Many, including Norwegians themselves, believe that Norway is the best country on the planet. However, despite having a massive “safety net” in the form of its ever-growing oil fund, Norway is struggling to figure out how it will sustain itself after the world turns its back on its oil and gas industry.
Let’s start with the bad news. A few indicators that are going in the wrong direction:
- The Norwegian state is getting increasingly larger and so is public spending
- Because of an ageing population, the working population will shrink
- Oil revenues are expected to decrease
- The Norwegian kroner has been weakening against the dollar and euro for well over a decade
- Productivity growth is slowing (especially mainland Norway, so without the oil industry)
Reversing such trends will be difficult, if not impossible. Norwegians will not all of a sudden have more children, nor will it be justifiable pumping up even more oil. But there is something that can be done: creating high-valued companies that solve today’s and tomorrow’s problems. In order to achieve that, a few changes need to be made.
Norway has the potential to become the best country to start up a business in Europe. In this article I will explain why Norway has this potential and what it is doing correctly. More importantly, I will lay out a road map of what the country should change to actually make it into the best startup nation on the continent.
Opinions will vary on what makes a well-functioning business climate and how to get there. Different types of businesses need different types of resources (types of workers, investment type) and incentives to acquire these resources (for example a special startup visa). However, there are a number of key features many will agree on to be very beneficial to a well-function startup nation.
What Norway is doing right
- Norway is sitting on one of the largest piles of money out there, the Oil Fund. This gives the country a huge buffer and financial security for the foreseeable future.
- Social welfare benefits – also for entrepreneurs and self-employed. Top tier and free healthcare.
- Norway is one of the most stable and resilient countries in the world, both politically and economically.
- Well-functioning and highly digitized government systems.
- Its location makes it a perfect hub to the Nordics / Northern Europe, especially Oslo.
- Norway’s small but prosperous population is a great testing ground for internationally oriented businesses
- High English-proficiency (2nd on the ranking for English proficiency in non-English speaking countries!)
- Skilled workforce – including many engineers in oil & gas that can be put to use in other sectors
- Excellent work-life balance
- The tax system is competitive compared to its peers (the wealth tax as a major exception)
What Norway is getting wrong
Norway has a huge government budget and likes to spend it. Government spending is much higher than Denmark and Finland with similar populations and much closer to Sweden which has a population twice the size of Norway.
It has the luxury that it can afford this, due to its massive oil and gas earnings – but does not allocate it well enough. It effectively taxes value creation and talent, is getting in the way of proper capital allocation and spends too little effort on growing the country’s future economy.
State intervention
Even though intentions may be good, state actors are very seldom the best at allocating capital. Norway is a prime example of that. For example, the government-owned venture capital fund Investinor has not generated any positive returns since 2008. It turns out identifying the right projects to invest in is challenging, even for well-intentioned and informed bureaucrats. Not to mention that subsidies of individual companies can lead to rent-seeking behaviour.
The Norwegian government clearly wants to play an active role in the development of the country’s businesses. For example by handing out grants through the investment agency Innovasjon Norge. The benefits from innovation support must at least exceed the costs to Norway’s national budget. There is unfortunately limited empirical knowledge about the real gains and costs of Norwegian support for innovation and development. If the government is keen on continuing with financing companies with public funds, it should at least give more insight into those results. Although Innovasjon Norge does a lot of good work, it is also a colossal organization with over 700 employees and a lot of overhead.
So instead of pouring money into ventures through state funds, the state should first and foremost get out of the way of businesses wanting to scale in Norway – it should stop taxing productive capital that can be reinvested and it should stop imposing additional taxes on hiring highly-skilled workers and entrepreneurs.
Attracting talent
Norway is not exactly winning the race for talent at the moment. It generally has a highly educated population but there are still many skills missing, which is not uncommon for a small country. It needs to do much better in this regard. It should focus on attracting both employees to innovative companies in Norway and make it much easier for foreign startup founders to move to Norway and grow their businesses.
Comparative advantages over other countries
Norway needs to work on its competitive advantage over its neighboring countries. Currently, there is hardly a reason to choose Norway if you are looking at expanding to the Nordics, let alone Europe. Lots of things can be done here to make Norway more attractive. From more business-focused taxation to specific incentives for highly-skilled workers and entrepreneurs. Not only should Norway become more attractive itself, it should also become more aligned and interconnected with surrounding countries.
Let’s take a look at some of the concrete measures Norway should take to get started.
Remove the wealth tax (at least on productive capital)
This tax (formueskatten) is harmful, particularly to fast-growing companies with Norwegian ownership. It is a personal tax levied on the individuals owning a company. The increase of this tax has given a number of rich individuals reason to move to Switzerland. And although we do not have to feel sorry for all of them, Norway should be working on making itself a more attractive place for Norwegian value-creators, not scaring them away.
