The bureaucratic and tax issues hitting commuters between Sweden and Denmark
The Øresund Agreement struck in 2003 between Sweden and Denmark is in many ways a boon to cross-border commuters, allowing those living in Sweden to benefit from higher Danish salaries. But it can be quite complicated. Here are some of the issues faced by foreigners.
The border controls and homeworking that came in around the pandemic have made it more complicated still, with members of a longstanding commuter group last year setting up a special group, Øresundspendler – I klemme mellem 2 lande, or "Oresund commuters – caught between two countries", which has more than 4,000 members.
How does the Øresund Agreement work?
Under the Øresund Agreement, cross-border commuters pay taxes in the country where they work.
This means those resident in Sweden, but working in Denmark need to register with the Danish Tax Authority and receive a CPR number, after which they pay Danish municipal tax at 24 percent, state tax of 12.11 percent on all income above 46,700 DKK, and 15 percent on all income above 544,800 DKK, and arbejdmarkedsbidrag, or "labour market contribution" at 8 percent.
Those resident in Denmark but working in Sweden can decide whether to pay a special gross income tax (SINK tax) of 25 percent, which comes with no deductions, or ordinary income tax.
What are some of the issues faced by aspiring and actual cross-border workers?
Pandemic homeworking forcing changes to tax status
Most cross-border workers will have been working primarily in their country of residence for much of the pandemic, meaning that for one or more three-month periods, they will not have fulfilled the requirement of working in their country of employment for at least 50 percent of their working days.
This means that many will have had taxation split between Denmark and Sweden for some of 2020, and are also likely to have split taxation for parts of 2021.
For most people living in Sweden but working in Denmark, this should mean a lower tax bill, whereas those commuting the other way are likely to have seen their tax bill increase.
The complexity of deciding how much tax they should pay, and the required coordination between Danish and Swedish tax agencies means that many commuters are still waiting in August to receive their final tax demand for 2020 from the Swedish Tax Agency.
Troels Tingvold Aaberg complained that 2020 taxes were "still not being resolved" leaving commuters "not knowing if [they] have a massive tax debt or not".
Issues with social security due to pandemic homeworking
Under the Øresund Agreement, cross-border commuters pay social insurance in Denmark if they spend less than 25 percent of their time working in Sweden, their country of residence, about one day a week.
If you work two days a week in Sweden, or 40 percent, then you need to apply to the authorities, who will then decide whether you should be socially insured in Sweden or Denmark, and you are most likely to then be social secured in the country where you live.
If you have a Danish employer, it can be very complicated if you are registered for social insurance in Sweden. Theoretically, if the Danish employer has a permanent place of business in Sweden, they have to pay 19.8 percent of the employee's gross salary, while a Danish employer with a permanent establishment in Sweden pays 31.42 percent.
Almost all Danish employers, though, will have a clause in any contract, saying that it is up to the employee to make sure that they are registered for social insurance in Denmark. Most workers working one or two days at home in Sweden should be able to successfully apply to the Danish or Swedish social insurance agency for an exception.
According to one member of the commuter Facebook group, the bureaucratic hassle of this was a major obstacle for some Swedes looking to work in Copenhagen.
"I've been in a dialogue with several IT recruitment and specialist headhunters lately," he said, adding that the recruiters were forced to make prospective employers in Denmark aware that hiring someone living in Sweden can trigger "an administrative burden, which can be extra straining for a small start-up company".
"This gives a huge disadvantage for Swedish resident candidates in the selection process," he said. "It is a considerable border obstacle."
During the coronavirus crisis, there has been a temporary arrangement, a general exception until further notice, to allow cross-border commuters to remain within the social insurance system that they had historically been connected to.
The exception only applies, however, to those who were already working in Denmark at the time of the pandemic. To inform the Swedish authorities, you need to fill in form 5459, Working Abroad, as soon as possible.
