Swedish Minister of Finance Elisabeth Svantesson and Danish Minister of Taxation Jeppe Bruus signed a new Öresund Agreement on 10 June 2024, according to a press release from the Swedish Ministry of Finance.
The governments of Sweden and Denmark had agreed to modernise the 2003 Öresund agreement. The new agreement, which is expected to enter into force on 1 January 2025, will benefit the approximately 17,000 individuals who commute from Sweden to Denmark, and the 1,400 people who commute from Denmark to Sweden, according to the Danish Ministry of Taxation.
The Öresund region, connecting Sweden and Denmark, has long been a hub for workforce mobility between the two nations. With increasing numbers of employees working remotely, the original Öresund agreement (part of the Nordic Tax Treaty) had fallen short of providing the needed flexibility for a well-functioning labour market.
Key Changes in the New Öresund Agreement
The changes to the original agreement aim to simplify existing tax rules, reduce administrative burdens – for both employers and employees -- and recognise the evolving nature of work arrangements, particularly the increase in the number of remote workers.
Under a revised agreement, cross-border commuters -- workers who live in one country but work in the other -- will be able to work remotely with greater flexibility without altering their tax position in either country. According to the new agreement, a cross-border worker will be taxed primarily in the country where their employer is based, regardless of whether the work is carried out in that country or remotely from their home country.
Moreover, the agreement will now also apply to public sector employees, rather than private-sector employees only, as was the case under the original agreement.
Under the new rules, an employee will be taxed only in the country of employment as long as at least 50% of the work is performed in that country over a 12-month period, an extension from the previous three-month requirement. The rest of the work can be performed from the country of residence or a third country (in the case of business trips or temporary assignments).
Swedish or Danish employers with cross-border commuting employees will not be required to register as an employer in the home country of its employees to the same extent.
General comments
The aim of the new agreement is to allow cross-border commuters to better plan their work schedules but still maintain their tax status in both countries, despite increased remote working. Furthermore, the changes also entail less administration as employers will not be required to withhold income tax in the home country if the employee qualifies for the new rules.
Nevertheless, as the new rules enter into force, employers and employees will still need to closely monitor work patterns to ensure that at least 50% of the work is performed in the country of employment.
Caroline Lindqvist
Hanna Andersson
Niclas Rosén
BDO in Sweden