F +47 22 43 00 01
E s.foyn@haavind.no
W www.haavind.no

Qualified. Norway.

Areas of practice. Employment

Recent transactions

  • Advising Teleflex Incorporated, US on Norwegian consequences of their Long Term Cash Incentive Plan.
  • Assisted several venture funds, with setting up performance based profit sharing arrangements.

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