Here’s how you can create an EU company with EU banking (anywhere on Earth)
A step-by-step guide for using Estonia’s e-Residency programme to become a location-independent entrepreneur.
This article contains the most up-to-date advice from the e-Residency programme when it was last edited in October 2017. In this article:
— Who is e-Residency for?
— Is e-Residency a loophole?
Step 1: Apply for e-Residency
— Why does Estonia offer e-Residency?
Step 2: Start a limited company through the e-Residency programme
— Special offers in October
Step 3: Open an EU IBAN account connected to your limited company
— The ‘traditional’ banks
— The fintech firms
Step 4: Conduct business globally
— Comply with regulations
— Paying taxes
— Paying share capital
— Make and receive payments globally (including through PayPal)
— Further resources
Location, location, location.
Those are arguably the three most important factors that determine your chances of succeeding as an entrepreneur right now.
Your location affects the costs and hassle of starting and running a company, as well as your access to customers and vital things you need to acquire them such as talent, funding, trust, legal frameworks, and financial services (like a PayPal business account).
You could move to a different location to give yourself a better chance of succeeding, but what if you can’t… or just don’t want to? And what if you don’t want the costs and constraints of a fixed location at all?
Thanks to the internet, we now have the technology to connect and conduct business globally like never before. Unfortunately, our new digital world has new digital borders too. That means your ability to start and grow a company online is still restricted based on your offline location.
That’s now changed. Estonia is the first digital borderless nation and believes no business should be bound by physical location.
Estonia now offers e-Residency so that anyone can access the country’s public services entirely online and therefore operate within its EU business environment from anywhere in the world*.
E-Residency is a government-issued digital identity that gives you the freedom to run a global EU company entirely online.
The programme was launched in beta mode, which in startup jargon means that not everything is perfect yet, but e-Residency is being improved based on the feedback of real e-residents using and benefiting from the platform. At first, e-residents actually had to travel to Estonia four times in order to complete the entire process below, but this has now been reduced to zero.
There are plenty more improvements under development right now — including more services from more companies, better usability for public services, and a community platform that will make it easier to connect and conduct business with other e-residents and Estonians.
We now believe e-Residency is the best way on Earth to run a trusted location-independent company with minimal cost and hassle-free administration. So below is a step-by-step guide from the e-Residency programme about how to set up a complete company.
*Actually, you can conduct business as an e-resident anywhere there’s internet connection so that now includes the International Space Station too. We are looking forward to hearing about the first e-resident to establish a company off Earth!
Who is e-Residency for?
Anyone can apply for e-Residency no matter where you live or which passport you carry.
At present, the main advantage of being an e-resident is that ability to establish and manage a company online. There are an enormous range of companies already benefiting — from the makers of eco-friendly toilet paper to a social enterprise that employs ex-offenders and provides them with environmental work.
Depending on their circumstances though, some entrepreneurs will benefit from that more than others. The people who tend to benefit most from the ease of conducting business through e-Residency are:
- Entrepreneurs who sell services online.
- Entrepreneurs with no fixed location (perhaps because they are traveling ‘digital nomads’, want to move countries in future or simply reject the costs and constraints of an office and fixed location).
- Entrepreneurs who want to easily operate across borders, but without requiring a physical presence in multiple countries.
- Entrepreneurs who work alone (as freelancers, contractors or solo entrepreneurs).
- Entrepreneurs who want to lower the administrative costs and reduce the hassle of running their company (including for private sector services such as accounting).
- Entrepreneurs who are unable to access financial services and business tools they need (like PayPal) because they are restricted from companies registered in their territory.
- Entrepreneurs who want to operate inside the EU’s legal frameworks in order to benefit from increased trust online.
- Entrepreneurs who want to operate inside the EU business environment for greater ease of conducting business globally and with other EU companies.
- Entrepreneurs who want to operate within the EU business environment in order to increase their chance of accessing funding.
- Entrepreneurs who want to trade in euros (which may be more convenient and/or a more stable currency) or more easily make payments within the Single Euro Payments Area (SEPA).
- Entrepreneurs who speak English or Russian (or Estonian!). Estonia’s digital infrastructure, as well as almost all private services, can be accessed in these languages, although business service providers are adding their own languages too (1Office now serves clients in all three, plus Finnish and Latvian).
More people discover e-Residency every day though so more uses for e-Residency are being discovered beyond starting and managing a company.
For example, the secure digital identities provided by e-Residency can help support KYC (Know Your Customer) requirements for companies that need to authenticate their customers online. This can enable companies to onboard customers from the e-Residency community quicker, easier and at lower cost than other customers.