The CPR number Catch-22
Foreigners living in Malmö looking for unskilled work in Copenhagen can struggle to get work if they don't already have a Danish tax number or CPR, but at the same time, those without a job contract are often ineligible for a CPR number.
"My sister had trouble finding student temp jobs in Denmark even though are plenty of jobs available," said Daniel Kiss, a Hungarian who lives in Malmö but studies and works in Copenhagen. "Nobody would hire someone who didn't have a CPR number and you can't get a CPR number without a job."
The issue for her was that the university where she was studying in Copenhagen was not used to students with residency outside Denmark, and so didn't give her the correct paperwork to get a CPR number.
"Their student support services didn't know what to do with the people who didn't have a Danish address."
By the time Kiss himself arrived, a year later, she had worked out what was required, meaning he was able to get his CPR within a week of starting at Copenhagen Business School.
Using MobilePay or Swish
In both Denmark and Sweden, it is common to use the phone payment systems MobilePay (Denmark) and Swish (Sweden) to transfer money between friends, and also to pay at shops and some restaurants, particularly small, informal ones where the owner does not have the ability to accept credit cards.
"My only 'problem' is that I cannot use MobilePay," Kiss said. "I have a Swedish address, and I can pay taxes and work in Denmark. I have a Danish phone contract. I can do everything in Denmark except use the most common mobile payment application because they require you to have a Danish address."
MobilePay requires a Danish residency to work, while Swish requires Swedish residency.
"It's kind of inconvenient because I work in Copenhagen and every time we go out with colleagues or friends or whatever, they always say 'MobilePay me', and I have to say 'can you send me your bank details...for 45 kroner."
The Nordic banks are currently trying to work together to the use of mobile payment solutions across borders, but progress is slow.
Getting caught in limbo when moving
Patrick Gallen, an American who works in Denmark for the Copenhagen Institute for Futures Studies, is moving to Malmö because he and his Norwegian wife got fed up with Denmark's constantly tightening citizenship requirements.
"I have basically fallen into a grey zone in the legislation in terms of my right to work between Denmark and Sweden," he told The Local.
Gallen is long established in Denmark with a CPR number and residency permit, and has a right to family reunion everywhere in the European Union as a result of his marriage to a Norwegian.
But he discovered when organising the couple's move that until he receives his Swedish residency permit and personal number, he will lose his right to work in Denmark.
"Denmark does offer a commuter permit for people in this situation if they either live in Schleswig, or in Skåne, commuting from Germany or Sweden. However, in order to get that commuter permit, as a third country national like myself, you need to have proof that you've received legal residency in the country where you normally live."
So while Sweden will let him work from the day he arrives in Malmö, he will not be able to work in Denmark until Sweden grants him residency due to family reunion, which he expects to take at least four months.
"I actually have to work physically in Sweden while I wait for this permit, otherwise it's a violation of Danish immigration regulations, and I can actually get a fine, my employer could get a fine, and I could get banned from working in Denmark for two or three years or something like that. It's ridiculous."
While in this "weird limbo", he will also have to pay an effective tax of as high as 54 percent, because he will lose the right to Danish social insurance, so Swedish social insurance will kick in.
Low level of understanding among employers on the Swedish side
Nicole Nielsen, a Copenhagen-based American lawyer, has been facing enormous difficulties since starting work this April at a fast-growing company on the Swedish side of the Øresund.
"The first thing was, they did not realise, even though it was clear that I was an American, that I needed a work permit."
But they wanted her to start straight away, so initially, she was working even though it was unclear how or in what capacity she would be paid. She only started getting her pay checks in June, two months after starting, but as she's still waiting for her Swedish personal number she can't log into her Swedish bank account, meaning she has to be given manual checks to put into her Danish account.
She qualifies for Sweden's SINK tax, State Income Tax for Non-Residents, which she expected to be easy, but has found the process agonisingly slow.
