E-Residency 2.0: What do Estonians think of the programme?

We interviewed Estonians across the public and private sector to discuss how we can improve e-Residency together. Here’s what they said.

Kaspar Korjus
Sep 11, 2018 · 16 min read

Estonia’s e-Residency programme is going through a period of change as Estonians from across the public and private sector work together to develop an initiative we first mentioned back in June called e-Residency 2.0.

Estonia became the first country to offer e-Residency more than three years ago by enabling anyone to apply for an Estonian government-backed digital ID card, which provides access to our e-services. Our e-resident population has grown rapidly since then and the programme has garnered enormous attention from around the world. However, the perspective of Estonians across society and their involvement is rarely explored, even though the success of the programme depends on them.

The goal of e-Residency 2.0 is to build on what has already been developed for e-residents and decide the future direction of the e-Residency programme so that both Estonians and e-residents can be given even more opportunities to benefit.

As part of that process, we’ve conducted detailed interviews throughout the summer here in Estonia with a vast range of Estonians about how the programme has impacted them so far and how they would like to see it developed. This includes Estonians working with e-residents directly, from government agencies to banks and private business services providers, as well as those with broader views about what it means for our country. It includes those who want to bring more benefits of the programme to Estonia, such as local entrepreneurs, as well as those tasked with managing the risks that are associated with that, such as those working in banking and financial supervision, law enforcement and even our security services.

Today, Estonian President Kersti Kaljulaid met with us and many of those stakeholders, to review that feedback and work together on the next steps, which involves even wider consultations with Estonians before the release of the e-Residency 2.0 whitepaper at the end of the year.

The goal of e-Residency 2.0 has broad support in Estonia, including from Estonian Prime Minister Jüri Ratas who has been personally involved in ensuring a successful outcome.

There are some things that won’t change however. We all agree that Estonia is a digital society and e-Residency is how our state engages with people beyond our borders. There will always be people outside Estonia, such as foreign investors, who will need an Estonian digital ID card in order to interact with our country. It makes their life easier and provides Estonia with increased efficiency and oversight.

Another thing that won’t change is the values behind the programme, which also reflects the values of Estonia’s digital society and business environment. We believe in empowerment, inclusion, legitimacy, and transparency.

That last value is really important and it’s a big part of the reason why Estonia is able to offer e-Residency and why so many people around the world are able to benefit. By operating in a transparent business environment like ours, e-residents gain the trust they need to operate their companies location-independently from anywhere in the world. And if they don’t follow the rules properly then e-Residency enables Estonia to detect them and withdraw those privileges.

I don’t know what will be the outcome of e-Residency 2.0 because this process is still ongoing and many more Estonians need to provide their feedback, as well e-residents themselves.

However, in support of the transparency, I thought it would be good to share the feedback that we’ve received from Estonians during the past few months because this is the context for how the programme will develop next.

Everyone’s feedback has been incredibly valuable and, I’m pleased to say, no one held back. Here are the four main themes that emerged:

1. The e-Residency business model is unclear.

Understandably, there was a lot of scepticism in Estonia at first about who would actually want to be an e-resident of our country. However, we now have more than 40,000 e-residents from 150 countries and they’ve used the programme to create more than 5,000 new companies in Estonia. Alongside that, the programme has improved considerably since those first e-residents joined and so too has the private sector ecosystem around them.

There’s still a lot of healthy amount of scepticism about e-Residency of course, but it’s shifted to why these people want to be e-residents and what Estonia gains and risks in return.

If e-Residency is a business endeavour and Estonians are the shareholders then how we can understand if it’s returning a profit for them? We explored this in detail by asking interviewees about how the role of the state in the 21st century, how the state should conduct business and be involved in exports, how its offering can be improved, what the goals should be, and how we can involve Estonians and Estonian companies more.

When the programme was launched, the goal was to acquire 10 million e-residents by 2025. As our understanding of the programme has developed, a new and more important goal was added to attract 20,000 companies by 2021. We can see that the number of new Estonian companies established by e-residents does roughly correlate to the size of the e-Residency programme’s economic impact, but we also concede it’s not a perfect way of measuring success.