In addition, e-Residency is used by investors because they can use their secure digital signatures to instantly sign documents from anywhere. This means, for example, that shareholder meetings can take place remotely with investors instantly approving decisions online instead of having to travel, or scan/post their signatures.
However, here are some people who won’t benefit from starting a company through e-Residency:
- People who want to avoid paying tax. E-Residency does not override existing international tax rules so all entrepreneurs must fairly pay their taxes where they are owed.
- People seeking citizenship or the right to travel or reside in Estonia or the European Union. E-Residency provides online access to Estonia’s public services and business environment, although you are welcome to speak to our friends at Work in Estonia or Startup Estonia (who even have a Startup Visa).
- People with criminal intentions. E-Residency is a trusted, government-issued digital ID that provides access to our open and transparent business environment. All applicants receive background checks by the Estonian Police and Border Guard Board to ensure that it is used by legitimate entrepreneurs. You can not use e-Residency to hide your business interests because data about shareholders, owners and taxation is public.
- Larger companies, particularly those involved in manufacturing. These companies have complex needs and considerations, as well as fixed locations, so do not benefit from reducing their administrative overheads online through location-independence in the same way that smaller and single-person companies can. However, larger companies do benefit from e-Residency in other ways — such as using the digital signature to replace ink signatures or integrating the digital ID to improve their KYC and onboarding processes.
- People who are unable to obtain international financial services because they live within a jurisdiction categorised as ‘high risk and non-cooperative’ by the Financial Action Task Force (FATF). At present, these are North Korea, Syria, Iran, Iraq, Bosnia and Herzegovina, Ethiopia, Uganda, Vanuatu, and Yemen. Note that this is based on residency, not nationality, so people from these countries living abroad have still successfully benefited from e-Residency.
So far, about 25,000 people from 139 countries have applied for e-Residency and they’ve established around 2,500 new companies.
In this article, I’m going take you through the steps for how to join them.
Is e-Residency a ‘loophole’?
E-Residency can significantly lower the costs, hassle and barriers to entrepreneurship, but it does not override or contradict existing international rules for conducting business.
For example, your company still has to pay taxes where it generates value and import goods into the EU if your company makes them outside. And if you require a physical presence inside the EU, such as a financial institution seeking EU passporting rights from the regulator, then e-Residency is not going to help that.
You can choose to register your company where you want, but it’s usually expensive and complex to do so in a different country to where you live so only people with enough resources and expertise could do so until now. You would have needed to find local partners and keep scanning or posting signatures, for example.
Our country is different because it’s the first borderless digital nation that not only has a fantastic business environment for entrepreneurs, but also an advanced digital infrastructure that enables it to be accessed from anywhere in the world.
Policy makers have been coming to Estonia to understand the success of our digital nation and the growth of e-Residency. This has stepped up a gear recently because Estonia now holds the Presidency of the EU Council and has been encouraging digital reform across the continent. Some world leaders have even received e-Residency during their visits, including German Chancellor Angela Merkel and Japanese Prime Minister Shinzo Abe. Even French President Emmanuel Macron said he wanted to become an e-resident at the recent Tallinn Digital Summit.
We believe that more countries will offer e-Residency in future — and several have already made the first steps — and then compete for e-residents by offering the best public services and business environment online. This can help improve the quality of governance globally.
However, Estonia’s e-Residency programme can be integrated with services from other countries. As a result, e-Residency is building a new digital nation for all world citizens, powered by the Republic of Estonia.
Step 1: Apply for e-Residency
Visit e-resident.gov.ee and fill out the simple form to join our new digital nation. You will need:
- A copy of your own government-issued ID
- A passport-style digital photo
- A motivation statement
- A Visa or Mastercard to pay the state fee
The state fee is €100 and this covers the cost of administering your card and conducting background checks.
In addition to saying why you want to sign up, you will need to specify on the form where you want to pick up your card, which has to be done in person. This can be an Estonian embassy, a special pick up location organised by an Estonian consular mission, or a Police and Border Guard service point inside Estonia.
Once you submit the form, you will then receive a confirmation email and the Estonian Police and Border Guard Board will conduct background checks on you.
This is really important because e-Residency is a secure, government-issued digital identity that provides access to an open and legitimate business environment. To promote transparency, some company information is publicly available, such as data about shareholders, owners and taxation. Entrepreneurs value this because it enables them to operate with greater trust and reach more opportunities online.
It also means that those with bad intentions should know not to bother applying. As a result, around 99% of applications are approved.
It takes 30 days to process your application. During that time, the Estonian Police and Border Guard Board may request further information for the background check.
If you have questions about your application status during that time then you can contact the Estonian Police and Border Guard Board at email@example.com. Please make sure you include your full name and date of birth.
