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Estonia is a small country that sits by the Baltic Sea but, fuelled by its advanced use of digital public services, its ambitions go way beyond.
In 2015, Estonia launched an e-Residency scheme to help entrepreneurs set up a European Union (EU) business in the Baltic state. It provides non-Estonian citizens easy access to online government services and low-cost administration to set up an EU-registered company.
In 2014, Kaspar Korjus, programme lead at the Estonia e-Residency, owned a startup developing this idea, when he was asked by the Estonian government to do it for them instead.
A few years on and progress has hit a significant milestone. Between January and November 2017, the e-Residency scheme received more applications than there were births in Estonia – 10,269 births, compared with 11,096 e-Residency applications.
But why have people been signing up to become e-residents? Figures released in November showed that, so far, 41% of about 30,000 total applicants want to start a location-independent international business, mainly in e-commerce. These are usually businesses with just a couple of employees that want to do business globally.
The e-Residency scheme gives them the opportunity to become a corporate, open a business bank account, get a payments service that accepts foreign currency payments, launch a website and digitally sign contracts and tax documents, from any location. They can also access Estonian government services for businesses.
It means people from outside the EU can set up a business without having to leave the country where they live. This is important, because if people had to move to set up a business they might lose the security they have in their homeland.
Korjus says administration costs can be very high in some countries, compared to Estonia, and entrepreneurs can spend large sums just legalising a company before they begin to do any business, which is risky.
More than 2,000 companies have been established as Estonia e-residents to date. It typically takes one day and a few hundred euros for an e-Residency to be set up. In 2017, 200 companies were set up every month on average. This compares to 90 in 2016 and 60 in 2015, and could soon mean reaching another important milestone.
“At this rate, in five years we will have more e-Residency companies than Estonian companies,” says Korjus.
Advanced digital infrastructure
The secret behind the success of the programme – and the very thing that made it possible – is the advanced digital infrastructure in Estonia.
Estonia might be small, but it was seen as a digital trailblazer before the e-Residency programme was launched. For example, in 2013 the UK government signed an agreement with Estonia to work together on developing digital public services and to learn from the Baltic state’s advanced approach to public sector IT.
Read more about Estonia
- The Baltic state is reportedly in early-stage talks with the UK and Luxembourg governments about setting up a backup site in either country to protect citizens’ data from risk of hackers.
- An e-Residency programme to help foreigners set up businesses in Estonia through virtual residency is gathering pace.
- The number of non-Estonian people who applied for e-residency of the Baltic state exceeds the birth rate for 2017.
Korjus says it was this digital leadership status that sparked the idea within government. The core technology that underpins the e-Residency programme is an advanced digital identity system in Estonia. Each e-resident, like physical residents, has an ID with a unique public and private code. Every time a government service or banking service is accessed, this code is used. The ID will also provide authentication for financial technology (fintech) services for e-residents.
“Estonia is quite well digitised. For example, we have an ID card that can be used for many things, including online voting and tax returns. It is all based on the existing Estonian data exchange and encryption infrastructure,” says Kojus.
“We thought, ‘If we are already fully digitised, why do we need to offer those services to Estonians only – why not open it up and make it available globally?’. So we decided to try to become a borderless nation and see if there were any opportunities for us.”
After the idea was floated by people within government, Korjus says a debate ensued. With his own startup working on a government platform for e-Residency at the time, he was given a scholarship by the government to run the e-Residency idea as a government startup, rather than a private enterprise.
Interest grew quickly and people were subscribing to the organisation’s landing page to become e-residents even before the law was changed. Now organisers have the target of reaching 10 million Estonian e-residents by 2025.
Since the programme began in 2015, about 30,000 people have applied to become Estonian e-residents. Citizens of around 150 countries have applied to the programme, with UK citizens the fifth most prevalent.
The team behind the platform is now 20 people strong and scaling, says Korjus.
E-residents create jobs and boost economy
This is a concept not seen before, so the benefits that Estonia achieves will be closely watched by other countries. Korjus admits that most of the tax paid by the companies that are set up will go to their home country rather than Estonia, so what are the benefits?
As well as being good for the country’s image across the world, Korjus says there are more measurable benefits. “When e-residents are consuming our service, they need a business address and legal and tax consultancy. This creates a new business ecosystem, which will create jobs and increase the taxes paid in Estonia,” he says.
It will also increase tourism, adds Korjus, as more people visit Estonia and increase the country’s connections with the rest of the world.
In December 2017, Deloitte carried out research to measure the programme’s success and future potential. It found that by 2025, via direct and indirect income and benefits, e-residents will add €1.8bn to the Estonian economy. This is about €70,000 of net profit created by an average e-resident company over a period of 10 years, which is expected to remain in Estonia. Deloitte estimated that there would be a return of €100 for every €1 invested in the programme.
Despite its early success, Korjus is more excited to see how the project will grow in the future.