How Estonia’s e-Residency Program Makes Starting & Running A Global Business Ridiculously Easy!
Among all the entrepreneurs and investors I know, I don’t think there’s anything that could annoy them more than wasting time, money, and energy because of administrative paperwork.
Forms and endless administrative processes feel like an aberration.
We’re in the digital era, aren’t we? But we still have to cope with the result of years—even centuries for certain countries—of technical debts.
Don’t freak out about this:
The one thing you never want to know is the total time you’ve wasted in your life because of paperwork. Knowing this would be too much to handle. There’s nothing meaningful in handling paperwork. It’s just ‘dead time’.
But There’s Hope. We Might Be Able to Escape from Red Tape
In this context, there’s one country that seems to understand entrepreneurs. It developed an innovative idea: the e-Residency. It claims wanting to fight to help them do business seamlessly. And this is not just a marketing statement. It is happening for real.
This country is Estonia.
After the USSR broke apart, Estonia had to build public services from scratch—e.g. less than half of the country had a phone line in 1991.
Where some would have seen it as a terrible threat, Prime Minister Mart Laar saw an amazing opportunity to escape from technical debt. Instead of copying and importing existing systems, Estonia established the solid foundation that would bring the country into the digital age.
As Ben Hammersley reported in Wired Magazine, this happened fast, very fast. From granting Internet access to every school in 1998, Estonia became in the 2000s a digital hub for government technology. The country has developed digital solutions (called e-Services) such as digital identities, the e-Residency, the possibility to register a company online in 18 minutes, and i-voting—the opportunity to vote via the Internet.
Today, Estonia is home of NATO’s Cyber Defense Centre and inspires many governments toward a transition to a digital administration.
It has even been called: “the most technologically advanced country in the world” by Wall Street Journal’s MarketWatch.
Embracing the digital age has worked for Estonia. I doubt there’s any member of the Estonian mafia who would like doing things the old-fashioned way, like filing their taxes on paper or voting off-line.
This sounds amazing. Lucky Estonians!
But what’s in it for you?
If you’re neither part of a government, nor an Estonian citizen, how can you take advantage of these innovations?
What Are the Benefits of the e-Residency in Estonia?
Since 2014, Estonia opened to foreigners the ability to become e-Residents.
It all started with a first e-Resident, the Economist editor, Edward Lucas as Uri Friedman highlighted. Since then, he’s been joined by dozens of thousands of enthusiastic e-Residents.
An official website describes the e-Residency as:
“A transnational digital identity available to anyone in the world interested in administering a location-independent business online. e-Residency additionally enables secure and convenient digital services that facilitate credibility and trust online”.
Basically, becoming an Estonian e-Resident gives you access to the majority of Estonia’s digital services.
I hear you saying:
“It sounds cool. But why should I care?”
There are already a few practical benefits for being an Estonian e-Resident. What’s even nicer is that Estonia keeps working actively on incorporating new services.
Here’s what you can do today:
1. Digitally Sign Documents and Contracts
Becoming an e-Resident in Estonia allows you to sign online legally binding contracts.
Digital signatures save you from wasting time and money. It eliminates the need to send documents back and forth via expensive international couriers. You just need to email digitally signed documents to the other party who can countersign. And voilà, both of you are legally bound.
This is not insignificant. Digital signatures have been used more than 200,000,000 times.
Bonus:
The e-Residency team explains that digital signatures provide a higher level of security compared to handwritten signatures. This is because as Cyrus Farivar mentioned: “the proof is in the fingerprint”.
Of course, digital signatures are legally equal to handwritten signatures in Estonia.
Signing as an e-Resident qualifies as an e-signature under EU Directive 1999/93/EC and E-SIGN law (15 USC 96). In simpler words, both the European Union and the United States recognize e-Residents’ digital signatures as being legally binding.
There’s only one inconvenient at the moment:
To take full advantage of the digital signature, you need to contract with someone who can also sign digitally.
It means that there’s little value to use this scheme if you don’t transact in Estonian commerce, with e-Residents, or any party that allows digital authentication. At the moment, there are less than a couple of millions of digital ID. It seems a bit trivial. But things will certainly move forward.
The digital signature model relies on the network effect. This is why we’re still mostly using handwritten signatures. I hope that Estonia will solve the egg and chicken problem that comes with the beginning of any model based on a network effect.
The goal is clear: Building a strong ecosystem to support the Estonian e-Residency program.
2. Establish and Administer an Online Company in Estonia
This service is great for any entrepreneur willing to administer a business from everywhere.
You won’t believe it:
According to the government, you can set up a new company within 18 minutes.