If you are granted e-Residency then you will be notified by email from the Police and Border Guard Board. You will then receive another email when your e-Residency starter kit is ready to collect from your chosen location. This contains your digital ID card, a card reader that enables you to plug it into your computer’s USB, and your codes.
You will need to give a thumb print and sign for the package (using ink— possibly for the last time!)
There are three codes. Pin 1 is to authenticate yourself, pin 2 is to digitally sign, and then your PAC code enables you to reset them both. Keep these secure because it is not possible to issue new codes remotely. Also, don’t carry them with your card or let anyone else know them.
One more thing… we always love to see e-residents posting pictures when they receive their cards so you are welcome to take a selfie and post it using the hashtag #eResidency.
The long number on your card is your personal code (known as ‘isikukood’ in Estonian) and will stay with you for life, even if you get a new card in future. The first number denotes your gender and century, the next six are your date of birth, and then the final numbers will be unique to you.
Some e-residents obscure or blur their cards when showing them off for pictures, but this isn’t really necessary (unless you would prefer not to reveal the details mentioned above). It’s not possible to misuse a card just by seeing it or knowing your personal code.
Your digital ID card will be kept at the pickup location for you for six months and then uncollected cards will eventually be destroyed. Please check with your pickup location directly if your card has been there for longer than six months.
Your e-Residency starter kit will contain more information, but the first thing you should do is download the digital ID software, which is essential for using your card.
Why does Estonia offer e-Residency?
E-Residency is Estonia’s gift to the world — but why?
The Republic of Estonia was founded in 1918, but has endured a difficult history over the past 99 years and was only able to restore its independence from Soviet occupation in August 1991. Back then, Estonia had few resources yet had to rebuild its infrastructure virtually from scratch and figure out how good government services can be delivered efficiently to a population spread across large distances.
That’s right — Estonia may not be as small as you think. It’s larger than Denmark, for example, even though it has a population of just 1.3 million.
Fortunately, August 1991 was the exact same month that the first servers for the World Wide Web were switched on. Estonians recognised the potential of the internet to transform our lives at a very early stage and decided to invest in building a digital nation instead so that services can be accessed entirely online.
Here’s a great overview of the story from Fortune magazine:
As a result, citizens and residents of Estonia have secure digital identities to access both public and private services entirely online no matter where they are in the world. This makes daily life easier, but has also helped create a very supportive environment for entrepreneurs to succeed.
Partly as a result, Estonia has emerged as a vibrant startup hub and the small size of the domestic market has meant that thinking globally is the only way to grow.
The biggest Estonian success was Skype, which was a bit like having a large international business school suddenly appearing in the country. Many of the people who directly benefited from the success of Skype decided to invest their new fortunes and skills back into Estonia to build even more companies. It also energised Estonians who watched their friends succeed through Skype and realised that they too had the potential to build successful companies.
One of the most famous companies now among the ‘children of Skype’ is TransferWise (who we’ll mention again a bit later).
Over time, Estonians realised that they had developed both an excellent business environment and a way to access that business environment globally, yet the country’s public e-services and digital infrastructure could handle far more ‘users’ than the 1.3 million people living here.
Think about it this way. As a result of digital disruption, the world’s largest retailer owns no stock, the world’s largest taxi company owns no taxis, the world’s largest accommodation provider owns no accommodation, and the world’s largest media platform produces no content.
So what if Estonia — home to just 1.3 million people — became the world’s largest country? That’s how the idea for e-Residency was born.
The world’s very first e-resident was Edward Lucas, Senior Editor of the Economist.
At first though, no one quite knew who would most want to sign up for e-Residency. Many of the early applications came from people who were fans of the idea or were already conducting business with Estonia. It soon became clear however that e-Residency solves real and serious problems for entrepreneurs around the world by making it considerably easier for them to start and run a company.
In recognition of the potential for e-Residency to help unleash the world’s entrepreneurial potential, the programme has even partnered with the United Nations for a groundbreaking new iniative called eTrade For All, which aims to increase access to entrepreneurship across the developing world.
There’s been a considerable rise in applications in recent months as major improvements are made to the programme, although many more are on the way.
E-residents have no obligations to Estonia and create no burdens for Estonia either. However, the e-Residency programme is creating a global network of friends for the country and those who choose to start a company make a significant contribution to Estonia in return for the value that they receive from the programme.
So that’s why we are here to help you start a company.
Step 2: Start a limited company through e-Residency
Some e-residents want to start their companies immediately, while many others choose to wait up to six months or even a year as they finalise their business plans ahead of launch. In some cases, they haven’t even told their existing bosses yet!
However, the great advantage of e-Residency is that you can start a company with a very low investment (of both your money and time). That means you have a better opportunity to try out ideas without fearing failure and perhaps without even giving up the day job. Your company is flexible too so if you need to change the name and area of business in future then you can.
