On March 29, 2017 British Prime Minister Theresa May triggered Article 50; the first step in bringing the country’s Brexit vote to fruition.
After the original vote in June 2016, Google saw a major surge in a previously nearly non-existent search term: “How to stay in the EU?” With many British businesses enjoying the benefits of European Union membership, the changes in search traffic are no surprise.
Lately, however, that query has undergone an evolution. This time in users searching for the term “e-Residency.”
But what exactly is it?
In its simplest form, e-Residency is a non-location-based online residency. In the country of Estonia.
While the complexities of the highly advanced system are diminished in such a baseline interpretation, the implications are clear. Non-Estonians who don't live in Estonia can access the same public services used by Estonian citizens and residents. That’s significant because Estonia has an advanced digital infrastructure where almost everything can be done online, including starting and running a company. For British business owners hoping to avoid the mess that Brexit makes for their trading partnerships, it’s the golden ticket. Becoming an e-resident means they can continue to conduct business globally from inside the EU, despite being physically located outside it.
For a lot of entrepreneurs, the idea of setting up an Estonian business, especially in the software and tech space, makes a lot of sense. Often overlooked as one of the world’s most technologically-advanced nations, Estonia has been ahead of the curve at every step of the digital revolution.
By 1997 a whopping 97% of Estonian schools were online. By 2000, Estonian cabinet meetings stopped employing paper. The country was covered by a free, widespread wifi network installed by the government by 2002 and citizens were voting digitally by 2007. In 2012, the country started laying immense quantities of fibre-optic cables to provide residents with snappy data connections. Today, pretty much all government services are performed over the web. All in all, Estonia has been doing digital better than anyone else since the moment online became a “thing.”
Today, all Estonian citizens and residents are given a secure digital identity, which they can use to authenticate their identity online and access e-services. This innovation minimizes bureaucracy and costs in almost every aspect of life - including when running a business.
As such, the country has become something of a hub for tech businesses. Many notable startups, like Wise, AdCash, Pipedrive, Monese, and Fortumo, have formed in the country to date.
So how does it work? This article details everything you’ll need to know about how to become an e-resident of Estonia.
Estonia launched e-Residency in December of 2014. It’s a secure, transnational digital identity that anyone in the world can apply for. The program then enables people outside Estonia to enjoy all the same advantages in business as people inside Estonia. E-residents can manage all aspects of their businesses entirely online from banking to signing documents to even paying Estonian taxes.
Estonia was the first country to declare internet access a human right, so it now considers e-Residency to be Estonia’s gift to the world. A way everyone can benefit from opportunities online.
According to Estonia, e-Residency is building a new digital nation where anyone has the opportunity to succeed in business - regardless of where they live or which passport they carry. The program is also particularly popular with location-independent entrepreneurs or ‘digital nomads’ because companies established by e-residents can be run entirely online from anywhere in the world.
e-Resident entrepreneurs can:
- sign documents and contracts digitally
- verify document authenticity
- encrypt and send documents
- form an Estonian company online
- use banking services (including remote money transfers)
- access online payment providers
- pay Estonian taxes (if applicable)
The most obvious benefit of e-Residency for British and other entrepreneurs around the world is the ability to maintain a business in the EU without having to move there. e-Residency works for Americans, too, although there are a few more complexities to tax requirements that are deterrents for some. However, regardless of whether EU membership is important to you, the process of starting and managing a business as an e-resident is easier than it is in any other country. You’ll be able to save costs on business services like accountancy, as well as save a lot of hassle on business administration. That’s why the program is popular with entrepreneurs inside the EU, too.
For starters, the entire company formation process can be completed online. In 2009, Guinness World Records recognized Estonia for the “fastest time to register a new legal entity.” The process took 18 minutes, although most e-residents take a day to complete the setup.
Another benefit comes in the form of taxation, in which Estonian companies aren’t required to pay corporate income tax until distributions are made. Extremely helpful for early-stage businesses. It should be noted, however, that e-Residency isn’t tax residency. That mean you will still need to consult your own qualified tax advisor to determine where you should pay taxes. The start-up costs as a whole are relatively low, too. In fact, maintenance fees aren’t sizable either.
E-residents can also manage their companies entirely remotely. Which, ultimately, saves on the travel costs typically associated with owning a foreign businesses. And even on fixed location costs like physical offices.
E-residents don’t need to take on a local director or representative, either, and can declare taxes online. And if you personally move to another country, you won’t need to worry about establishing a new, local legal entity.