And apparently, the red tape relief carries on after the company is incorporated. Estonia’s promise is to make you:
“Enjoy some of the lowest administrative burdens of any company in the world.”
Is there any better gift that you could do to an entrepreneur?
As an e-Resident, you can establish and administer a company from anywhere in the world. This includespaying taxes in Estonia, which is interesting for a startup since you don’t pay tax when you reinvest your profits.
All these initiatives have allowed Estonia to be ranked by the World Bank the 15th country out of 189 for ease of starting a business. The overall ranking of Estonia for ease of doing business is 16/189. Not bad at all!(For those who are wondering, the top 3 countries are Singapore, New Zealand, and Denmark).
One thing, though:
To set up a company, you need an address in Estonia. One solution is to rent an office there. Of course, it’s not the most convenient thing to do, if your goal is to administer your company remotely.
But e-Estonia found a solution:
You can contract with a virtual office service provider to obtain a legal address in Estonia. It costs around €200/year and solves the problem. It’s a cheap price to pay to escape from loads of paperwork.
What Are the Benefits of Having a Company in Estonia?
Besides escaping from time-consuming red tape, having an Estonian company can be very useful to do business globally. Thanks to the e-Residency businesses can benefit from having a company in the EU.
Here’s an example highlighted by BBC’s Rory Cellan-Jones:
“[Kaspar Korjus, in charge of Estonia’s e-Residency program] quotes one example – Stanislaw, a painter from Ukraine, who was unable to sell his pictures because his country does not have the infrastructure to allow him to accept foreign payments. “PayPal will work with someone who has a business address in Estonia,” says Kaspar, “but not with someone in Kiev.” Now the artist has established a company in Estonia and is selling his paintings around the world while remaining in Kiev.”
3. Manage Your Bank Account 100% Remotely with the e-Residency
Being an e-Resident allows you to manage your bank accounts 100% online. As long as you’re an e-Resident you shouldn’t ever have to visit a branch, except for opening the bank account.
(Thomas K. Running wrote a very detailed guide about managing your tax and bank account as an e-Resident.)
For compliance reasons, opening a bank account requires you to visit Estonia, but you may be able to do it remotely soon.
Here’s what e-Estonia sent me in a newsletter:
(Doesn’t it sound like a startup talking?)
Hanno Pevkur, the Minister of the Interior, said to Estonian World:
“We would like to keep up with the times and make opening a bank account simpler and faster, still ensuring that we maintain the necessary level of security.”
What Are the Conditions for Becoming an e-Resident?
You can apply for the Estonian e-Residency provided that:
you’re residing in Estonia without a residence permit,
have links with Estonia or
a reasonable interest in using the public e-services of Estonia.
As the goal of the e-Residency program is to eventually sign up 10 million e-residents by 2025, I imagine that at the moment the conditions are still quite flexible. But who knows?
Just to be clear about what the Estonian e-Residency is not:
It’s neither a digital citizenship nor a way to the Estonian citizenship. It’s not a way to go to the European Union without a visa. And it’s not a way to avoid paying tax, as it doesn’t establish tax residency in Estonia.
How to Apply for the Estonian e-Residency?
Applying to become an Estonian e-Resident is very easy.
Everything happens online, except for picking up the card as you’ll need to go to an Estonian embassy or consulate.
You go to the e-Residency web page (click here or Google “e-Residency”).
You fill the form with personal details, the scan of an ID card, and a proper passport-like picture. The fee for e-Residency is €100€ plus a credit card service fee of €1.99€ (as of May 2016).
The application process is fast. In less than a dozen minutes, you get your application submitted. Of course, you must have prepared the documents and have them scanned on your computers in advanced.
Once your background has been checked by the Estonian Police and Border Guard Board, you’ll be notified by e-mail whether your application is approved.
When your digital ID card has been issued, you’ll have to pick up your card at an office of the Police and Border Guard Board in Estonia or an Estonian embassy or consulate where you can be identified physically.
To pick up your card, you need:
The same ID document you entered in the online application form;
To let the Estonian official take your fingerprints;
To pick up the e-Resident starter kit, including smart ID card and card reader.
Honestly, it couldn’t be simpler.
the Future of the e-Residency in Estonia
After 25 years with the Internet, we still cannot do business internationally seamlessly.
There’s a real problem to solve. This is why the e-Residency team believes that countries will soon compete to offer this kind of virtual citizenship.
As Kaspar Korjus told the BBC:
”We are the first mover — there will be lots of e-Residency programs.”
Over 10,000 people have already applied to become e-Residents according to Estonian World. Applications have been sent from 127 countries, the majority being from Finland, Russia, the US, Ukraine, and Italy. Kari Paul pointed out that the e-Residency program is growing three times faster than expected.