Here’s another tip. If you think it will take time to win customers then you could try asking your accountancy provider for a lower monthly rate while there is less work for them to do.
So here’s what you need to start your company as an e-resident:
- €190 for the state fee
- Answers to basic questions about your company’s structure and area of business
- An address for your company in Estonia
The requirement for a company address is actually due to EU rules. In some other places, this requirement is interpreted to mean that you need an actual office there. Some jurisdictions frown on the idea of ‘virtual offices’ and may even require you to show the lease for your office space. That’s obviously not ideal if you are a location-independent entrepreneur, a ‘digital nomad’ or simply someone who prefers to work at the local cafe.
Fortunately, this is not the case in Estonia, which fully supports location-independent entrepreneurship. You can easily obtain an address from a business services provider and there is no obligation for you to ever even visit that address.
If your company has no board members living inside the European Economic Area or Switzerland then you do need to appoint a local contact. Once again, business service providers can offer you this and that contact merely receives official communication for you and has no power to act on behalf of your company.
No matter where you live, there is no obligation for you to appoint a local director so you can own 100% of your own company established through e-Residency.
In addition to obtaining an address from a business services provider, you can also contact them for things like incorporation, accountancy and running a virtual office. About 90% of e-resident entrepreneurs do so and the typical monthly spend is around €60 to €100, which represents good value-for-money compared to the cost of these services globally.
The most common type of business in Estonia and the most optimal for e-residents is a private limited company. This is called ‘osaühing’ in Estonian, which is why OÜ appears at the end of companies established through e-Residency.
The exception is if you want to run a non-profit organisation in which case e-residents can open an ‘MTU’.
A significant proportion of companies created by e-residents only have one employee — themselves. This is because increasing numbers of people are choosing to operate as either freelancers or contractors while working remotely or working while travelling. As more people become solo entrepreneurs, it also becomes easier to contract talent more flexibly through other companies too, rather than hiring employees.
As a result, some e-residents tell us that they want to operate as sole traders (also known as a sole proprietorship) rather than opening a limited company. This may be the most convenient solution for them in other countries, but a sole proprietorship is not recommended for e-residents because it comes with additional obligations more suitable for residents of Estonia.
The advantages of a private limited company include simple and quick registration, a relatively low share capital requirement of 2500 euros, and protection for shareholders from personal liability. We often hear that the costs and hassle of running a limited company through e-Residency is actually lower than operating as a sole trader in their own country.
When you are ready to register your company, visit Estonia’s company registration portal or contact a business services provider to do it with you. Both LeapIN and 1Office have integrated the state’s company registration portal into their own websites too.
This is when you get to use your secure digital signature for the first time! Remember, you should already have your company address ready and the Estonian digital ID software downloaded.
These are the questions you will need to answer during the registration process:
- What will the company’s business name be?
- What will your initial area of activity be?
- Who are the shareholders and how large are the partner’s share capital contributions?
- What will the private limited company’s place of business and the address of its location be?
- How will the management of the private limited company take place?
Your company name needs to be unique in Estonia’s company registry and written in the Latin alphabet, preferably without special characters or symbols.
You are asked for the ‘initial’ area of activity because, unlike in some other countries, Estonia does not require you to go through the hassle of registering a new company if your business evolves into offering a different product or service.
As mentioned, the minimum share capital is €2,500 but you can actually defer paying this and most e-residents do this. It just means that you are personally liable up to the amount not paid in instead, although you do eventually have to pay the minimum share capital in before you can receive dividends.
Remember, if any of this seems daunting then the business service providers are there to help.
Estonia was awarded the Guinness World Record for fastest time to register a legal entity, which was 18 minutes in 2009. That’s less time than it takes to read this article!
It usually takes e-residents a couple of hours for the registration process to be completed and approved, but it’s rarely more than a day. If you are an e-resident already then you can be a company owner today.
Special offers in October
It’s the 3rd anniversary of e-Residency in December so e-residents who establish a company in Estonia during October have a chance to win a trip to Tallinn to help us celebrate! Here’s how to enter the competition.
We also asked e-Residency service providers for special deals that they can offer you too:
- 1Office is offering 20% discount on company formation, a legal address and an authorized contact person using the code “October” in their company formation portal, as well as 20% discount on international tax consultation for e-Residents in October.
- B2baltics is offering a 20% discount on their virtual office services and assistance package for a year and 10% discount on bookkeeping and accounting services.
- Join LeapIN and enjoy the 49 euro/month starter package for the first 6 months.
- Holvi (who we’ll discuss more later) is offering one free month of business banking and other services to e-residents when they sign up with the code: “ERESIDENCY.”
