Private individuals who actively engage in short-term rentals of residential property, like that arranged through websites like Airbnb, now face tougher tax liability in Norway. Gone are the days of tax-free rental proceeds, if the authorities determine the rental activity is extensive.
Questions remain over how “extensive” the short-term rental activity may be, but newspaper Dagens Næringsliv (DN) reported Monday that frequent short-term rental of just one apartment may be enough to trigger demands that the owners charge their often-vacationing tenants a 10 percent VAT (MVA), similar to a sales tax, and pay income tax on rental proceeds.
Cracking down on commercial activity
Hotels and companies that rent out apartments must charge and pay both VAT and income tax on rental proceeds. Norwegian tax law, however, has long allowed private individuals to rent out their properties tax-free, as long as activity is restricted. In some cases, there are limits placed on how much rental income can be generated before tax liability clicks in. Apartments within private homes can generally be rented out tax-free, while owners of holiday cabins known as hytter, for example, can rent them out tax-free on at least the first NOK 10,000 in income.
DN reported, though, that a question submitted to tax authorities from a private individual who was planning to invest in two apartments that would be rented out via Airbnb prompted the following response from Skatteetaten, Norway’s state tax agency: “Omfattende korttidsutleie” (extensive short-term rental) would be viewed as “virksomhet” (commercial business operations) and therefore subject to VAT. That would be in line with the 10 percent VAT hotels in Norway must charge on hotel room bills. Rental proceeds would also be subject to income tax.
The tax law has no clear definition of what constitutes virksomhet, but it’s generally viewed as ongoing activity that aims to generate profits. Ordinary long-term rentals have been viewed as liable for full taxation if the owner has five units or more. Some have also been deemed liable, though, with fewer units.
‘A matter of fairness’
DN reported that frequent short-term rentals via Airbnb can also be considered virksomhet when the owner has high activity level regarding turnover, monitoring and cleaning of the units. Only rental activity in short periods, under a maximum rental income level or of a portion of the home the owner lives in would continue to be tax free.
Kristin Krohn Devold, director of travel industry employers’ organization NHO Reiseliv, welcome the tougher taxation of frequent Airbnb activity. “It’s important for fairness among the players that the tax authorities handle the tax rules so that commercial rental activity is taxed,” Devold told DN. Hotel owners, some of whom have felt threatened by Airbnb, have complained that they’re subject to taxation that Airbnb landlords have avoided. The head of Oslo Apartments that also rents out units for relatively short periods also called the taxation “a matter of fairness” in the market.
Devold is also calling on the tax authorities to demand statistics and “relevant tax data” from Airbnb and other similar coordinators of short-term rentals. DN reported that as of September 2015, 8,107 residential units in Norway were registered for rental via Airbnb. That was up 118 percent from the year before and is expected to be higher now.