A few of the challenges with the Norwegian wealth tax:
- Lack of cash flow: Startup founders often have their value tied up in the company, and wealth tax may require them to pay tax on assets they may not have readily available in cash. Wealth tax may require a portion of the company’s capital to be used to pay the tax, limiting access to funds necessary for growth and development.
- Competitiveness: In a global market, a high wealth tax can make it less attractive for investors to support Norwegian startups compared to startup ecosystems in countries with lower tax rates. Also, the tax is levied on individuals who are tax resident in Norway, giving foreign investors an advantage over those residing in Norway.
Besides, there are other ways of compensating for the loss in government income. The loss of government income could – for example – be compensated through the re-introduction of some sort of inheritance tax.
At the very least, Norway should exempt certain companies from paying the wealth tax. An example could be startups in the first 5-10 years.
Decrease employer’s tax
In addition to paying your employee, the employer must also pay social security contributions. These contributions are based on the total Norwegian gross salary (and taxable benefit) costs. The employer’s contribution is levied at a rate of 14.1%. The Labour government introduced a 5% surcharge (meaning a total rate of 19.1%) for income exceeding NOK 850,000 in 2024 (NOK 750,000 in 2023). In short: it is too expensive to hire real talent.
Further integration with other countries
Wherever it is not already doing so, Norway should embrace internationalism. No nation is standalone, consumers and businesses are Nordic, European and in many cases even global. Sure, there are still borders: physical ones, cultural borders. On an administrative level, Norway should do what it can to become even more internationally integrated.
Currently, Norway is a member of the EEA (European Economic Area), but not the EU. The effect is nearly the same, apart from the fact that the EEA Agreement does not cover the EU’s common agriculture and fisheries policies, customs union, trade policy, foreign and security policy, justice and home affairs, or monetary union. For the remaining topics, Norway is aligned with the EU (although it cannot participate in voting on topics). However, for businesses these differences can matter:
- Because Norway is not part of the customs union, importing goods into Norway takes more time and import duties are levied. For companies trading goods internationally, this is a disadvantage.
- Norway’s main trade partners are EU countries with a common currency. Joining a common currency would make things easier for internationally oriented start- and scale-ups. Sweden is still using their own currency and is considering the Euro.
- Certain specialized programs, initiatives or tenders, particularly those tailored exclusively for EU member states or those that are part of internal EU strategies (like specific regional development funds or internal political initiatives), might not be open to Norwegian businesses.
- Joining the European Union (EU) would potentially open the door for Norway to more highly skilled workers from outside the EU due to various EU initiatives designed to attract such workers, such as the Blue Card (more on that later).
- There is a psychological component too: will businesses looking to expand internationally to the Nordics go for a more connected (Sweden, Denmark) or a slightly more politically/economically isolated country?
Attract more international talent
Tech giants like Apple, Amazon, Google, Facebook, and Tesla, with a combined valuation of around $4 trillion, owe their success to immigrant entrepreneurs or their descendants. Steve Jobs, Jeff Bezos, Sergey Brin and Elon Musk, all first or second generation immigrants, exemplify the power of foreign entrepreneurship. Norway should embrace foreign entrepreneurs to harness their diverse talent and drive economic growth for the country’s future prosperity.
Norway’s labor market has experienced record-low unemployment rates over the last years but faces a significant skills gap. The demand for specialized staff is increasing, leading to challenges for employers in finding suitable candidates. There’s a growing mismatch between available skills and job requirements, with 46% of companies struggling to recruit desired expertise. The shift towards green industries further exacerbates the need for skilled workers. Attracting foreign talent is crucial to address these recruitment challenges.
Another advantage of joining the EU would be opting in to the EU Blue Card scheme. Over a decade ago, the EU introduced the EU Blue Card as an alternative to the American Green Card. It is a work and residence permit for highly qualified non-EU citizens that allows them to live and work in any of the EU countries that participate in the program (all of them do except for Ireland and Denmark). It is a valuable tool for attracting and retaining top talent from around the world. It basically means highly-skilled workers could come directly to Norway with a Blue Card. Also, it would entail those workers who applied in any other EU country to move to and work in Norway.
Introduce a tax cut for entrepreneurs and employees
There are clear advantages of introducing a scheme where highly-skilled foreign workers receive a tax cut to attract them to a country. Examples of countries where such schemes work are the Netherlands (the 30% ruling) and Sweden (expert tax relief).
Another good example of supporting entrepreneurs through clear incentives is Ireland, where entrepreneurs can get income tax refunds when starting a business and corporate income tax reduction in the first five years of trading.
Norway would benefit from cutting a few taxes now and reaping the benefits of it later. Even if just a few of these companies become successful, it will be rewarded with higher tax income in the future.
Remove red-tape for international entrepreneurs and talent
Relocating to Norway, especially for international employees, can be a bureaucratic nightmare. The system works well once you’re in it, but it’s incredibly complicated and confusing to actually get started. Changing this is easier said than done and most countries fail miserably at this.