- Incorporate.ee is offering e-residents who sign up during October a registered address for €12 per month or a company with a bank account and accounting services for €65 per month, as well as 15% discount on all support services and free start-up advice.
- Nordic Consult is offering a 50% discount on their Estonian legal address service when you use their company registration package (€50 +VAT).
- Sunny Business Services is offering 2 hours of free consulting on business, banking, accounting, and tax questions to e-residents who sign up in October, as well as 2 months of free service on a legal address and official contact person service when signing up for a 1 year plan in October.
A full list of service providers recommended by other e-residents is available at e-resident.gov.ee/run-a-company, and more are being added.
The two most commonly used are LeapIN, which specialises in a simple service for one-person companies, and 1Office, which provides more comprehensive business services internationally (and can serve customers in Russian, Finnish and Latvian). As mentioned, they have both integrated the state’s company registration portal into their websites too.
Bear in mind though that not all business service providers serve clients in all industries so you may have to shop around to find the right provider for your company.
By the way — if you have a company that can also offer services to e-residents then please get in touch with the programme.
This private sector ecosystem is really important because it provides e-residents with greater choice and more opportunities. Some people discover business services providers through e-Residency, but many others discover e-Residency though business service providers. That’s why we’re always keen to encourage and support their marketing efforts too in order to grow the programme.
Step 3: Open an EU IBAN account
You will need a business account with an IBAN (International Business Account Number) so your company can easily receive, hold and send money (as well as pay in share capital and pay out to yourself).
This isn’t legally required, but it will be very difficult to operate without a business account— even if you are starting a one-person company. Mixing your business and personal finances would cause a lot of hassle, limit your ability to trade, and potentially harm your credibility.
Your company’s business account should be based in the EU so that it is compliant with SEPA (the Single Euro Payments Area) for greater ease of accessing services like payment providers, which we’ll discuss later. Ideally, the account should also come with a company payment card.
The e-Residency programme cannot compel any private company to provide services to e-residents, including banking, but we do work closely with the private sector to help them to do so.
Banks in Estonia have been involved in helping e-Residency develop since the programme was launched, although there are still limitations to how they can currently serve the e-resident community.
In support of e-Residency, Estonia’s law was changed to enable banks to open accounts remotely for people outside Estonia. The fact that this is legally possible does not mean that the banks themselves are ready to offer this service though as they are still currently testing how remote account opening can work through video calls.
There is also an outside chance that banks in Estonia could allow their branches in other countries to have a role in opening Estonian accounts. It’s too early to say if this is possible.
At the start of 2017 though, we shared our prediction with e-residents that there would be enormous disruption taking place in the banking industry this year. That’s because financial technology (fintech) firms are racing to offer their own business accounts online, while providing a more globally inclusive service for entrepreneurs.
That disruption is now well underway. Holvi has launched the first IBAN account specifically to meet the needs of e-resident company owners and the e-Residency programme is speaking with a range of companies that are interested in improving access to financial services for e-residents — from very small startups to large global names.
Crucially, these companies do not require you to visit Estonia (although you are still welcome to!)
Our discussions with IBAN account providers range from technical integration to compliance with Estonian business rules. We also encourage these companies to be as inclusive as possible towards the e-resident community by treating e-residents as equal members of one digital nation and not restricting services based on national boundaries.
The rise of fintech is revolutionising the delivery of financial services globally — and it’s also making some of our business language a bit confusing in the process. Companies no longer have to be a ‘bank’ to offer ‘banking’ and that’s why not all IBAN accounts are ‘bank accounts’ anymore.
Fintech companies are regulated financial institutions and are not licensed as banks, but their IBAN accounts have many of the same services and functions as those offered by ‘traditional’ banks, including with payment cards.
In practical terms, the key difference is that you won’t be able to get loans or overdrafts through these accounts and your money won’t be guaranteed in the same way that you would receive compensation if your bank is unable to return your money.
The good news is that fintech firms are legally required as a result to hold onto your money and not touch it until you want to do something with it, unlike the banks which are regulated in a way that allows them to manage the risk of lending your money out to others.
This is part of the reason for why these companies can be more inclusive in who they offer accounts to so the fintech industry has the potential to help end financial exclusion around the world and give more people the opportunity to succeed as an entrepreneur. That’s exactly what e-Residency aims to achieve too.
These differences in business models also help explain why the monthly fee for accounts from fintech providers can currently be higher than from banks, although the fintech companies can also show that they have more features that provide more value — such as bookkeeping and payment gateways — and these could lower your costs in other areas of running your company.
E-residents have begun using a range of financial service providers, although there is also an enormous variation in the suitability of these services for e-residents and the proportion of the e-Residency community that these services are available for.
Some are currently only offered in specific countries, while others do not yet meet the needs of company owners.
