E-Residency: An Extra Boost to Entrepreneurship

In December 2014, Estonia’s government launched the first-ever e-Residency programme, which gives foreign entrepreneurs a credible digital identity, and simplifies business management online. Each e-Resident receives an ID card with a microchip and a USB card reader to access various public and private e-services such as business registration, banking, an e-signature, document authenticity verification, file encryption and tax declaration.

“What we aim to do is to create a worldwide virtual business environment, where people from both the developed and developing countries can easily become entrepreneurs and start doing business anywhere in the world. Physical national borders and restrictions will no longer present an obstacle,” explains Kaspar Korjus, Director of the Estonian e-Residency Programme.

The scheme provides “secure digital residency in Estonia” but not actual residence status. The Estonian government has set an ambitious goal: to have 60,000 e-Residents by 2017 and to increase their number to 10 million by 2025. Avo Alender, Customer Experience Architect at LeapIN, an IT firm behind the programme, believes that the bigger interest in the e-Residency platform, the more private services will be added to it.    

e-Residency is part of the national brand marketing strategy. The country is promoting itself as e-Estonia, an advanced e-society. By extending its e-services to foreign entrepreneurs, it aims to boost local business and attract more investment. Even if e-Residents decide to administer their companies using its digital infrastructure but operate anywhere else, Estonia will still be able to charge for some services. The more the e-Residency platform is used – in whichever form, the better e-Estonia’s brand will be established globally.

Ben Hammersley, a contributor to WIRED, has observed that countries are competing to improve the quality of the user interface of their e-service platforms to attract more customers. In this context, Estonia’s decision to launch the e-Residency scheme should be seen as a way to increase its competitive advantage. “Just as you might switch your bank to one with a better mobile app, the Estonians hope you’ll switch your business to a country with an infrastructure that is easier to use,” explains Hammersley.

“[…] becoming a resident or starting a company in another country usually feels like a bit of a hack. It’s possible, but few countries have actually made the effort to make the ordeal convenient. E-residency is the solution for the digital era”, comments Daniel Schwarz, a contributor to SitePoint. It helps overcome red tape, and even makes it possible to set up and run a company with a foreign ID. e-Residency is sufficient proof of a credible business identity, which simplifies doing international business.

It is also an attractive option for small and medium enterprises. They can especially benefit from Estonia’s tax system. There is a 0% corporate tax on condition that profit stays inside a company. It can be used for regular operations or invested to further boost business growth. Tax responsibility is passed to employees: they have to pay a 20% flat tax on individual income. In addition, filing taxes takes less than 5 minutes because a tax form is already pre-filled. Estonia has also been working on establishing closer cooperation with tax offices around the world. If e-Residents run a business in another country, they can still declare their income through the Estonian system. The local tax office will make sure that all taxes are paid to that country’s tax office.

References:  [1] Avo Alender, LeapIN / [2] Ben Hammersley, WIRED / [3] e-estonia.com / [4] Daniel Schwarz, SitePoint / [5] Nabeelah Shabbir, The Guardian