Imagine a platform where any entrepreneur, from anywhere in the world, could set up an EU company with EU banking, without ever having to set foot in an EU country. If you lived in Barcelona, for instance, you could choose whether you want to go through the potentially gruelling (if eventually rewarding) process of setting up a company the traditional way, or doing it online in a fraction of the time for a fraction of the price. If you were based in Bali and wanted to start a business in the European Union, you could do it from the comfort of your hammock.
This solution exists. And the country that we have to thank for it is Estonia.
The Estonian e-Residency is a digital identity issued by the Estonian government that lets you start and manage an EU business remotely. It is a trusted, fully legitimate ID – not a loophole for tax evaders – that allows entrepreneurs from outside and from within the EU to save time, money and hassle, and gain access to markets that otherwise wouldn’t be available to them. With the rise of location independence, it is Estonia’s innovative way of breaking down barriers set by borders and encouraging mobile working in the European Union.
We first learned about the Estonian e-Residency and its many advantages for entrepreneurs a few weeks ago at Freedom X Fest, a groundbreaking conference held in the Pyrenees that was the first large-scale attempt to tie together the Location Independent Movement. This is where we met Varun Sharma, Head of Partnerships at e-Residency, Republic of Estonia, and had a chat with him about e-Residency, who it’s for, what its benefits are, and how it’s evolving.
Estonian e-Residency: The Solution for Managing Your Company Remotely
Estonian e-Residency was introduced back in 2014. Can you tell us what is unique and innovative about it?
E-Residency in itself is not the real innovation. The real innovation is the Estonian e-Governance platform, which makes e-Residency happen. It is considered one of the most advanced government platforms in the world. For example, Estonia is the only country where people can vote on the internet. Two and a half years ago, the government decided to expand the business suite of services to everyone across the world. So now, you can apply for the e-Residency card and access the services required to start and manage a company 100% online.
Who is e-Residency aimed at? Is it mostly for founders and entrepreneurs who want to start a business in Estonia, but don’t actually live there?
It’s for anyone who wants to start an EU business and manage it remotely. It can have different values for different people. Entrepreneurs who live in non-EU countries can get access to the European single market. People who are within the EU can minimize their costs in terms of administering their company, and save a lot of time since everything is digitalized. As a solo entrepreneur, it’ll cost you about €1,000 a year to manage your account, including virtual accounting and all the basic services you need.
What’s a typical scenario where e-Residency could be the optimal solution for an entrepreneur?
Let’s say you live in Barcelona, and your partner is based in Berlin. The only place in the entire world where the two of you can manage a company together is Estonia. You can take board decisions online, and the digital signature will ensure that it’s legally valid in Estonia and across the European Union. You can also get access to online banking, and there’s a level of transparency that you wouldn’t get in other countries: you can log into the e-Governance platform any time and your company’s financial records will always be visible to you.
I assume that this kind of visibility and transparency creates a special trust between entrepreneurs and the government.
Exactly. What’s most important to us is to always be transparent and legitimate. We do not want to become one of the off-shore destinations, like it has happened in a lot of places. We just want people to move from managing their companies on paper to managing them online, which is cheaper, faster and more secure.
In Estonia, the e-Governance platform employs a partial blockchain. Which means that if you have your tax records in your account, and the Estonian authorities log in to check your tax information, you will be able to see that activity, because it’s logged on the blockchain. You can go to them to request information on why they had to do a check, and they have to provide you with a valid reason. There’s this accountability between the people and the government that I think is very valuable.
Does Estonia have any regulations regarding blockchain or cryptocurrencies?
Right now, we are working on introducing cryptofinance-friendly regulations. At the moment we only have guidelines, which are not laws. But we will come out with a legislation because we want to be the first country to issue its own crypto tokens, which is another project started by e-Residency called “estcoin”.
Estonia’s Innovative Spirit and the Benefits of Digitalization
Let’s backtrack a bit so we understand why all of this is happening in Estonia. What was the incentive behind the Estonian government’s decision to go full digital?
When Estonia regained its independence from Russia in 1991, it didn’t have a lot of resources. It’s a very sparsely populated country, with about 1.3 million people, however, in terms of geographic size, it’s bigger than the Netherlands, Denmark or Switzerland. It wasn’t easy for the government to ensure people’s access to public services, which is why they decided to go the digital way. This was back in the late nineties, and after over two decades of innovation, today there are over 5,000 e-services that residents can access. E-residents have close to 1,200 e-services at their disposal.
