e-Residency of Estonia:
The Definitive Guide
e-Residency of Estonia:
The Definitive Guide
Location independent work is more relevant than ever.
You don’t live in Europe, but want to attain residency, open up an European company and do business all around the world? Wondering how that is possible?
It’s easier than it sounds.
Estonia’s e-Residency empowers solo entrepreneurs all around the world. You no longer need to travel extensively and indulge in loads of paperwork.
I’ve had first-hand experience with Estonian e-Residency. In this guide, I’ll delve into all of the above questions and more to give you a thorough understanding of the program before deciding if it is right for you.
The program attracted more than 72,000 people from over 175 countries, along with 14,000 company formations in a span of just seven years.
Estonia thus receives income through taxes or direct investment, helping to finance the country’s development. In 2019 alone, 10.8M Euros were collected in taxes through the program.
While people are securing their digital residency in Estonia, there are a lot of misconceptions about the e-residency program. Let’s understand more about it.
The first thing that needs clarification is that ‘e-residency is NOT a path towards becoming a legal resident.’ Besides, it doesn’t give you the right to stay in Estonia, in the Schengen zone, or anywhere in the EU for that matter. You will never get any consular assistance or advice from the government of Estonia.
Having an e-residency in Estonia is definitely not a way to avoid paying taxes in your country of residence. On the other hand, not all e-residents contribute taxes to Estonia either. The ones who are responsible for paying income tax in Estonia are subject to do so due to their earnings within Estonia or through their Estonian company.
E-residency is not a travel document. An E-citizenship alone does not allow you to enter Estonia or any other European country. For that, you still need to follow the necessary visa procedure in your corresponding passport.
Furthermore, the government started discussing the idea of issuing digital ID cards to non-residents in 2007 and then again in 2012. But the proposal was accepted only after Taavi Kotka, Ruth Annus, and Siim Sikkut presented it in the idea contest organized by the Estonian Development Foundation in 2014.
In the long run, the program helps Estonia generate revenue for the future and connect with the rest of the world. However, the country has one more goal. Estonia aims to create a user-friendly and transparent digital business platform that brings value to Estonia and the e-residents.
Starting a European business in Estonia without even stepping foot in the country is an incredible convenience. Let’s check if you qualify to apply for the e-residency program.
e-residency is the most proficient way out for anyone who wishes to run a business internationally but wants to work remotely. Besides, e-residents have an opportunity to take their business to higher European standards and even access Estonia’s e-services.
If you are a digital nomad, all you need is a fast internet connection and necessary online tools to perform your work. The idea of e-residency fits well in your case, as you can set up a location independent business/company and work from any part of the world. Recently, Estonia launched a new Digital Nomad Visa for such workers that allow them to live in the country legally and operate their business. With this visa, you can live and work in Estonia with a complete peace of mind.
Freelancing comes with its own perks and challenges. The greatest challenge is typically the administrative affairs of doing business as an individual. With an Estonian e-residency, you won’t need to spend time checking receipts and calculating bills. Since you have access to digital services, you will just have to sign off the contracts digitally. And worry not, because these documents are as legally binding as ink on a paper!
Connecting with the EU business environment without having to travel is no longer a dream. Moreover, it’s even easy to manage share capital structures and pay taxes. In fact, you might also be fortunate enough to bag EU funding to set up your business.
Estonia is becoming more and more popular among digital entrepreneurs, and particularly the ones in the tech sector. Since everything is digital, you can save yourself from the hassle of traveling internationally for document signing and tax matters.
E-residents have access to many perks in one of the world’s most technologically advanced countries. Although the e-residency program doesn’t offer the liberty of tax residency or physical domicile, it poses a lot of benefits to people who want to invest in doing business abroad.
Applying for an Estonian e-residency is a straightforward and streamlined process. The process is done online and gets completed within a month without traveling to Estonia at all.
Just follow the below steps and you are good to go.
You will require a scanned copy of your passport and a passport-sized photo while applying for Estonian e-residency. You will also need to draft a motivation statement that gives a brief about why you want the e-citizenship. Furthermore, you need a Visa or a MasterCard to complete the payment process.
The application form is available at the e-resident website. Make sure to fill the form with all the correct details matching your documents. After filling the form, you will be redirected to the payment portal. If your state fee (€100-120) is successfully submitted, you will receive a confirmation email.
Application is reviewed by the Estonian Police and Border Guard Board who have the discretion to check the applicant’s background. If your application is approved, you will receive your e-resident card at the specified embassy or consulate within 2-4 weeks, depending on your location. You will also be notified through mail.
Your e-residency kit will arrive at the location that you specified in the application form. Besides, do not forget to bring along the government-issued ID proof that you submitted with the application. You will also be asked to submit your fingerprints.
Now that you got your Estonian e-Residency card, what’s the next step?
In addition, you can also apply for commercial banking for your business.
Even though you are an e-resident, you cannot just go to a bank and ask for an account right away. Sad, but true. The country has strict Anti-Money Laundering (AML) rules, which keeps the banks under heavy compliance. They will only open a bank account for your if you can demonstrate a strong long-term connection with Estonia.
The e-resident smart ID cards are approved by LHV, Swedbank, and SEB banks, but you might be called for a face-to-face meeting.
Swedbank and SEB are world-class Swedish banks conducting large scale operations in Estonia. They have branches scattered throughout the country. Both banks will open your bank account only if you already have your business registered in Estonia and have large clients working closely with you.