An economic impact analysis by Deloitte last year estimated that e-residents have contributed €14.4 million for Estonia’s state and economy so far and are projected to contribute €1.84 billion by 2025 based on the forecasted growth of the e-resident population. This comes from e-residents paying direct taxation in Estonia, conducting business with other Estonian companies, investing in Estonia or simply travelling here for a mixture of business and pleasure.

If you are an Estonian working directly with e-residents — perhaps as an account or business services provider — then you’ll see that economic impact every day. Most people won’t though and so these stats aren’t too meaningful for everyone.

Also, these stats are very difficult to gather in many areas and don’t tell the full story anyway. Some e-residents may have never heard of Estonia before discovering the programme and now make a large contribution to Estonia that wouldn’t be the case otherwise. But some e-residents are people who would have done business in Estonia anyway and made their contribution without the programme. The e-Residency programme can’t claim an equal amount of credit for all e-resident contributions, but then that doesn’t mean e-Residency shouldn’t be used to help all of these different people who contribute to our country, regardless of how much they would have contributed without the programme.

Out of all these stats though, taxation paid by e-residents is the simplest to collect and analyse. The good news there is that e-residents have so far paid €7.8 million to Estonia in direct taxation alone, which is much more than the cost of the e-Residency programme to Estonian taxpayers. This includes €4 million in just the first half of this year, which means they are on track to bring double the amount of revenue in direct taxation this year compared to the previous three.

That’s great, but not all e-residents owe taxes in Estonia, including those who make large contributions as identified in the Deloitte report. And just because something is easy to measure, it doesn’t mean that it should be the programme’s goal. Many e-residents generate increased economic activity in our country when they use our business environment (which helps other Estonian companies) but have their permanent establishment in another country and pay their taxes there. That’s because Estonia has never been a tax haven, but we do benefit fairly by being an administrative haven.

And all these considerations only apply to e-residents that want to start companies though the programme, which is about 40% of applicants at the moment. There are many other ways to use e-Residency — from managing investments to integrating the digital ID login — as well as ways we can develop the programme to provide a range of other benefits in future.

Understandably then, many Estonians are not clear about the focus of the e-Residency programme and how e-residents benefit Estonia. We need better ways to measure the success of e-Residency and more visibility of e-residents’ activities. At the same time, we need to be careful not to limit ourselves to goals just because they can be easily measured or communicated.

There was broad consensus however that the state should be bold enough to not just conduct business in the form of traditional state enterprises, but also pursue ‘government startups’ when there is the potential to rapidly scale up an idea that can bring more prosperity to Estonia. For e-Residency though, this startup phase is coming to an end as it becomes a normal part of how the state functions.

2. We don’t know enough about e-residents.

We explored this issue by asking interviewees about how e-residents fit into the broader community of Estonia, as well as how the supervision of e-residents, the management of their risks and the application process itself can be enhanced. We also discussed how e-Residency can become useful to every Estonian and not just indirectly through economic benefits. We also explored what should be the rules for how e-residents engage with our country.

E-residents operate digitally in our business environment so the state has a duty to ensure everything they do digitally inside our country complies with the law, just as it does for citizens and residents.

At present, the Estonian Police and Border Guard Board processes e-resident applications and conducts background checks to ensure that these people are who they say they are and are not a threat to Estonia. Estonian Embassies then identify the individual in person and collect their bio-metric data when providing their digital ID cards. After that, it is the private sector’s responsibility to manage their own risks when choosing customers, but government agencies continuously work with the police to ensure e-residents are complying with all the rules. If not, measures are taken that can include closing the certificates on their digital ID cards.

In addition, Estonia has a very transparent business environment as I mentioned earlier, which means that many crucial things that e-residents do are open to public scrutiny. Anyone can look up who owns companies in Estonia and how they pay taxation, for example.

All countries have relationships with people who are neither citizens nor residents, such as foreign investors as mentioned, but e-Residency is actually enhancing our ability to monitor them as well as attract more of them. You can read a great explanation here from Dmitri Jegorov at the Estonian Ministry of Finance about why tax evaders and other criminals really do not like e-Residency.

As the e-resident population grows though so too does the burden of supervising them and managing any risks associated with them.