The same is the case for foreign entrepreneurs looking to set up their business in Norway. We should differentiate here between resident and non-resident entrepreneurs. For example, in most Scandinavian countries, it is extremely easy to set up a business if you are already a resident. However, as a non-resident (so a business owner residing abroad and staying there or moving to the new country), it can be arduous getting through even setting up the legal entity, let alone a bank account.
The following 5 issues should be relatively simply to fix and would make the overall journey and accessibility of Norway to international talent much easier:
- Complex Information Access: Internationals find it difficult to access clear information about registration procedures in Norway.
- Catch-22 in registration process: An international cannot apply for a D-number or personal number without a Norwegian address, but obtaining an address requires a Norwegian bank account, which in turn cannot be opened without a D-number.’Catch-22 in registration process: An international cannot apply for a D-number or personal number without a Norwegian address, but obtaining an address requires a Norwegian bank account, which in turn cannot be opened without a D-number.
- Long waiting times: The processing time for registration in various Norwegian authorities is notably lengthy.
- Ambiguity in identity number eligibility: There is confusion over who qualifies for a Norwegian identity number versus a D-number.
- Inconsistencies in banking services: International employees face challenges with Norwegian banks, encountering varied processes and customer service levels.
Norway is making steps in the right direction. Oslo municipality’s fast-track program is designed to decrease the time it takes for a non-EU worker from signing an employment contract until the candidate has everything needed to participate in Norwegian society. This currently takes 37 weeks on average and should come down to just 3 days.
Introduce a startup visa / ‘tech visa’
This next measure is directed at non-EU/EEA entrepreneurs that want to choose Norway as the base to start up their business. It is usually set up as a temporary residency permit that can be turned into a permanent one if certain requirements are met. The process typically requires the entrepreneur to have sufficient funds, an innovative business plan and a facilitator to guide the entrepreneur. Among other countries, Finland, Denmark, the Netherlands, Ireland and the Baltic countries have such visas and although most of these schemes are quite recent, there is evidence that these programs have a positive effects.
Scrap the proposed exit tax
The proposed exit tax is one of the most hated measures the labour-led government has proposed. Among other issues, the new rules ignore investment losses when calculating exit tax for those moving outside the EEA, creating a punitive situation where entrepreneurs could pay more in tax than their actual gains. A founder with NOK 5M in gains and NOK 4.6M in losses would face a NOK 756,800 tax bill on their NOK 2M taxable amount (after the NOK 3M floor), despite only having NOK 400,000 in net gains. This asymmetric treatment of gains and losses could deter international entrepreneurs from building companies in Norway and make it harder for Norwegian startups to attract talent from key markets like the US and UK.
Other incentives that could be considered:
Decrease tax in first few years
It makes sense to incentivize starting entrepreneurs by cutting their tax bill over the first few years. This can be done in several ways to ensure the entrepreneur actually is able to reinvest more heavily and the startup has a higher chance of surviving.
Optimize employee stock options
A 2022 stock option tax scheme has made this significantly better both for employees and the employer. There are still improvements to be made to make this even more accessible to startups and their employees.
R&D incentives & patent box
Norway has a R&D scheme called the SkatteFUNN scheme, but can do much more to stimulate businesses undertaking R&D-based activities. For example, the introduction of a so-called patent box. This is essentially a lower corporate income tax (tax on a business’ profits) on innovative activities and is deployed by many European countries. At 22%, Norway is quite competitive on corporate tax but it is certainly not a selling point. However, the overall positive effects of a patent box are contested.
A new framework for a post-oil Norway
Norway has the potential to do so much better than it is today. It has all the possibilities and features that many of the world’s preferred business destinations have. And in many senses, Norway has a better starting position than virtually any other country in the world. Only a few adjustments are needed to actually make Norway the best country to start a business.
The Norwegian state can do lots of things to create the right framework to make startups, Norwegian and foreign ones, flourish. However, the state needs to get out of the way when it concerns taxing productive capital that should be reinvested. Furthermore, it should probably not be too closely involved with the businesses themselves. There is plenty of capital, in Norway and internationally, to fuel the great businesses that can be started in Norway. There are also more than enough people willing to move to Norway. In order to facilitate that, the Norwegian government can play a real role in making it easier to start up and scale up businesses, by creating clear incentives that will make Norway a preferred country to work and build businesses instead of being a country in the periphery.
Finally, why should Norway bother making the best startup ecosystem? Because creating one tech giant alone can have huge consequences for the entire ecosystem for decades to come. Take one example from Finland: Skype. This company not only revolutionized internet communication but also caused lasting impacts on the technology landscape. Remarkably, the first and second generation of entrepreneurs from the Skype alumni network have founded over 900 companies in 50 countries worldwide.
If you want to discuss this further, feel free to reach out to me at thomas@nordichq.com or fill out the form below.