LHV on the other hand, is a modern Estonian bank that initially began as an investment firm. It only has two branches. LHV offers affordable banking. However, they now have some additional fees for non-residents. Their biggest advantage is that they deal with their customers remotely.
Since you already have your e-residency card, you will only have to visit the LHV bank once. If you need a debit card, you might have to come back once again to pick it up. Make sure and contact the LHV personnel to enquire whether your card is ready or not. You can then handle all your transactions electronically from anywhere in the world.
Estonia is home to many of the world’s fastest-growing companies. Some of these include Skype, TransferWise, and Pipedrive. The advanced digital infrastructure and minimal bureaucracy is the key driving factor of Estonia’s entrepreneurial attraction.
Begin with deciding on where you want to set up your company in Estonia. You can of course do this remotely without having to board a plane to browse the office space. Settle down with a name for the company and make sure that it’s a unique one since your plea can be dismissed if any other company is already registered with that name.
However, the e-residency does not provide tax residency to your company automatically. Therefore, you must always consult a tax professional to determine whether you have to pay an income or corporation tax.
The Estonian tax system is simple. It is alluring for businesses that reinvest profits, rather than those that distribute them.
You need to pay 20% corporate tax on distributed profits. But you owe no corporate tax if you are not distributing the profits to shareholders through dividends, i.e., 0% tax on undistributed profits. Moreover, if you decide to distribute the profits by paying them through salary and not as dividends, you don’t need to pay the tax.
Let’s understand it with the help of an example.
Suppose an Estonian company decides to pay €5,000 of its profit to a resident of some other country where 25% tax is levied on dividends. The tax will be paid by the company as well as the person. The tax amount will be calculated as follows.
Estonia outshined the rest of the world by creating a borderless digital society through Estonia’s e-residency program. With this digital identity, the e-resident can access the e-services and join the community of thousands of location independent entrepreneurs.
Here are some surprising facts about the program:
After Estonia discovered a significant security flaw in 2017 that could have resulted in identity theft, the Estonian government seized digital IDs of the e-residency program issued between 2014 and 2017.
The e-residency program came as a blessing in the global business environment. It gave every entrepreneur an opportunity to succeed in business no matter where in the world they are settled in.
I consider myself to be a true skeptic.
On a scale of 0-100, I start off any new concept with 0 and let it build its way up. I guess it’s a self defense mechanism, allowing me to have less disappointments in life. A pessimistic approach? Perhaps…
Anyways, I also approached the e-Resident program in Estonia the same way and analyzed it with a grain of salt. I must say I was positively surprised. The e-residency program allowed me to get my resident status without travelling to Estonia. It made opening a European Union business quite easy for me.
The only main challenge was the bank account, really.
Overall, I think the program is a success story. The digital ID card is easy to use and gets rid of a lot of bureaucracy and red tape in doing business.
New innovations inspired by e-Residency already started blooming in Estonia. Some of these include Accelerate Estonia and the Digital Nomad Visa.
The program is also an inspiration to other countries. Portugal, Ukraine, Lithuania, and Dubai are all working on similar e-residency projects.
So, make your move and obtain your Estonian e-residency card now!
Upon submitting the application, you need to pay a state fee of 100 Euros, and then an additional amount (roughly 30 Euros) needs to be paid upon collection. You will not have any annual or maintenance fees for the e-Residency digital ID card.
The e-Residency digital ID card is valid for (5) years.
Renewing your e-Residency is the same process as applying. You need to pick up your new digital ID card from an embassy or designated pickup point and prove your identity in person.
You can get a virtual office for your company in Estonia. This will be subject to a monthly fee, varying between different service providers. Although this is a physical address, it’s a virtual office. The address will also be shared with other companies, but at least you will not be faced with utility bills, etc.
Make sure you follow the step by step process in detail and provide all necessary requirements in full. e-Estonia movement led the country to offer e-residency as of 2014; the one advantage of the program is that the process to become a resident of Estonia and open Estonian companies is quite straightforward. So as long as you follow the steps, you’ll get right in.
Not particularly. You used to need it in order to confirm that your company’s share capital was paid. Now, you can choose to delay that for up to ten years. Since 2019, you can use any bank or payment institution in the EU/EEA to confirm the payment of your share capital. That includes digital fintech options such as TransferWise or N26.
The pandemic caused many restrictions and changed the outdated way we think of location independent work. Remote working is now a reality. E-Residency brings a solution to solo entrepreneurs, freelancers, as well as large companies. Entrepreneurs can now work from anywhere, while larger companies can contract talent from anywhere in the world.
In my experience, the only setback was clear. It’s hard to open bank accounts in Estonia without travelling there. And even when you travel, Estonian companies have to prove their attachment to the nation in order to convince the banks to open bank accounts. e-Residency would be much easier if the bank process is made smoother.
Well, there were a couple of aspects that really stood out for me both in the application process and then the status.
In the application process, I loved how there were pickup locations for the ID cards and how I did not have to leave my home country to obtain the kit. In my case, I used a pickup location in Germany to obtain my smart ID card and card reader.
The fact that I can use my ID card to provide signatures, deal with payment service providers, and perform most business administration tasks was a game changer. I am able to provide my business services through payment providers all across the EU countries, not only in the nation of Estonia.
e-Estonia refers to an initiative by the Estonian government to facilitate public and private services with the use of digital and electronic solutions. e-Estonia strives to make the government more efficient and transparent, while boosting economic growth. Under this initiative Estonia is the first country to offer e-residency. For more information, you can check their website out here.