Many interviewees made it clear that the quality of e-resident applications and the companies they establish through the programme should be a higher priority. If the programme no longer uses the number of e-residents as our main goal, then some Estonians wanted to know if we should go further.

One suggestion that has emerged throughout the discussions is that the application process could be intensified.

This could not just be good for Estonia by providing increased oversight and more focused goals, but also good for e-residents themselves who would then benefit from a higher level of trust in the private sector after joining the programme. It’s a point frequently made by Estonian banks, which understandably do not open accounts just because someone has acquired an e-Residency card. The fact that their identity has been confirmed and they are not a threat to Estonia does not meet all of their requirements for choosing customers.

There are complexities here too though about how quality is assessed because no one wants to undermine the inclusive nature of the programme or limit foreign investment in Estonia. Non-residents bring benefits and risks to every country in the world, yet e-Residency is already helping Estonia gain more benefits and less risks. If we change this formula then we need to ensure we are not inadvertently closing off Estonia to the world.

No matter what decisions are made though, Estonia’s supervision and risk management will inevitably need to scale up alongside the programme. All the agencies responsible for this — from the Police and Border Guard Board to the Estonian Tax and Customs Board — are performing incredibly well so far, but will be even more important for e-Residency 2.0. Their work is absolutely essential to maintain the integrity of the programme, the trust of the Estonian people, and the continued benefits that the programme brings to Estonia.

In addition to that, Estonians would like to see more direct connections with e-residents that are mutually beneficial. This is already the reason why e-Residency is developing a new community platform that will help e-residents and Estonians by providing them with more tools to grow their companies and more opportunities to network with each other. This is still in the trial phase so e-Residency 2.0 will be able to shape the direction of this and other initiatives that support this objective.

3. E-Residency is more than business.

As e-Residency was launched as a startup, the programme has also focused on serving our e-residents as customers in order to provide a profit to our shareholders, which is the positive economic impact for Estonia discussed earlier.

This is what led to the biggest surprise for our team when we conducted this research though. Many Estonians we spoke to don’t necessarily see an improved economy as the main purpose of e-Residency. We explored how Estonian culture and society can gain more from e-Residency, in addition to the Estonian economy. One topic that kept re-emerging in discussions with a wide cross-section of Estonians was how e-Residency contributes to our national security.

It’s worth pointing out that the very first e-resident has not started a new company in Estonia and is not even interested in conducting business himself, yet Edward Lucas has made an enormous contribution to our country by supporting us politically and engage with us culturally. It’s ironic then that he is not counted in our figures for how we measure the success of the programme.

Estonians believe the economy is important and e-Residency needs to cover its costs, but many also believe e-Residency is about so much more. It’s a way of introducing Estonia to the world and helping share our culture and values with more people. That doesn’t just boost our economy in direct and indirect ways. It also provides Estonia with more soft power because it gives more people a direct interest in the future of our country while also earning us increased awareness from many more.

E-Residency is now one of the most recognisable and frequently googled Estonian brands. A recent survey conducted by the New York Times with their readers in Europe and Asia revealed that more than half had heard of e-Residency and, out of them, 73% had a ‘higher’ or ‘much higher’ opinion of Estonia’s business environment as a result. As Estonians, many of us already have stories about meeting people from around the world and then hearing them respond positively when you say you are from Estonia because they know about e-Residency. As that awareness and interest in our country increases, so too does our security.

To put it bluntly, if more people can point to Estonia on a map then it’s harder to wipe us from it.

In some ways, this is similar to the role of a state broadcaster in larger countries. For example, Brits invest in the BBC and benefit from that content themselves then the BBC shares that investment with the world by licensing programmes and delivering services globally. This is expected to return additional income for the UK, but it’s not at the front of Brits’ minds when they engage with people from around the world and see the much broader impact of how the BBC is generating a cultural affection for their country.

Estonia has a great state broadcaster, but it obviously can’t be scaled like the BBC. However, e-Residency can perform a similar role using our own unique strengths. Estonians have already invested in their e-services and can expect to receive additional income from that investment by offering those e-services globally — but the benefits of e-Residency extend much further to increase the soft power of Estonia in general.