A company established through e-Residency is also a trusted company. In large parts of the world, companies registered locally are unable to access all the tools they need to grow their businesses and are unable to provide consumer protections their customers expect. But an Estonian company benefits from the EU’s legal frameworks and, as such, has access to a very wide range of fintech services. Even the United Nations is now using e-Residency to help aspiring entrepreneurs in developing countries benefit from e-commerce.
E-Residency is typically granted to applicants who are more than 18 years of age, with no felony criminal record, and at the discretion of the Estonian Police and Border Guard Board.
Although applying for e-Residency is quite simple, there are still some materials you’ll need to have on hand, including:
- A scanned passport photo
- A scanned copy of your government ID
- A written paragraph about your reasons for applying, which is used by the Police and Border Guard Board in their assessment of your application
- Your desired pickup location, which can be any of 38 Estonian embassies and pick-up locations around the world
- A state fee of €100, paid by Visa or Mastercard
Once you’ve gathered your materials, the next step is to apply online for e-Residency. The first thing that will happen when you submit your application is a background check conducted by the Estonian Police and Border Guard. Getting a secure, government-backed digital identity is no small issue - it enables you to operate with a higher level of trust online. As such, you may be asked to provide more information during the background check process, though it’s not common.
Once you’re approved, you’ll be notified by email of your status. You can then pick up your e-Resident smart ID card at the embassy or other pick-up location you elected in your application. In order to pick up your card, you’ll need to bring the same ID used in your application and be prepared to give your fingerprints to the consular or police official. Then you’ll be given an e-Residency starter kit, which will contain your smart ID card, pin codes and a card reader.
Not at this time. Estonia is the first and only country to offer e-Residency, although other countries including Singapore and Dubai are actively exploring the idea.
Nope. An e-Residency isn't a citizenship, and you're not eligible for any consular support from the Estonian government.
Though it may seem counterintuitive, your e-Residency doesn’t automatically make you eligible to open a business bank account in Estonia. Because banks are autonomous - that is, they have the right to grant or deny their services to anyone - the government in Estonia cannot mandate that e-residents should automatically be accepted.
While it seems like opening an account might be straightforward enough anyway, it’s possible you’ll run into complications. The country’s Anti-Money Laundering (AML) restrictions mean you’ll need to demonstrate a “strong connection to Estonia” in order to bank there. Connections that are likely to lead to approval include:
- You live in Estonia
- You’re Estonian
- Your parents are Estonian
- You work for an Estonian company
- You manage a business that's physically located in Estonia
- You own property in Estonia
- You manage a business with a connection to Estonia, such as through talent, suppliers or customers
For that last point, you’ll need to show this to your bank in your business plan.
Luckily, even if you don’t meet any of those qualifications there are ways to start your bank account.
At the moment, two major Estonian banks work with the e-Residency card for account management: Swedbank and LHV. Both are widely used within the country. LHV, for example, is the bank Wise uses for many of their euro transactions.
In addition, the Finnish payment institution Holvi now offers banking for e-residents entirely online. They only let you to make payments in euros within the SEPA area, but they recommend using Wise for payments outside of it.
With Swedbank, if you don’t meet any of the above qualifications but have already registered your business, you have a shot at getting them to open a business account for your company, albeit a slim one.
With LHV, the same is largely true. However, they recently added another “reason” to the list of qualifications. LHV is now accepting applicants who cite wanting to invest in the Estonian and Baltic stock market as their reason for opening the account, making it significantly easier to do so.
Regardless of where you choose to bank, you’re likely to need to go to a branch to set up your account. If you’re planning to open a business account at a traditional bank, be prepared to take a trip to Estonia.
On the other hand, an alternative is to sign up for a Wise Borderless account. With a Borderless account you can:
- Hold your money in 27 different currencies, and counting
- Get paid locally the UK, the EU and the US by generating local bank details in GBP, EUR and USD
- Send money internationally straight from your balance - with no visit to Estonia required
If you’ve gotten your e-Residency in Estonia, congratulations!
You’re now free to start a business and trade globally from within the EU. If you’re looking for more information about your e-Residency, check out the e-resident website, or visit their blog to see how other e-residents are already benefiting.
Best of luck!
PayPal offers Business & Personal accounts, but which one to choose? In this PayPal Business vs Personal article, we'll show you the differences + pros & cons.
For eBay sellers, dropshipping might well seem like a tempting option – it lets you offer a huge range of products, without having to go through the hassle of...
Owners of small businesses might wonder – what is Square, and should they use it? Find out more about Square's features, plus pros & cons in this article.
Here's an in-depth view into everything you should know about hiring a virtual assistant in the Philippines.
Grow your business and free your time by finding the right virtual assistant services for you.
What is a virtual assistant, how do they work and how to hire one? We cover everything, so read on.