There’s been a lot of talk about Estonian e-residency program in recent years (well, maybe it’s just that Estonian media highlights each and every article published on the topic).
While it’s useful in many ways, it’s also a very clever marketing campaign for Estonia. For example, Japanese Prime minister Shinzō Abe is Estonian e-resident, so is Guy Kawasaki, a marketing guru and Silicon Valley venture capitalist — to name a few. Do they really do something with it, it’s doubtful.
In this article, we talk about different sides of Estonian e-residency. Before we get into the nitty-gritty, let me first tell you about the country named Estonia.
Estonia, a country in Northern Europe, borders the Baltic Sea and the Gulf of Finland. Including more than 1,500 islands, its diverse terrain spans rocky beaches, old-growth forest, and many lakes.
With only 1,3m inhabitants, Estonia is a very small country. Thus, the e-residency program is something that helps to make Estonia “bigger”.
Estonia has the lowest national debt in the whole European Union. The banking sector is dominated by strong Swedish banks, with the biggest being Swedbank, followed by SEB.
Estonia is also highly regarded for its tax system. Companies do not pay profit tax unless money is distributed, i.e shareholders take dividends. Dividend tax is 20%. Standard VAT rate is 20% and personal income tax is 20%. Salary taxes are quite high for an employer (that said, salary taxes are almost always paid in a country where the employee lives and gets social benefits from).
Estonia is recognized as the most advanced digital nation in the world.
Why is that?
Some things that I’ve listed below are already implemented in other countries as well, Estonia was just the first to do it. There are different reasons why Estonia was first. Notably, when Estonia became an independent country, it happened to be at a time which allowed Estonia to focus on building efficient, technology-driven systems, i.e there weren’t existing systems that had to be taken down first. Or at least as the country was so young, there wasn’t enough time to develop systems that were heavily bureaucratic with many layers, that couldn’t be redone easily. Plus, I have a feeling that it would have been far more complicated to build such systems for 100m people. So the small size definitely gave certain advantages here.
Here are 7 notable sectors which Estonians have successfully digitalized:
1. Education — Estonia’s e-School application (known locally as eKool). It’s an electronic school management system where all the information about the homework, class schedules, tests, grades etc is stored. Students and parents can both access it via Estonian id card (electronic card similar to e-residency card, issued to all Estonian citizens). It’s very widely used and has made the whole system a lot more transparent.
2. Healthcare — the national ID card has improved the speed, convenience, and cost-efficiency of healthcare delivery throughout Estonia. Almost 100% of prescriptions are issued electronically. It means that you call your doctor, who then issues you a prescription, and you can go to the pharmacy and the prescription is stored already on your id card.
3. Voting — Estonians can vote online with their id cards, which has increased the number of voters and has decreased the administration cost. There are and always will be doubters that say this system is not 100% safe and election results can be rigged.
4. Digital signatures — Estonians prefer digitally signed documents, as these documents feel safer and are somehow more binding (your identity details will be stored on the document, compared to, for example, simple signature). Almost all companies doing business in Estonia sign agreements and documents digitally. A lot of time and paper saved.
5. Transportation — In 2004, Estonia launched the first eID-based ticketing system for public transportation. So now citizens only need an id card to take a bus or a train.
6. Tax returns — Almost 100% of Estonians file their taxes online. As the taxation system is very easy, it’s all automated (though it gets more complex from 2018). This has also allowed minimizing bureaucracy and number of officials that would otherwise need to be employed.
7. Company management — Most likely the most interesting part for the digital nomads. Company registration and management, including signing all the papers and making changes in the company are done via id card (e-residency card has the same functions).
Here’s the short introduction of e-residency from Kaspar Korjus, the leader of the e-residency program.
Basically, e-residency gives you a digital residency of Estonia. You will receive an e-residency card that allows you to operate your company online.
Don’t confuse it for tax residency though, because this it is not.
You will not get any tax benefits that Estonians get, as you’re a tax resident in your own country. Estonia does have a favorable tax system, hence, many foreign entrepreneurs might see it as a better option for running a business — from the tax perspective. It takes a little bit more than e-residency to get the tax benefits.
There are some other benefits though — namely, lack of bureaucracy. Many countries have a complicated and costly process for setting up the company. This is where Estonia excels, as the process is extremely simple.
As an e-Resident, you can:
- Register and administrate EU company online
- Do online banking (e.g. make electronic bank transfers)
- Digitally sign documents (both official state documents and with partners, including annual reports and other relevant “paperwork”)
- Encrypt documents
- Declare taxes
To Who Is E-Residency Meant For?
- E-residency could be interesting for digital nomads, who run online businesses and love to travel. As the management of the company is done online with little bureaucracy, it’s just a convenient way to run a business.
- For entrepreneurs who live in countries that are highly bureaucratic and costly to start a business in. No one likes paperwork, and it’s pretty excessive in most of the countries. For example, Belgium or France.
- Crypto entrepreneurs and investors. There’s no clear-cut legislation yet, as there isn’t anywhere, but why not do ICOs from Estonia? For example, China has banned ICOs, but Chinese entrepreneurs could do it via Estonian companies.
- Any entrepreneur that wants to have a company in the EU and sell to the European market. Though you still have to take into account that some consumers prefer to buy from local companies (i.e if your plan was to sell to the German market, it might be better to use German company. This is just a personal opinion and not backed by any research on our part).
How to Apply for e-residency
Applying to become an Estonian e-Resident is easy.
As you figured, everything is done online, except for picking up the card. You’ll need to go to an Estonian embassy or consulate to do that.
- You go to the e-Residency webpage (click here).
- Fill the form with all your personal details and upload your picture. The fee for e-Residency is 100€. Additional credit card fees may apply (few euros or USD).
- The application process is fast and takes about 10 minutes.
Scan your existing documents to your computer in advance as you’ll need to do it anyway.
- Once your background has been checked by the Estonian Police and Border Guard Board, you’ll be notified by e-mail whether your application is approved.
- Pick up the e-id card from Estonia or the closest embassy/consulate that you chose.
- It takes about a month for the card to arrive. At first, the waiting time was 2 weeks, but because of the big interest, the waiting time is longer than before.
Things to do when you pick up your card:
- The same ID document you entered in the online application form;
- Give fingerprints to the officials;
- Receive your “Estonian starter pack”, e-residency card and the card reader.
Here’s a quick video as well. The pronunciation isn’t exactly great, but easily understandable.
Registering The Company
While registering the company is said to be easy, we’ve learned that for foreigners doing it for the first time, it still takes a lot of time to do it even online, because there are different nuances that you have to pay attention to.
So, here are instructional videos that could be helpful to get started. Again, these are not done by a native speaker, so apologies for any pronunciation errors.
Establishing the company
Here’s the thing. I have the video recorded on how to establish Estonian company online, step by step instruction. But because you can see my social security number from that video, I am not comfortable leaving it here. I know I could edit the video and cover it up, but as I am not good at this video thing, I just don’t have time for that.
That said, I will send you the link if you shoot me an e-mail to email@example.com and say you want to have it. I know it can seem like a hassle, but it’s a lot longer hassle to establish the company without having those instructions. Believe me, we have a lot of e-residents as our clients and we’ve heard it multiple times.
We do offer support services in Estonia: Virtual office, accounting, legal & tax advisory, but my goal is not to sell you on those things once you get in touch. We love to have you as a client, but this is not a way for us to collect leads.
Don’t hesitate to get in touch and ask for the video, I will gladly share it. No questions asked.