In late 2014, Estonia launched its e-Residency program, becoming the first country in the world to offer government-issued digital identities to people wishing to start and run an EU-based business from anywhere, line.
For the past seven years, the program has targeted entrepreneurs, business owners, freelancers and digital nomads. As of mid-February 2022, Estonia has almost 90,000 e-residents, from 177 countries, who have created more than 20,000 businesses, including 4,700 in 2021.
“I recently spoke with a member of the city council of Tartu, the second largest city in Estonia. We were talking about numbers and he pointed out to me that the number of Estonian e-residents will probably exceed the population of Tartu this year,” says Lauri Haav, Managing Director of the Estonian e-Residency Program.
According to him, the initiative has now entered a phase of growth in “hockey stick”, as it is called in the business world. Many companies have become mature enough to hire new employees and become profitable. As a result, tax revenue from the program has doubled year on year to reach €32.5 million in 2021.
Less paperwork
Several factors can be attributed to the record 2021 results. First, the lockdowns have prompted people around the world to find new ways to live and work. Estonia’s e-Residency program has proven to be one such way.
E-residence has also entered new markets. Prior to April 2021, the application process was long and laborious, involving numerous documents and extensive background checks by the Estonian Police and Border Guards. This process was followed by a trip of the applicant to the Estonian Embassy to provide his fingerprints. It was only once this procedure was completed that the candidates received their electronic residence “kit” and their identity card.
This procedure has now been simplified. Since Estonia does not have an embassy in all countries, the program has started cooperation with an international visa service provider who can facilitate this procedure, says Lauri Haav. “This allowed us to launch our service in Brazil, South Africa, Singapore and Thailand. »
IT, online marketing and e-commerce are the most popular areas for e-residency businesses, due to the fact that they are not tied to location. “Perhaps you live on the island of Bali and operate your business from there. Your business partner can be Ukrainian, and your customers based in Germany. You may also have another shareholder based in the United States”, anticipates Lauri Haav. “We do have such examples (…) E-residence is international, cross-border and virtual. »
This flexibility is what prompted Vicky Brock to become an Estonian e-resident in 2019, having co-founded Vistalworks the previous year, a company that provides tools, data and intelligence to combat illicit trade on the web. “As many of our customers are government agencies and law enforcement agencies across Europe, we couldn’t risk not being able to trade with the EU, so we decided from the start that we had need a European base,” she told ZDNet.
Vicky Brock and her co-founders had considered other countries to settle in, but chose Estonia because of its flexible e-residency system, tax laws, and fair and transparent business ownership environment. , as well as its commitment to the fight against corruption. For a tiny nation of just 1.3 million people – representing less than 14% of the population of the British capital London – Estonia is also home to a vibrant and thriving start-up ecosystem.
Open to digital business
Although the e-residency program can be seen as a convenient way for non-EU entrepreneurs to set up businesses, Lauri Haav says around 50% of applicants are from the European Union. Russian citizens make up the majority of e-residents, followed closely by Finnish and German citizens.
Lauri Haav believes that Estonia’s welcoming business environment is what makes the country so attractive to entrepreneurs. “In some countries, the tradition is that being an entrepreneur is risky and that you shouldn’t start a business unless you have a million in your pocket as start-up capital,” he explains. “We don’t have that attitude in Estonia, where it’s easy and inexpensive to start and run a business. In many EU countries it is much more difficult: it involves a lot of bureaucracy, and a lot of money, time and other resources have to be invested. »
An attractive tax system
After earning a PhD in Applied Physics from Delft University of Technology in the Netherlands in 2017, nanomaterials scientist Santiago Cartamil-Bueno is looking for ways to put his scientific and technical knowledge to good use. He tries to become an entrepreneur in Germany, but the language barrier and the bureaucracy prove too much.
He ended up enrolling in Estonia’s e-residency program after seeing a post about it on LinkedIn. “I signed up with just my phone and with my wife’s permission,” he told ZDNet.
Since then, Santiago Cartamil-Bueno has established a consulting, research and development company called SCALE Nanotech, which is registered in Estonia but operates mainly in Germany. The company is growing steadily and has benefited greatly from the Estonian tax system, as there is no corporate tax on reinvested profits. “The Estonian cash-flow-based tax system has greatly helped my start-up to grow through the reinvestment of profits during the critical start-up phase,” he explains.
Security hardening
When the e-residency program was launched in 2014, the goal was to have 10 million e-residents by 2025. It was revised in 2019, on the occasion of the release of the white paper e-Residency 2.0. Since then, the focus has been on improving the quality of the service and the ecosystem that surrounds it.
With the number of e-residents and businesses numbering in the thousands, this growth has necessitated greater attention to security. To address this, greater investment has been made in the selection process, particularly with regard to the information requested from applicants and the way data is shared with government departments, which now involves the Estonian Police and the Council. Border Guards, the Tax and Customs Board and the Financial Intelligence Unit, among others.
For security reasons, applicants must still provide their fingerprints in person, as the technology is not yet developed to facilitate this operation remotely, explains Lauri Haav. “It is obvious that there are many commercial solutions on the market, but not yet a government-level solution that would meet the requirements of the Estonian Police and Border Guards. »
Some e-residents end up putting down their suitcases
Either way, Lauri Haav thinks the whole application process will go digital in the next few years. In the meantime, all indicators suggest that the e-residency program will continue to grow. “If there are more people, they will create more companies, older companies will mature, and the whole ecosystem will continue to evolve. »
Vicky Brock is also optimistic about the future. Two of the founding members of Vistalworks have now moved to Estonia and become full residents. In 2021, the company even opened an office in the capital, Tallinn. “The surprise, perhaps, was how easily it was done and how quickly we became part of Estonia’s hugely vibrant tech start-up ecosystem,” says Vicky Brock.
“I didn’t expect to spend an hour a day studying Estonian for fun, but I chose to do it because I really feel part of Estonia and want to stay here and there. build my business. »
Source: ZDNet.com