Bear in mind too that we are only discussing business banking for limited companies and not personal accounts. To add to confusion, some of the new online accounts from the fintech industry are marketed for business purposes, but are actually personal accounts. They would be suitable for sole proprietors, but not limited companies.
Just like the business service providers, not all banking options are available for all types of companies so you may need to look at different options depending on your area of business.
Also, I mentioned FATF’s so called ‘black list’ earlier. This prevents residents of jurisdictions categorised as ‘high risk and non-cooperative’ from accessing international financial services. The only other notable difficulty is for US citizens who face complexities with international finance as a result of the Foreign Account Tax Compliance Act (FATCA), which can create added work for either them or their financial services provider. As a result, not all international financial providers are able to serve US citizens yet.
Once you’ve established your company, below is an overview of the two types of options — offered by traditional banks and fintech companies — that you can now choose from to open your company’s IBAN account.
We don’t like to use too much jargon so providers of IBAN accounts that are recommended for e-resident entrepreneurs — both from ‘traditional’ banks or fintech firms — are listed on the e-Residency website under ‘banking’.
The ‘traditional’ banks
There are two banks in Estonia that provide business accounts to e-residents — LHV and Swedbank.
LHV is an Estonian banking and financial services company headquartered in Tallinn, while Swedbank is a Nordic-Baltic banking group based in Stockholm, Sweden with a significant presence in Estonia.
The feedback from e-residents about both LHV and Swedbank has been very positive. E-residents can log in with their digital ID card and manage their accounts from anywhere in the world, the interfaces are easy to navigate and all communication is in English (and various other languages).
There is one key drawback to them for e-residents at present, mentioned earlier. You currently need to travel to Estonia to open an account in person at a branch of either bank. This obviously limits the number of people around the world who can access business banking from them, although many e-residents have indeed traveled here to open an account and considered the trip to be a valuable investment (not to mention enjoying the opportunity to visit Estonia).
Both banks have their own criteria for which companies are likely to have their applications approved or rejected. These criteria are not published publicly because every decision is made on a case by case basis.
However, both banks say that they generally favour companies that have clear business goals and are perceived as trustworthy, particularly by demonstrating their commitment to compliance and accountancy. This should be demonstrated in a business plan that you can show to the bank.
They are less likely to open business accounts for non-residents of Estonia (including e-residents) if their companies are large, involved in manufacturing or wholesaling, acting as an intermediary to sell the services of others, only doing business in their home country or outside of the EU, and can not explain clear business goals.
In some cases, we also hear that e-residents have difficulty obtaining accounts if their company does not have a ‘connection to Estonia’.
If you can demonstrate a connection to Estonia through existing sales or relationships with partners, employees or suppliers (including business service providers to the e-Residency programme) then it’s very useful to highlight that in the business plan.
Regardless of whether it helps your application though, many e-residents have found that conducting business with Estonians and making their products or services available to Estonians is a great idea. This is something you can show in your business plan. In future, the e-Residency programme plans to make it even easier for you to connect with entrepreneurs who physically reside in Estonia so that both communities can benefit from each other even more.
However, the most important advice that the e-Residency programme gives to people who wish to open an account with LHV or Swedbank is to please speak with a business services provider to the e-Residency programme before booking any travel for the purposes of opening a bank account.
Neither the e-Residency programme nor anyone else can speak on behalf of private banks about which companies they will open accounts for. However, business service providers to the e-Residency programme do work very closely with the Estonian banks to help open accounts for their clients and can find out the pre-decision before e-residents travel to Estonia.
We also often get asked by e-residents: ‘What is stopping me from opening a business bank account in my own country?’ The answer is actually only the banks themselves.
Location-independent entrepreneurship is a relatively new concept so the desire to establish a company in one country and open a business bank account for it in another hasn’t been common until now. That means that banks outside of Estonia will still be reluctant to allow this. We are aware of a few e-residents that have succeeded, however, and if that includes you then you can tell the e-Residency programme about it as that information could help other e-residents benefit too.
E-residents will be notified and the programme’s website will be updated when there are further improvements to the ability to access banking from ‘traditional’ banks.
The fintech firms
In May 2017, the Finnish fintech firm Holvi became the first company to launch a business account for e-residents. The company already has a great reputation where it provides services in Finland, Germany and Austria and they have effectively chosen ‘e-Estonia’ as their next national market.
Holvi offers e-residents a fully digital business account combined with a Holvi Business Mastercard and useful tools to grow a business.
Holvi Payment Services Ltd is part of the banking group BBVA and is regulated by the Financial Supervisory Authority of Finland as an Authorised Payment Institution. Their account has an EU IBAN that complies with Estonian business regulations and is specially tailored to the needs of Estonian companies run by e-residents.