"It's been like a nightmare, and everything has to go through Swedish social security [Försäkringskassan] so it's very slow and bureaucratic, and it's not very efficient," she said. "So in Denmark. So even though you complain, you don't really realise how easy everything is. Everything is very manual in Sweden. And it's like, you know, it's very rules-based. There's like no exceptions."
Sick leave and parental leave
Nielsen is now pregnant, but aims to limit her maternity leave to three months.
The issue she is having is that by changing her country of work, she has discovered that she has probably lost all the Danish "barsel", or parental leave she had built up, including the days she had left over for her other two children, but she will not have worked in Sweden long enough to qualify for anything other than a minimum parental leave payment.
The company has offered to pay her what she would have received in parental leave payments from Sweden, but that is much less than her salary.
"It's come as a shock to me and so confusing that this has never happened before, that they have sort of system," she said. "Nobody in Sweden seems to know what to do about people coming from Denmark, which is very shocking, because I know that it's pretty common for people to come from Sweden to Denmark, and it's not an issue."
The parental leave issue can also cause problems when one of the two parents starts working on the other side of the Øresund Bridge. All of the shared parental leave attached to the child will then revert to the parent who is still working where the child is registered, who will be treated from a child leave perspective as a single parent.
Others find sick leave confusing. Richa Sharma, from India, said her husband, who lives in Malmö but works in Copenhagen, was still trying understand if he could get sick leave for a stay in hospital in Malmö when he caught coronavirus last year, or whether the time would be taken from his holiday.
An advisor from the advice line Øresundsdirekt said that Sharma's husband would be requesting sick leave from his Danish employer, and said that unlike in Sweden, where the state pays sick leave after a week, in Denmark the employer continues to pay your salary for three months, and that it was often down to the employer exactly how this leave should be treated.
Unwittingly switching the country where you are registered for taxation
According to the advisor at Øresundsdirekt, it is quite common for cross-border workers to take short breaks from work of three months or more without realising that they risk losing their right to taxation in Denmark or Sweden, and so causing enormous bureaucratic headaches.
If you take any significant amounts of time off work, he warned, you must first run it past the tax authorities.
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The border controls and homeworking that came in around the pandemic have made it more complicated still, with members of a longstanding commuter group last year setting up a special group, Øresundspendler – I klemme mellem 2 lande, or "Oresund commuters – caught between two countries", which has more than 4,000 members.
How does the Øresund Agreement work?
Under the Øresund Agreement, cross-border commuters pay taxes in the country where they work.
This means those resident in Sweden, but working in Denmark need to register with the Danish Tax Authority and receive a CPR number, after which they pay Danish municipal tax at 24 percent, state tax of 12.11 percent on all income above 46,700 DKK, and 15 percent on all income above 544,800 DKK, and arbejdmarkedsbidrag, or "labour market contribution" at 8 percent.
Those resident in Denmark but working in Sweden can decide whether to pay a special gross income tax (SINK tax) of 25 percent, which comes with no deductions, or ordinary income tax.
What are some of the issues faced by aspiring and actual cross-border workers?
Pandemic homeworking forcing changes to tax status
Most cross-border workers will have been working primarily in their country of residence for much of the pandemic, meaning that for one or more three-month periods, they will not have fulfilled the requirement of working in their country of employment for at least 50 percent of their working days.
This means that many will have had taxation split between Denmark and Sweden for some of 2020, and are also likely to have split taxation for parts of 2021.
For most people living in Sweden but working in Denmark, this should mean a lower tax bill, whereas those commuting the other way are likely to have seen their tax bill increase.
The complexity of deciding how much tax they should pay, and the required coordination between Danish and Swedish tax agencies means that many commuters are still waiting in August to receive their final tax demand for 2020 from the Swedish Tax Agency.
Troels Tingvold Aaberg complained that 2020 taxes were "still not being resolved" leaving commuters "not knowing if [they] have a massive tax debt or not".
