By Sigurd Neubauer
Norway, the land of the midnight sun, is largely known for its fjords and pristine nature. In the U.S., Norway is often associated with the fictional Scandinavian Kingdom of Arendelle, from the beloved Walt Disney animation film Frozen, which is based on a fairy tale by Hans Christian Andersen. For over a decade, since its release in 2013, little girls have sought to emulate the heroine sisters, Elsa and Anna.
But beyond the world of fairytales and make belief, Norway stands out as one of Europe’s easiest countries to do business. “A common misperception is that Norway is a closed economy and that it is difficult to enter the Norwegian market,” says Thomas Øslebø, a partner at the Arntzen de Besche law-firm in Oslo where he spearheads its real estate practice. Founded in 1870, the venerable firm has offices in Oslo, Stavanger, and Trondheim.
Contrary to these misperceptions, which are based on the false premises that the Norwegian market is difficult to access for international investors without preexisting relationships, the country “is easy to access because the processes of either investing in or acquiring Norwegian companies are easy,” he says. “Norway has a highly developed financial sector even though the economy remains stubbornly depended on energy,” he adds. However, the government has introduced subsidies on the development of wind power and has also established a $6 billion incentive fund/subsidies to spark the green shift. As an example, the government has provided investment incentives for battery technology and production.
Arntzen de Besche’s offices in downtown Oslo
“The Oslo Stock Exchange is dominated by publicly traded companies that are tied to the energy sector,” says Øslebø, adding that the government has failed to adequately diversify its economy away from petrochemicals. “In the 1990s, some of the politicians discussed using the country’s Sovereign Wealth Fund – the largest in the world – to establish a ‘Silicon Velley’ style technology hub in the Oslo suburb of Fornebu, but it never happened. Politicians cannot generate growth. They can only help facilitate a regulatory framework.”
Another positive, yet unknown factor to some, is that the cost of doing business in Norway is significantly lower than on continental Europe, the United Kingdom and U.S., because of the high societal trust in institutions, including in the judiciary, Øslebø explains in a wide-ranging interview about the country’s business climate.
In practice this means that legal transactions are lower and that it is less expensive to go to court in the event of a dispute. In Norway, the number of pages in standard legal business contracts is only a fraction compared to Germany and the U.K. The stability of the legal system coupled with a streamlined bureaucracy provide for a seamless process for international companies to enter the Norwegian market, he adds.
Establishing partnerships with individual businessmen or Norwegian corporations are also a straightforward process as the barrier of entry is very low.
A common misperception is that Norway is a closed economy and that it is difficult to enter the Norwegian market: Øslebø
Real estate market
The commercial real estate market in Oslo and Norway in general has experienced a strong growth since the financial crisis of 2008. The housing market in the largest cities are also at an all time high, Øslebø explains. “Very low interest rates caused a massive demand for investments in all real estate segments, including housing. The prime yield for offices in Oslo was at a record low of 3,25 percent in August 2022,” he adds.
Due to the high inflation prompted by the government’s stimulus spending during the Covid-19 pandemic, the Central Bank has increased the interest rates significantly. As a result, real estate investors in Norway are now experiencing a yield growth and decline in property values. “However, investors are still attracted by long-term development projects in attractive locations as it expected that the urbanization continues to drive the demand for both offices and housing in central areas,” the lawyer says.
The Norwegian real estate market has attracted more and more foreign investors over the past decade. Several U.S, U.K, European, Asian, and Nordic investors have entered the market as Norway is considered to be a safe destination because of its robust and stable financial situation coupled with political stability.
“Real estate transactions in Norway are to a great extent based on agreed documents and agreed market practice, making it very accessible to foreign investors. Furthermore, all the major commercial real estate brokers are well connected in the international market and provide in-depth quarterly analyses (in English) of all segments of the Norwegian real estate market,” he says.
When it comes to taxation, Øslebø says that the corporate tax system is fairly straight forward. “The corporate income tax is imposed on the net income, after deductions for relevant business expenses, at a rate of 22 percent.”
Financing expenses may be deducted but there are certain limitations on net interest expenses in excess of NOK 25 million. “As a general proposition these may only be deducted if the equity ratio of the Norwegian group entities is equal to or higher than the international group to which they belong,” the lawyer explains.
Dividends and capital gains on shares in Norwegian entities and certain foreign entities are tax free under a participation exemption system. Dividends are only fully taxable when distributed to individual shareholders.
Repatriation of profits by way of dividends may trigger dividend withholding tax at a rate of 25 percent, but for qualifying corporate investors within the EU/EEA the rate is zero. Similarly, non-EU/EEA investors may enjoy reductions/eliminations under an applicable doublet tax treaty.
There is a withholding tax on interest and royalties (including lease payments on large movable assets such as planes, helicopters, rigs etc) if the recipient is a related party resident in a low tax jurisdiction.