Crucially, you can apply entirely online, which means the launch of the account enabled the entire process of creating an EU company with an EU IBAN through e-Residency to be achieved from anywhere on Earth for the first time.
The e-Residency programme is now speaking with several additional companies about launching IBAN accounts specifically for e-residents. In the meantime, many e-residents have managed to open accounts with a range of providers. At the time of writing, the most notable alternatives are TransferWise Borderless, Paysera and Revolut. E-residents are very welcome to provide their feedback about these services to help the programme develop and ensure others can benefit too.
Bare in mind that everyone involved in e-Residency — whether as an e-resident, service provider, or working for the programme — are all entering new (location-independent) territory together. If you discover an IBAN account provider who you think could benefit other e-residents (including if you work there yourself) then please get in touch with the e-Residency programme or share your thoughts with other e-residents in the Estonian e-residents Facebook group.
Step 4: Conduct business globally
I was recently asked to explain the difference between a ‘virtual company’ established online through e-Residency and a ‘real company’ established in person by an EU citizen.
There is no difference. In fact, there is no distinction between these two concepts at all within our business environment.
(Almost*) everything can be done online in Estonia from anywhere so entrepreneurs operating within our business environment have no obligations to do anything offline — such as having to establish a physical office, meet government officials or sign documents by pen. Your company established through e-Residency will be an EU company as legitimate as any other company that has been created by an EU citizen online or off.
Here are a few things you will need to know about running your company.
*Actually, the only things you can’t do online in Estonia are get married, get divorced and transact property. This isn’t because we don’t have the technology. It’s because it’s probably not a good idea if you can do those things instantly at the click of a button, any time of the day or night!
Comply with regulations
Eesti.ee is Estonia’s state information portal and it has a comprehensive section for entrepreneurs here. Everything is in Estonian, English and Russian. This is also where you will find overviews of different regulations depending on your area of business.
However, business service providers are well versed in the requirements for different types of companies so many have produced their own in-depth advice for different types of businesses. They will be happy to discuss the regulations and other considerations for your area of business.
At present, you need to register your company as a VAT payer with the Estonian Tax and Customs Board if the taxable turnover of your company exceeds €16 000 per year. However, this will be raised to €40,000 per year from 1 January 2018. Registration is voluntary for companies below the threshold.
Estonia currently ranks first in the International Tax Competitiveness Index and enables entrepreneurs to pay Estonian taxes entirely online with minimal hassle.
As mentioned however, e-Residency is not tax residency so when e-residents pay taxes in Estonia then it is based on what e-Residency has enabled them to do (by creating a company that is legitimately tax resident here under international rules) and not just because they are an e-resident.
A company registered through e-Residency is automatically tax resident in Estonia. However, if you have tax obligations elsewhere then that’s where you must pay them.
Determining your tax obligations will be easy if you and your company are based in one country and you clearly work and generate the company’s value in that country. For others though, there is no doubt that determining international tax obligations can get challenging, especially if you are a location-independent entrepreneur or a ‘digital nomad’.
Taxation is based on your company’s unique circumstances so it is ultimately your company’s responsibility to determine these obligations. That’s why the most important advice is to consult your own qualified tax adviser if you have any doubt about where you should be paying taxes.
One potential problem is that tax advisers in other countries might not know much about e-Residency (yet!) Perhaps you can show them this article if needed.
However, this might sound like an unusual thing to say about a tax department, but the Estonian Tax Department does have excellent customer service too. You are welcome to ask any questions about your company’s potential tax obligations at firstname.lastname@example.org.
The Estonian Tax and Customs Board (ETCB) also firmly believes that taxation should be simpler for everyone, including e-residents. This is particularly important because e-Residency enables anyone to conduct business globally so it’s not fair if only large companies with large departments of accountants can figure out how to pay their taxes globally.
As a result, they are investing in a new e-Tax and Customs Board portal, which will be hassle-free, contact-free and provide entrepreneurs with valuable live economic data.
Pay in share capital
If you decided to defer your payment of minimum share capital at registration then you will just need to do this before dividends can be paid out.
Your accountant can help you through this, but you simply pay the money into your account and describe it as share capital then take a certificate showing this from your financial services provider to your accountant.
When the legislation was written for how to pay the minimum share capital, entrepreneurs would have always done it through a bank in Estonia. It is only now that entrepreneurs also want the option to pay their minimum share capital into accounts with financial service providers based outside of Estonia, as well as with companies that are not licensed as banks.
Our legal opinion is that this is possible in both cases. However, the decision to accept share capital is made by the business register, which is under the jurisdiction of the courts and independent of government decisions.
The existing law can only be clarified when the first share capital payments are made by e-residents using these services.
