Estonia is a small country.
Only 1.3 million citizens makes it one of the smallest in Europe. With limited residents, there are only so many economic and entrepreneurial opportunities coming from Estonian citizens that can help boost the country’s economy. So instead of looking inward, Estonia is reaching out to, well, anyone on Earth.
According to Technology Review, Estonia started its e-residency program two years ago. The program gives residents of any nation the ability to set up Estonian bank accounts and businesses. Using a verified digital signature, these accounts can be operated online. Requirements include travelling to the country in-person to set up the account, and background checks by Estonian institutions to ensure nothing shady is going on, but once those requirements are met the program offers virtually anyone the opportunity to run a business in the European Union.
E-residents won’t be issues a passport or citizenship, and many won’t even have to pay taxes, only a fee to the government for access to the program. Estonia hopes that this program will lead the way toward a future in which countries compete for talent the way businesses do now. The financial benefit for the company comes from those fees as well as tax revenue from local support services for the program, like accountants and law firms.
Technology Review highlighted some success stories to come out of the program:
Last year, Arvind Kumar, an electrical engineer who lives just outside Mumbai, left his 30-year-career in the steel industry to start Kaytek Solutions OÜ, which creates models to improve manufacturing quality and efficiency. Last September Kumar flew to Tallinn, the capital of Estonia, and spent half a day setting up a bank account and a virtual office. In addition to the price of the trip, initial setup costs were around $3,300 (€3,000), and he has ongoing expenses of about $480 (€440) a year. The Indian system of setting up a new business is “tedious” by contrast, says Kumar—time-consuming, difficult, and expensive.
Cost was also a factor for Vojkan Tasic, chairman of a high-end car service company called Limos4, in his decision to pick Estonia as a new home for the company. Started in his home country of Serbia six years ago, Limos4 has been paying credit-card processing fees of 7 percent. Limos4 operates in 20 large European cities as well as Dubai and Istanbul, and counts Saudi Arabian and Swedish royalty and U.S. and European celebrities among its clients.
After considering Delaware and Ireland, Tasic chose Estonia, where he can settle his credit-card transactions through PayPal subsidiary Braintree for 2.9 percent and where there is no tax on corporate profits so long as they remain invested in the business. Since getting his e-residency and moving the company to Estonia, profits are up 20 percent, Tasic says. Annual revenue is around $2 million.
While security is a major concern for some, Estonia is currently backing up much of its data and keeps cyber security as a main goal in mind. As for shady businesses using the service – no cases of fraud or illicit activity have been reported to date.
Through the program, Estonia has established almost 700 new businesses from nearly 1,000 new e-residents. The country hopes to have 10 million e-residents by 2025.