“The sale of shares in a Norwegian company is not taxable in Norway if the seller is a tax resident in another jurisdiction. It is therefore often possible to structure exit transactions without any adverse Norwegian tax cost.”
In addition to the general corporate income tax system, there are special tax regimes for petroleum and hydropower (source rent tax). The introduction of similar regimes for wind power and aquaculture is forthcoming and expected to adopted by Parliament during the fall of 2022.
The Norwegian workforce is also highly educated and productive, according to the Organization for Economic Co-Operation and Development (OECD). Income inequality in Norway is relatively low because of the long-standing partnership between big business – represented by Næringslivets Hovedorganisasjon(NHO), the American equivalent of the U.S. Chamber of Commerce, and organized labor – represented by Landsorganisasjonen (LO).
Their ability to consistently reach agreements on wage increases on behalf of their members – which range from public sector unions to those working in the oil and gas industry and members of the various trade groups falling under the LO umbrella – serve as pillar of societal trust.
Despite these negotiation dynamics, Norway is not a socialist economy as some Americans have recently suggested. The Norwegian economy is a private sector one where the state does not control the means of production or distribution. In Norway, like in other advanced industrialized countries, the economy is regulated by the state.
The combination of stable governance, societal trust, and abundance of natural resources, especially oil and gas, as well as fisheries, has turned Norway into one of the world’s richest countries. It is ranked as the world’s eight richest country in 2022 by Global Finance with a GDP per capita at $66,000.
“To become wealthy,” Øslebø, says, either requires owning a business or taking financial risk by investing in one.”
With regard to the country’s culture of entrepreneurship, the lawyer explains that within the bigger cities – such as Oslo, Bergen, Stavanger, Trondheim and Kristiansand – most of it is tied to the technology and IT sector. Along the country’s coastline, which is the second largest in the world after Canada, with a length of 100,915 km, most of the entrepreneurship is tied to fisheries and the development of new technologies for the energy sector.
The Astrup Fearnley Museum of Modern Art is designed by Italian architect Renzo Piano
Threat to prosperity
The land of the midnight sun, however, faces a significant threat to its prosperity. Norwegians have some of the highest debt levels in the world. “Since 2008, banks have lent out money with low interest rates, which have helped finance housing – including second homes – and expensive cars, because for consumers it was perceived that borrowing was essentially free,” Øslebø explains.
This era is now over, he adds as the combination of inflation adversely impacting the economy coupled with higher interests is expected to put Norwegians at a precarious economic situation.
Most Norwegians have tied their loans to a market-based interest rate and not to a fixed one, which is why the current global financial environment is a “really dangerous one.”
On how the Norwegian economy is positioned to withstand the prospect of an impending recession in Europe driven by inflation, high energy prices and the war in Ukraine, Øslebø says that Norway benefits from high energy prices as it continues to provide Europe with its current high gas production level because of the global geopolitical environment.
For its domestic needs, Norway is relying on hydropower, which is adversely impacting business and consumers, he says. High energy prices driven by hydropower connected to international indexes is also adversely impacting business and consumers, especially in the southern part of the country where utility prices have risen up to twelvefold. However, the government has established state aid program for businesses and consumers in order to cope with the energy prices.
Standard politeness goes a long way, the lawyer explains on how foreigners can best maneuver Norwegian culture in the pursuit of securing a deal. “There are no obvious don’ts,” Øslebø says “as Norwegians are casual and straight forward. They want to be clear and prefer direct communications without ‘beating around the bush.’” Norwegians also differ from Swedes – their rivals – “as they prefer to make decisions quickly as opposed seeking consensus which in practice means dragging out meetings.”
In Norway, business is trust-based. “Carrying out transactions are signs of trustworthiness and are done in a clear and concise manner,” he says.
Business negotiations start with a letter of intent followed by due diligence, but “negotiations have become boring as they’re mostly carried out online through Microsoft Teams,” he says. In real estate, negotiating a major deal normally takes a couple of months.
Establishing partnerships with individual businessmen or Norwegian corporations is a straightforward process as the barrier of entry is very low: Øslebø
Despite their preference for directness, Norwegians also have clear boundaries when it comes to separating business and family. If there is an exception to the rule, family and business can be combined if the families already know each other and are friendly from private life. It is therefore highly uncommon to invite a business associate home for dinner. If anything, hosting an associate at a restaurant has become more common, the lawyer explains.
A new trend in Norwegian business life is that younger professionals want to work less and prioritize work-life balance, which is increasingly becoming the norm in the U.S. as well.
Many men are also increasingly taking their 15 week of paid paternity leave, with government covering 80 percent. Most employers in professional services cover the remaining 20 percent. Women are entitled to one-year paid maternity leave with government and employer covering it along the 80 to 20 percent ratio. “This is a popular benefit which is also good for society,” Øslebø says but acknowledges that the benefit is costly for small businesses but can be managed well for medium to large scale organizations.
Norwegians are casual and straight forward. They want to be clear and prefer direct communications: Øslebø