Issues with social security due to pandemic homeworking
Under the Øresund Agreement, cross-border commuters pay social insurance in Denmark if they spend less than 25 percent of their time working in Sweden, their country of residence, about one day a week.
If you work two days a week in Sweden, or 40 percent, then you need to apply to the authorities, who will then decide whether you should be socially insured in Sweden or Denmark, and you are most likely to then be social secured in the country where you live.
If you have a Danish employer, it can be very complicated if you are registered for social insurance in Sweden. Theoretically, if the Danish employer has a permanent place of business in Sweden, they have to pay 19.8 percent of the employee's gross salary, while a Danish employer with a permanent establishment in Sweden pays 31.42 percent.
Almost all Danish employers, though, will have a clause in any contract, saying that it is up to the employee to make sure that they are registered for social insurance in Denmark. Most workers working one or two days at home in Sweden should be able to successfully apply to the Danish or Swedish social insurance agency for an exception.
According to one member of the commuter Facebook group, the bureaucratic hassle of this was a major obstacle for some Swedes looking to work in Copenhagen.
"I've been in a dialogue with several IT recruitment and specialist headhunters lately," he said, adding that the recruiters were forced to make prospective employers in Denmark aware that hiring someone living in Sweden can trigger "an administrative burden, which can be extra straining for a small start-up company".
"This gives a huge disadvantage for Swedish resident candidates in the selection process," he said. "It is a considerable border obstacle."
During the coronavirus crisis, there has been a temporary arrangement, a general exception until further notice, to allow cross-border commuters to remain within the social insurance system that they had historically been connected to.
The exception only applies, however, to those who were already working in Denmark at the time of the pandemic. To inform the Swedish authorities, you need to fill in form 5459, Working Abroad, as soon as possible.
The CPR number Catch-22
Foreigners living in Malmö looking for unskilled work in Copenhagen can struggle to get work if they don't already have a Danish tax number or CPR, but at the same time, those without a job contract are often ineligible for a CPR number.
"My sister had trouble finding student temp jobs in Denmark even though are plenty of jobs available," said Daniel Kiss, a Hungarian who lives in Malmö but studies and works in Copenhagen. "Nobody would hire someone who didn't have a CPR number and you can't get a CPR number without a job."
The issue for her was that the university where she was studying in Copenhagen was not used to students with residency outside Denmark, and so didn't give her the correct paperwork to get a CPR number.
"Their student support services didn't know what to do with the people who didn't have a Danish address."
By the time Kiss himself arrived, a year later, she had worked out what was required, meaning he was able to get his CPR within a week of starting at Copenhagen Business School.
Using MobilePay or Swish
In both Denmark and Sweden, it is common to use the phone payment systems MobilePay (Denmark) and Swish (Sweden) to transfer money between friends, and also to pay at shops and some restaurants, particularly small, informal ones where the owner does not have the ability to accept credit cards.
"My only 'problem' is that I cannot use MobilePay," Kiss said. "I have a Swedish address, and I can pay taxes and work in Denmark. I have a Danish phone contract. I can do everything in Denmark except use the most common mobile payment application because they require you to have a Danish address."
MobilePay requires a Danish residency to work, while Swish requires Swedish residency.
"It's kind of inconvenient because I work in Copenhagen and every time we go out with colleagues or friends or whatever, they always say 'MobilePay me', and I have to say 'can you send me your bank details...for 45 kroner."
The Nordic banks are currently trying to work together to the use of mobile payment solutions across borders, but progress is slow.
Getting caught in limbo when moving
Patrick Gallen, an American who works in Denmark for the Copenhagen Institute for Futures Studies, is moving to Malmö because he and his Norwegian wife got fed up with Denmark's constantly tightening citizenship requirements.
"I have basically fallen into a grey zone in the legislation in terms of my right to work between Denmark and Sweden," he told The Local.
