Both the World Bank and the Tax Foundation revealed good news for Estonia’s entrepreneurs yesterday.
Estonia has maintained its number one spot on the 2017 International Tax Competitiveness Index, which measures countries’ ability to raise sufficient revenue for government priorities while remaining competitive and promoting economic growth.
On the same day, the World Bank also unveiled its latest rankings for how easy it is to start and run a company in countries around the world. Estonia achieved an improved score in the report, called Doing Business 2018: Reforming to create jobs, and retained its 12th spot for a second consecutive year.
The World Bank’s annual rankings are closely watched by the world’s entrepreneurs and policy makers and have played a key role in driving reforms that make it easier for more people to benefit from entrepreneurship.
In 2003 — when the rankings began — it took a staggering 52 days on average to register a company globally, but this has now more than halved to ‘just’ 20 days. The report also welcomes the fact that 65 countries now let entrepreneurs complete at least one company formation procedure online. In addition, some countries removed barriers that specifically prevent women from starting and running companies.
This is all still far behind the progress made in Estonia, which earned a Guinness World Record back in 2009 for the fastest time to register a company at 18 minutes (although most people take a few hours) and has radically improved the quality of its business environment since then.
Estonia introduced digital ID cards fifteen years ago (in the same year that the World Bank’s annual rankings began) so that people can authenticate their identity, instantly sign documents and access both public and private services entirely online. This means that the entire process of starting a running a company in Estonia can be completed online with minimal hassle and low cost from anywhere in the world.
Crucially, Estonia’s decision to introduce e-Residency now enables anyone else to apply for a digital identity and take advantage of those same benefits without having to visit Estonia — or even leave their own country.
E-Residency is not tax residency however, so e-residents only pay taxes in Estonia if they have created a company that legitimately owes its taxes there under international rules. Instead, many entrepreneurs use e-Residency to make a greater contribution to their ‘home’ country. You can read more about how e-residents pay taxes here.
Despite the welcome news contained in the latest World Bank report, it should also be noted that the methodology behind the rankings is often criticised because it doesn’t measure all the most important factors that enable modern entrepreneurs to grow their companies.
The report focuses on the administrative procedures in each country, but does not assess the overall quality of the business environment. Political considerations are not taken into account for example — although you wouldn’t know this by looking at much of the media coverage around the report today.
In addition to its advanced digital infrastructure and simplified rules for entrepreneurs, Estonia is a member of the EU (as well as the eurozone, the OECD and NATO) and this provides entrepreneurs with not just access to the world’s largest single market, but also its legal frameworks and a higher level of trust, which makes it easier to trade globally.
Another issue with the World Bank rankings is that they are very general and include many considerations that only apply to more ‘traditional’ location-dependent companies — such as connecting to the electricity grid and acquiring construction permits. However, Estonia’s business environment is particularly attractive to location-independent entrepreneurs, which includes ‘digital nomads’, e-commerce entrepreneurs, international freelancers and anyone else who doesn’t want the cost and constraints of running their company from a fixed location.
The latest statistics reveal that Estonia has now received more than 25,000 applications for e-Residency from 139 countries and more than 40 per cent of them said they did so in order to pursue location-independent business.
E-Residency is even now being used by the United Nations to support developing countries in their efforts to improve access to entrepreneurship and e-commerce. The initiative, called eTrade For All, has begun its first pilot programme in New Delhi, India where aspiring women entrepreneurs are provided with business mentoring and the ability to start a company online through e-Residency.
The World Bank’s annual ease of doing business report is still a very important indicator of the progress being made to remove barriers to entrepreneurship in different countries. However, e-Residency is disrupting the very idea that entrepreneurs need to limit themselves to the business environment of the country where they live or were born.
Anyone can apply to join our digital nation at e-resident.gov.ee and you can read more here about how you can use the programme to create an EU company with EU business banking (anywhere on Earth).