How to make Nordic cross-border work easier

The issue became urgent during the coronavirus pandemic when people whose jobs were located in another Nordic country risked running into tax problems if they followed the recommendation to work from home.

The report – Working across the Nordics –  was produced by consultancy firms KPMG and Resonans Nordic. They point out that if the Nordic region is to reach its vision of becoming the most integrated region in the world by 2030, there has to be some changes to tax policy and to how regulations are administered.

The pandemic led to lasting labour market changes. Remote working is something far more people now want to do, employees and employers alike. It is a global trend. 

A KPMG survey shows that nearly 90 per cent of 530 companies across 52 countries have already introduced remote working as an option, or are considering doing so. So there is a risk, according to this survey, that companies will fail to attract the best talent if there are obstacles to remote working.

Existing agreements between Nordic countries mainly state that you pay tax in the country where you live. But this is about more than taxation. 

People also face potential uncertainties like higher taxes and extra red tape when it comes to contributing to or withdrawing pension funds. An employer might find themselves forced to register and relate to taxation rules, deadlines and wage administration in several countries.

The report suggests that in some cases, the taxation rules should be reversed so that the decisive factor is not where you live but where the employer is located.

The report’s authors present four proposals:

• The Nordic countries should have common conditions for when working in the country of residence, including from a home office, is to be considered as a so-called permanent establishment. 
• In future, advance tax should only be reported and collected in the employer’s country, so that the employer will no longer have to administer the legislation of several countries for the same salary income.
• Salary income should be taxed in the country of employment and, for example, working from home in the country of residence shall be equal to working in the country where the employer is located. This presupposes that the proposal in the first points becomes a reality.
• Pension fees for pensions established in another Nordic country should be mutually recognised as deductible and ongoing returns should only be taxed in accordance with the legislation of the country where the pension plan is established.

A functioning cross-border labour market is profitable. Estimates from the Öresund region, for instance, show that a fully integrated labour market can generate an annual socio-economic gain of up to 2.9 billion Danish kroner (€388m) for Sweden and Denmark combined. 

“Our countries have much to gain from a friction-free common labour market. It could solve problems like skills shortages in one country and unemployment in another. In other words, a functioning labour market is a strong catalyst for our countries’ economies,” says Siv Friðleifsdóttir, the chair of the Freedom of Movement Council in 2023.