Gallen is long established in Denmark with a CPR number and residency permit, and has a right to family reunion everywhere in the European Union as a result of his marriage to a Norwegian.
But he discovered when organising the couple's move that until he receives his Swedish residency permit and personal number, he will lose his right to work in Denmark.
"Denmark does offer a commuter permit for people in this situation if they either live in Schleswig, or in Skåne, commuting from Germany or Sweden. However, in order to get that commuter permit, as a third country national like myself, you need to have proof that you've received legal residency in the country where you normally live."
So while Sweden will let him work from the day he arrives in Malmö, he will not be able to work in Denmark until Sweden grants him residency due to family reunion, which he expects to take at least four months.
"I actually have to work physically in Sweden while I wait for this permit, otherwise it's a violation of Danish immigration regulations, and I can actually get a fine, my employer could get a fine, and I could get banned from working in Denmark for two or three years or something like that. It's ridiculous."
While in this "weird limbo", he will also have to pay an effective tax of as high as 54 percent, because he will lose the right to Danish social insurance, so Swedish social insurance will kick in.
Low level of understanding among employers on the Swedish side
Nicole Nielsen, a Copenhagen-based American lawyer, has been facing enormous difficulties since starting work this April at a fast-growing company on the Swedish side of the Øresund.
"The first thing was, they did not realise, even though it was clear that I was an American, that I needed a work permit."
But they wanted her to start straight away, so initially, she was working even though it was unclear how or in what capacity she would be paid. She only started getting her pay checks in June, two months after starting, but as she's still waiting for her Swedish personal number she can't log into her Swedish bank account, meaning she has to be given manual checks to put into her Danish account.
She qualifies for Sweden's SINK tax, State Income Tax for Non-Residents, which she expected to be easy, but has found the process agonisingly slow.
"It's been like a nightmare, and everything has to go through Swedish social security [Försäkringskassan] so it's very slow and bureaucratic, and it's not very efficient," she said. "So in Denmark. So even though you complain, you don't really realise how easy everything is. Everything is very manual in Sweden. And it's like, you know, it's very rules-based. There's like no exceptions."
Sick leave and parental leave
Nielsen is now pregnant, but aims to limit her maternity leave to three months.
The issue she is having is that by changing her country of work, she has discovered that she has probably lost all the Danish "barsel", or parental leave she had built up, including the days she had left over for her other two children, but she will not have worked in Sweden long enough to qualify for anything other than a minimum parental leave payment.
The company has offered to pay her what she would have received in parental leave payments from Sweden, but that is much less than her salary.
"It's come as a shock to me and so confusing that this has never happened before, that they have sort of system," she said. "Nobody in Sweden seems to know what to do about people coming from Denmark, which is very shocking, because I know that it's pretty common for people to come from Sweden to Denmark, and it's not an issue."
The parental leave issue can also cause problems when one of the two parents starts working on the other side of the Øresund Bridge. All of the shared parental leave attached to the child will then revert to the parent who is still working where the child is registered, who will be treated from a child leave perspective as a single parent.
Others find sick leave confusing. Richa Sharma, from India, said her husband, who lives in Malmö but works in Copenhagen, was still trying understand if he could get sick leave for a stay in hospital in Malmö when he caught coronavirus last year, or whether the time would be taken from his holiday.
An advisor from the advice line Øresundsdirekt said that Sharma's husband would be requesting sick leave from his Danish employer, and said that unlike in Sweden, where the state pays sick leave after a week, in Denmark the employer continues to pay your salary for three months, and that it was often down to the employer exactly how this leave should be treated.
Unwittingly switching the country where you are registered for taxation
According to the advisor at Øresundsdirekt, it is quite common for cross-border workers to take short breaks from work of three months or more without realising that they risk losing their right to taxation in Denmark or Sweden, and so causing enormous bureaucratic headaches.
If you take any significant amounts of time off work, he warned, you must first run it past the tax authorities.
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