However, e-residents using fintech providers for their IBAN accounts should be reassured that Estonia is committed to supporting its e-resident population, which has included amending legislation when it is appropriate.
Make and receive payments globally (including through PayPal)
You should now have an EU IBAN account for your company, which means you can easily send and receive money within the Euro Single Payments Area (SEPA).
There’s no need to limit your business to Europe though. To send and receive payments globally, many e-residents use TransferWise — and we’re not just saying that because the fintech firm was born in Estonia. Both LHV and Holvi recommend TransferWise to their customers due to its ease of use and low fees. Take a look at TransferWise for Business or their Request Money service, although alternative money transfer services are available.
In addition, you may want a payment gateway to process your customers’ payments from credit cards or other means for payments.
As an e-resident with a trusted digital identity backed by the Government of Estonia and a trusted company registered in our new digital nation, you now have access to a wide range of business tools online — including those that may be blocked to companies registered locally.
The ability to access more fintech services and receive payments globally with greater ease is one of the many key factors for why people around the world are signing up for e-Residency.
The highest demand for e-Residency right now is coming from Ukraine for example because the country has a highly skilled population for online services, such as IT outsourcing, yet enormous difficulty in receiving payments from international customers. Ukrainian companies are unable to sign up for PayPay Business accounts.
However, even though some entrepreneurs discover e-Residency during their quest for a PayPal business account, many also realise that they now have a wider range of options for payment providers anyway and alternatives may be better suited for their business. Another popular payment option for example is Braintree.
The key advice is that PayPal business account is for your company, which is based in Estonia so you can choose this location and then add the IBAN and BIC from your banking provider. Make sure you visit the Estonian PayPal website, instead of the version that is automatically shown first in your country.
We often get asked if it is possible to open a PayPal business account if your banking provider is based in a different country to your company (as Holvi is based in Finland). You can actually add any European IBAN number and BIC code as long as it is SEPA compliant so Holvi, LHV and Swedbank are all suitable.
If there are any problems then you can contact PayPal’s customer support line and they will add the IBAN number for you. For this, you will need a certificate from your banking provider to prove that the account is indeed yours. Holvi have already begun doing this for their e-resident customers.
PayPal occasionally asks for additional information, such as bills with your company address, particularly if you are resident outside the EU or you want to raise your limits. Your business services provider should also be able to help you in these cases.
If there are any problems accessing PayPal or you feel a different payment provider is better suited to your business though then you are welcome to try them instead.
If you have an account with Holvi then you’ll notice that they have a wide range of features to support entrepreneurs, including their own online store that is connected to your Holvi account. You can use this to sell products and collect payments easily from your customers. All funds are in real time on your merchant account ready to be used wherever you need them.
E-Residency can minimise the cost and hassle of almost every aspect of starting and running a company.
You can now focus on the most difficult part of your business, which is earning those first customers — although the e-Residency programme is working on a way to help you with that too in future by providing a platform for e-residents around the world to connect, conduct business and promote their companies both within the community and beyond.
We also hope that this platform can in future be used to provide better opportunities for e-residents and residents of Estonia to make valuable connections too. Watch this space!
The official e-Residency website is e-resident.gov.ee and contains more information about applying for e-Residency, starting a company and running a company — including lists of service providers recommended by other e-residents.
This article contains the most up to date advice from the programme when it was last updated in October 2017. You should also sign up to our newsletter at the bottom of e-resident.gov.ee so you can hear about developments directly from the programme.
If you would like to connect with other e-residents and follow the programme’s development then join the Estonian e-residents Facebook group, use the hashtag #eResidency on social media, and follow the official e-Residency accounts on Facebook, Twitter, Instagram and LinkedIn.
If you require further support regarding becoming an e-resident, starting a company or running a company then please contact email@example.com. Please note that we don’t provide business services or business consultations, but we can guide you to the companies that do and a suggested list is available here: e-resident.gov.ee/run-a-company.
You can also watch our most recent e-Residency webinar, which was recorded as part of European Freelancers Week.
However, if you have specific questions regarding your taxation then please email Estonia’s Tax and Customs Board at firstname.lastname@example.org.
Want to read more? Find out how e-residents pay taxes from the Head of the Estonian Tax Department at ETCB.
If you have already applied for e-Residency and have questions about your application status then you can contact the Estonian Police and Border Guard Board at email@example.com. Please make sure you include your full name and date of birth.
If you would like to contact me personally with feedback and ideas for improving e-Residency and expanding the services available to e-residents then please email firstname.lastname@example.org. You can also comment below.
Finally, you can apply for e-Residency at e-resident.gov.ee and join our new digital nation. And if you’re already an e-resident, don’t forget to use the special offers in October so you can start your company today.