Norwegian Startup Scene Petitions Against Exit Tax Towards Tech Sector

It will be harder for Norway to stay competitive in the tech space, unleash new unicorns, and hire international talents, believes a group of Norwegian tech founders and innovators, after the government planned to pull out an exit clause on assets.

Therefore the group Norwegian Alliance for Startups & Tech (NAST) launched on April 9 a petition online to collect the opinions of founders and employees who might lose a whole lot from the uptake of this measure.

When the natural interest for start-ups is to scale up and expand in foreign markets, or to leave the country to seek better deals, the proposed 37.8% exit tax on unrealized assets over $46.5 thousand that have been accumulated in Norway, seems to be the last drop for any foreigner or Norwegian with big dreams to set a business in the Nordic country.

“This policy is not meant to impact startups,” aknowledge Andreas Mjåset, CEO and founder at the startup hub Mesh, but he explained this measure gives a lot of uncertainty to startups.

Most of the tech founders are in fact not completely against the new exit tax: “It is not bad at all, but it is bad in some sectors,” said Johan Brand, founder at Kahoot!, the first unicorn coming out of Norway, adding that many countries such as The Netherlands and the U.S. have exit taxes in place, but ‘‘(the tech scene) is a by-product of the rule that is primarily directed to wealthy individuals leaving the country.

Mesh together with other startub incubators such as StartupLab founded NAST, which aims to shape the political debate around startups and tech.

Because CEO or employees often receive shares in compensation for their work, in the moment of their exit from Norway to relocate to their home countries, for example, they might have a huge bill to pay.

“From this year we will not hire any new international foreign talent,” said Pal T. Naess, from the Norwegian unicorn Gelato, during the meeting arranged by NAST in downtown Oslo.

He added something Norwegians are really not happy to admit: their neighboring country is doing better at this: “They’d better go to Sweden,” he insisted.Some people have already started moving out of Norway in what Brand called a ‘talent depletion game’ enhanced by the new rules.

Government intention, better exeption

Earlier this year Industry and Trade Minister Jan Christian Vestre said that the government has the political will to improve the startup landscape and ecosystem, wanting himself to see ‘more Norwegian unicorns and start-ups with ambitions to become the biggest in the world in what they do’.

According to NAST, Norway's political class fails to fully understand the importance of the startup scene, and therefore how to handle the up and coming tech sector.

Other European countries have strengthened their options programs, incentivized risk investments, and created startup and scale-up visas.

But this looks like a ‘bad timing’ issue: in late 2023 the ministry had requested input from the stakeholders across the country (in the so called Grunnemelding) to understand what are the policy changes Norway should implement so that entrepreneurs and start-ups can thrive. The feedback still have to be read and processed and a decision won't come before the end of the year. Likewise, NAST was caught off guard by the exit tax, as it planned to start its lobbying game in the next months so to shape and create allies ahead of next year general elections.

Mjåset believes that today’s option for startups do not work and wants to promote a paper that is addressed to politicians to favour the tech startup scene. NAST is drafting its 10-points paper at the end of the month with its recommendation on ‘what the startup scene wants’, focusing specifically on extending the benefit exemption for startups that so far applies only to companies with less than 50 employees and with a revenues lower than $ 7,5 million.

Need funding

So far, just seven unicorns came out of Norway, where the majority are software-based companies - with the exception of the iPad competitor tablet company reMarkable.

Matt Weigand partner at the venture capital Accel said that although “70% of all venture capital dollars are deployed into London, Paris and Berlin, that isn't where the largest outcomes came from,” mentioning the caseof Stockholm-based music provider Spotify. “These stories tell us companies can come from anywhere,” told Weigand.

The Norwegian startup community is ready to celebrate the ‘next big thing’ in the space, but fears that the exit tax rule can disincentivize investors and put off founders.

The Norwegian early-stage VC fund RunwayFBU together with the Accenture released in March a report that shed light on what can a startup do to thrive and scale up. After an analysis of 2000 Norwegian startups, the report highlight few key point founders need to act upon.

Most of the successful startups have a diverse mix of investors, which determines double growth compared to those startups basing their funding round on a sole source.

International investors - especially at the seed stage from the U.S. - increased the chance of Norwegian companies to scale up quickly. The new tax however, might make the same investors, reconsider investing in Norway as they could fear to lock investment in the country.

Where to bet

According to the European Commission 80% of industrial data goes unused, and for Weigand, those able to make a profit and sense of how to best use this information will be ‘the winners’ in the next few years.

Many companies are ready to bet on data, to build the next big thing in the tech space and shift away from the traditional industries of the country: oil and gas, telecommunications and fishing.

But what has worked well in Norway has been as well to focus on existing sectors and find better solutions for stakeholdersto accessing data.

A unicorn that managed to exploit data for its growth, is the industrial technology company Cognite, that helps oil and gas manufacturers and other asset-heavy industries to better predict action by contextualizing their own data so that decisions can be made more easily.

With a plethora of oil companies, including Aker BP, it has not been difficult for Cognite to expand quickly: “The lack of productivity in industrial processes is a big problem,” said Karl Johnny Hersvik CEO of Aker BP, adding that digitalization has helped increase efficiency and speed up processes.

But for Silje Gronning, Investor at firm Energy Impact Partners, Norway needs to invest beyond the industries that already exist, to remain competitive, diversify its profit and future-proofing Norway’s economy.

NAST is considering to include in its proposal a focus on climate and health startups, which are desperately needed in the country in what Brand believes to be a necessity for Norway ton ‘to replace those oil and gas companies’.

Work in progress

The Oslo tech scene is grumpy, but it cannot be said that nothing has been done to support it.

For Fredrik Mowill, CEO at the PEM electrolyzers company Hystar, the government has made available good funding mechanisms for technology development within green tech, which the company benefited from. This is a trend Mowill expects to continue in the future and whish it can expand to R&D funding.

The ministry is now working on the input received with new legislation that should be proposed by the end of the year, and soon will have to have a look at the petition the tech community plans to deliver.

Meanwhile, the government is trying to slim down rules for the trending and circular second-hand resell market. A new law with major simplifications for resellers, which donesn't forget to take into account the necessary crime prevention considerations, should enter into force on July 1 this year: “Hopefully a step closer to removing VAT on used goods and opportunities for new business models to emerge (...),” said Siw Andersen, ceo at Oslo Business Region.