We all know that with each upcoming year modern physical borders and national regulations are becoming the attribute of the past… But could you have thought even 5 years ago that people would be able to live in one country, have the citizenship of another country and do their business in the third country? Alongside you could work with clients from all over the world, accept payments in different currencies without even having a physical office – all the activities are carried out entirely online! This has recently become possible in Estonia, country named to be the most advanced digital society in the world!
The so called ‘e-residency’ implemented in Estonia in 2014 allows foreigners, particularly, digital nomads, freelancers and online entrepreneurs to set up and manage an EU-based company from anywhere in the world. For example, e-residency would make it possible for a Russian entrepreneur to establish an Estonian company that he runs from the Netherlands to serve clients based in Sweden. He would also be able to sign documents, pay taxes and carry out bank transactions completely remotely and online.
Why Estonia introduced e-Residency
Estonia started its way of becoming completely paperless almost two decades ago. Since then the country managed to restructure and digitize approximately 99% of public services, which made it one of the most digitally advanced countries in the world. Every citizen of Estonia has an ID card that allows them to run all digital processes completely online.
In December 2014, Estonia continued its way to digitalization by launching the e-residency program. And this decision has fully paid off as well: the program has attracted investments from more than 160 countries and put Estonia firmly on the digital world map! According to economic analysis conducted by Deloitte, just within the first two years of full operation, the e-residency program brought the state 14,400,000 Euros, 1,400,000 Euros of which was net income.
Following the success of Estonian e-residency program, other countries have also started making efforts to open virtual borders and become more attractive for digital nomads. Azerbaijan, for instance, launched an e-residence program, which is similar to the Estonian one allowing entrepreneurs to establish a company, access business banking, declare taxes, sign documents and manage their business online without even entering the country. Ukraine is also planning to implement a similar program; however the idea is still being developed by legislative amendments.
What are the benefits?
The first great advantage of the e-residency program is that you get the opportunity to operate a business in the EU without actually having to travel there. The procedure of establishing and operating a business in Estonia as an e-resident is very easy, affordable and hassle-free. Another good thing is that you won’t even need to appoint a local director or any representative to manage your business.
Other advantages of becoming an e-resident include: access to EU Single Market and cross-border capital, online access to Estonian bank accounts and online payment service providers, making use of an Estonian digital signature on any official document, secure method for encrypting files and many others.
Interestingly, residents of EU countries also often apply for the program. By doing so they can benefit from the best online services to open or manage their enterprise which are much faster and easier than those offered in many other European countries. Besides, Estonian companies have access to global payment service providers such as Stripe, PayPal, as well as the Google Play and App Store mobile app stores. An Estonian company is considered to be a reliable legal entity that can subscribe to most services around the world. Estonia also has a simple and fair tax system with a zero annual corporate income tax rate if you keep your profits in the company or reinvest them.
Just a few words about taxation
In general, e-residents can be taxed in Estonia or in their home countries depending on circumstances. In general, a company registered in Estonia or a company the effective management of which is located in the country is regarded as the subject to Estonian corporate taxation.
Estonian non-resident companies are subject to taxation if they have permanent establishments or some business presence in the country or if they derive income from Estonian sources. If you are running the business from a different country however, it is possible that you are considered tax resident in your home country.
Taxation rules may vary depending on the specifics of your business activities and location. That’s why if you have any doubt about your tax obligations you should always consult your own qualified tax adviser.
So what is the procedure of becoming an e-resident?
To obtain the status of e-resident in Estonia, you need to take just a few simple steps:
- Go to the official e-resident website and read the requirements (e-resident.gov.ee). The program’s websiteis user-friendly and highly informative, so be sure to check it out. You will need a scan of your passport and a scan of your ID.
- Fill out an online application, indicating the reasons why you are applying for the electronic citizenship of Estonia. On your application you will also have to select the location convenient for you to submit your biometric data and collect your e-residency kit. The pick-up locations are available on the official website.
- Pay a state fee of 100 Euros.
- Wait 6-8 weeks for your application to be examined by Estonian Police & Border Guard Board. You will receive an email as soon as the process is complete.
- Pick up your e-residency kit which will include your digital ID card and card reader. Be sure to bring your ID with you.
- Verify your digital ID card and install the digital ID software. Once the installation and verification stage is completed you can enjoy all the benefits of the e-residency program!
Becoming an e-resident, however, does not mean that you will become an Estonian citizen nor does it give you the right to live and work in Estonia or the European Union. There is no photo on the card, so it cannot be used as an identity card, a second passport or a travel document. It is not a way to avoid paying tax in your home country either. In fact, Estonia strives to be very transparent in terms of taxation and will not tolerate schemers or dishonest companies.
What about you? What benefits of e-residency did you find the most significant? Would you apply for the program?