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Country as a service becoming reality in Estonia

Programme to help foreigners set up businesses in Estonia through virtual residency is gathering pace

This article can also be found in the Premium Editorial Download: CW Nordics: CW Nordics: The trouble with connected things

The Estonian government believes foreigners will create more companies in the country than Estonians themselves by 2022.

Since 2015, the small Nordic country has pioneered an e-Residency programme, which gives foreigners, such as entrepreneurs, easy access to government services.

Today, you don’t have to be Estonian to set up and run a company in the country. So far, 17,000 people have signed up to the programme.

This kind of outlook would be a shocking statement from a government official in any country in the world, other than Estonia.

Estonia, which was given observer status in the Nordic council in 1991, might be small, but it punches above its weight when it comes to IT in government, and is giving easy, secure access to services via an ID platform.

The country’s CIO, Taavi Kotka, launched work on the programme back in 2014. He formed a small task force – effectively a startup – in the state structure to work on the project, and in 2015, Estonia started to take e-Residency applications and give ID cards to foreigners, providing them with access to government services. An Estonian e-Residency is a transnational digital identity available to anyone in the world interested in administering a business online.

The news created waves in tech media around the world, and some governments said they would follow Estonia’s example.

A step ahead in tech

Estonia, home of Skype and Transferwise developers, has done a lot to be at the forefront of modern technology adoption. It had paperless government meetings 10 years ago, and about 97% of the population hold smart ID cards to prove their identity when accessing online services.

The first to sign up were tech-savvy entrepreneurs from around the world, and the first 17,000 e-residents plan to establish some 10,000 companies.

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“This is one-third of all companies in Estonia, and we are in a beta phase one year in,” said Kaspar Korjus, head of operations of the e-Residency team.

“In five years, we will have more e-Residency companies than local companies,” he said.

For the small, industrialised country, which was occupied by the Soviet Union from 1940 to 1991, going online with the governmental services is seen as an opportunity for years to come.

“Eventually, one country takes most of the entrepreneurs internationally,” said Korjus. “Estonia can be the nation to do this.”

From the government side, the risks are minimal, as e-residents pay the cost of getting the ID cards and the same infrastructure has to be maintained for citizens anyway. This means the extra cost is limited.

Indeed, the opportunity to set up an EU company from afar could be attractive for many online entrepreneurs based outside the European Union.

One more hurdle

Today, all the essential business services are available for e-residents, and the last administrative challenge to becoming a truly location-independent country is the ability to open corporate bank accounts remotely for e-residents. This hurdle is due to be removed any day now. The laws were changed last year to enable this, but banks have taken their time to implement them.

Opening the country and its governmental systems and creating an online business environment has been a focus for the e-Residency team.

“We can say that we have a product and an offering for e-residents,” said Korjus. “We have changed more than 10 laws in that time, as well as a lot of processes, and we have built new services.

“You never have to visit Estonia. It is a matter of convenience. People can visit the country as tourists, but it should only be voluntary,” he said.

There are service providers in the market to help foreigners launch and run their companies.

For example, Nasdaq, which operates a local Tallinn Stock Exchange, has launched an online shareholder meeting and voting system for e-residents. 

A startup called LeapIn is the first to build a platform for e-residents to launch companies as well as run them, and it has seen a spike in interest since the service opened up.

“Interest from freelancers and contractors using LeapIn for starting and running businesses is on the steep rise,” said Erik Mell, CEO of LeapIn. “The first e-residents were just fans of Estonia, but more and more are actually using it to conduct business,” said Erik Mell, CEO of LeapIn.

“For digital nomads, location independence via remote management makes the LeapIn solution especially attractive. Little administrative hassle, low bureaucracy and transparent pricing are a bonus.”

Safe EU harbour for Brits

One of the first Brits to launch an e-company in Estonia using LeapIn was digital nomad Zack Young.

“I considered both Hong Kong and Singapore before Estonia, as they have a sound legal structure, but they were also complex to manage. I needed a solution which enabled me as a nomad to run a location-independent company,” he told Computer Weekly.

“The process has been simple, from the setup of the company to launching the bank account and covering all compliance.”

One of the clear interests for Young – and likely for many others – is Estonia’s corporate tax system, which allows profits to be reinvested in the company tax-free. Companies are only taxed on their profits when shareholders take money out of the company.

“Long term, I was interested in the tax benefits for reinvested profits, the no-cost and simple to set up bank account and locality of Estonia – as well as being in Europe and a central timezone for global business,” said Young.

When comparing the running costs of the company to a British alternative, he says it would have been two or three times more expensive, and that opening a corporate bank account for a digital nomad firm would have been a big challenge.

So far, around 1,000 Brits have become e-residents, and 55 of those have launched companies in Estonia. The rate is less than for many other countries. Korjus said there was clearly some pent-up demand as the implications of the Brexit process are yet to become clear.

“People are waiting for decisions on what is going to happen,” he said. “They see a great opportunity of still being able to live in the UK whilst running their EU companies via e-residency, without even having to visit the EU. This is perfect for them.”

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