This came out frequently in discussions about the goals of the programme, as well as how our e-resident population fits into the broader community of Estonia. We also explored the topic more deeply by asking how we can better support the links between e-residents and Estonians. It’s important to point out though that the ‘community of Estonia’ is already bigger than Estonians living in Estonia. It includes the Estonian diaspora around the world, as well as all residents of Estonia. Along with e-residents, all these groups have a different relationship with Estonia and different rights on its territory, but they are all digitally connected to the same digital society and have a shared interest in the success of the programme.

E-residents are able to conduct business through from anywhere in the world without even having to visit Estonia because we believed that’s what e-residents wanted, but perhaps our country has been slightly too distant from its e-resident population at times. We’ve eagerly shared our business environment, but not necessarily our national identity.

E-residents do not acquire rights to citizenship or physical residency and many of them have no interest anyway, but anyone who has worked with e-residents knows that they do feel a deeper sense of connection and pride in our country that extends far beyond how the programme is currently marketed to them.

Many Estonians now believe that e-residents should have more opportunities beyond business to be culturally part of Estonia. If e-residents want to contribute to our future then they probably want to understand our history too. If e-Residency is about more than business for e-residents then it can be about more than business for Estonia too.

4. Our e-services need to be improved.

Many of the Estonians we spoke to questioned if Estonia’s e-services actually meet the expectations of how they are presented through e-Residency, especially when it comes to issues such as acquiring a bank account.

Germany has some of the best roads in the world, but Germans are still be unhappy when they get caught in a traffic jam. Estonia may be described as the world’s most advanced digital society, but we see our e-services as a normal part of life and have high expectations for them ourselves. So when Estonians encounter a problem with e-services then they imagine e-residents must have even more difficulty using the same e-services.

This was discussed frequently in our interviews. The quality of our e-services and business environment has been fundamental to the success of e-Residency so we explored how our e-services can be taken to the next level. This investment is already ongoing in many areas, such as at the Estonian Tax and Customs Board where a new tax portal is being designed to provide a superior service. Estonia is no longer just digitising services that were already offline. It has the ability to create services from a digital perspective first time round, which prioritises the needs of the ‘user’ and not the officials administering them.

However, this concern for e-residents using our e-services partly reflects a misunderstanding of their ‘user journey’. It’s true that if all e-residents attempted to navigate Estonia’s digital infrastructure by themselves then they would encounter a lot more difficulties, but this is why business services providers in Estonia perform a valuable role by creating their own user experiences for e-residents.

Estonians may choose to do conduct business by themselves or save time by using professional expertise, such as for accounting, but e-residents almost always use professional expertise for running their companies. Even our advice for acquiring a bank account is based on first contacting a business service provider that can guide you through the process or recommend alternative banking solutions that don’t necessarily have to be Estonian banks. By doing that, e-residents have a much higher chance of success or can learn in advance that they won’t obtain a bank account so choose an alternative solution.

There are two ways to address these concerns. Estonia has to continue developing its e-services, just as it develops all other forms of infrastructure, and Estonia has to continue developing the private sector ecosystem by encouraging companies to add more value around those e-services.

It’s here that many Estonians recognised one of the most fundamental opportunities of e-Residency. The programme began by recognising that we already provide e-services and a supportive digital business environment to Estonians so we can benefit from providing that to e-residents too. That is now being turned around because we can see that by developing that offering for e-residents then we are also developing it for Estonian citizens and residents.

This is not a comprehensive list of the feedback we have received, but it does cover all the main themes highlighted to us that will help decide the future of the programme.

I want to thank everyone in Estonia who has contributed to this consultation process so far. Over the coming months, many more people in Estonia will have the opportunity to provide their feedback before the e-Residency white paper is produced.

On behalf of everyone involved in Estonia, we also want to say a huge thank you to e-residents themselves too. You were willing to join our digital nation even before the programme to support you was fully ready and you’ve since made a major positive contribution to our country. We look forward to receiving your feedback to and supporting you in even more ways.

Please do leave your feedback below. We consider every comment, even though we are not able to respond directly to everyone.

This process marks the end of ‘e-Residency in beta mode’. The best is yet to come.

E-Residency Blog, E-residentsuse blogi

This is the official blog of the Republic of Estonia’s…

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