The interesting thing is that all the technologies underlying the e-Governance platform are developed by companies in the private sector. Digitalization has helped develop innovation in those companies, and turn Estonia into a powerhouse of IT technologies that are being exported to other countries all over the world.
I’ve noticed that a few naysayers are critiquing the Estonian government for betting so much on technology and putting all its eggs in one basket. They’re saying that the government’s actions can be likened to risks that a startup would take. What is your take on that? What are the risks?
I think that even though there are risks, we have the right controls in place, because we try to be as transparent as possible, not just for e-residents or citizens of Estonia, but also for governments.
Let’s say that you’re a Spanish national, and you’re running a company in Estonia as an e-resident. If the Spanish government asks us for information about your Estonian company, we will willingly provide it. And it’s easily accessible, because, in our case, everything is recorded digitally. The platform makes it easy for us to share that information and be transparent.
Besides that, I think there are always political risks. But those will always exist, and we always manage them when they come up. It’s hard to predict what might happen, but I don’t think the e-Residency programme is going away anytime soon. We have over 41,000 e-residents from 163 countries right now: shutting down the programme would be a huge setback. There are so many people who are engaging with the economy and creating business activity, I don’t think it would be a sensible decision for any politician.
Were the legal and banking systems prepared for e-Residency when it was introduced? Have they adjusted?
We did run into a challenge with traditional banks, which had to do with the way that the European banking system works. The European Commission came out with very stringent guidelines on the way anti-money laundering laws work. Under these laws, there is a restriction on what percentage of the total bank accounts in EU member states can be held by non-residents. This was an issue for us, because there aren’t too many people in Estonia. But now we’ve partnered up with fintech services, so e-residents with a company can get access to business banking online. Personal banking might still be an issue, because that has to be where you are based as an individual. But business banking is easily established online. These solutions are often cheaper than going with the traditional banking solution. So I think that going the digital way and combining e-Residency with other solutions can be very useful.
And you’re coming full circle, because you’re also providing work for startups in Estonia.
Exactly. That’s the initiative that we’re focusing on now. It started with helping entrepreneurs establish companies. Now we’re in a phase where we’re trying to find more and more solutions for them to start growing their companies.
One of the most interesting things that we’ve done is that we just launched our community platform for e-residents, so that they can all come together, set up their company profile and showcase what they’re doing. If you’re an entrepreneur in Barcelona and you want to learn about opportunities in Estonia, or you’re curious about what other people are doing, you can connect with the community. It’s an experiment to try and raise the value of e-Residency even more.
What are the benefits of e-Residency for Estonia?
Firstly, e-Residency has led to Estonia developing as a brand and gaining visibility in the entire world. It has helped to bring more attention to the country, whether that’s foreign investment, tourism, or export. Besides that, I think it encourages engagement within the local ecosystem, because e-residents talk to service providers, local tax experts and accountants, and they end up establishing business relationships there. At some point, a lot of them like to visit Estonia, too. So it helps general economic activity, and it enhances Estonia’s connections to the world.
We’re still learning about how e-residency can influence Estonia, and how it can influence entrepreneurs. There are so many solutions out there where we’re seeing that e-Residency can be combined with something else and it can have a massive impact on the way people do business and manage their companies.
A New Solution for Location Independent People: the Digital Nomad Visa
What is Estonia’s latest innovation, the digital nomad visa, and does it have anything to do with e-Residency?
It’s a completely different initiative, which was started by Karoli Hindriks [Founder of the Estonian startup Jobbatical], she was the one who pitched the idea to the government. If it gets passed in parliament, you will be able to apply for a visa as a digital nomad from April 2019. The new visa will let you stay in Estonia and travel in the Schengen region for three months every six months. I think that’s a huge value for anyone who works remotely and wants to travel around Europe. Right now, it’s in the process of defining exactly who can be considered a digital nomad, and the definition will be written in the Estonian law.
We’re trying to cover all the different aspects of mobile working. There’s also a startup visa in the works, and all these solutions can be combined to find the perfect setup for you.
I love that there’s a possibility for collaboration between startups and the government in Estonia.
I think the reason why this is possible is because Estonia has its own journey and its story to tell. They’ve always done things differently. They try things, and sometimes those things work, sometimes they don’t. But people are pro-risk and every time they try to do something, everyone around them in the Estonian ecosystem supports them.
Are you hoping that people who hold the digital nomad visa will eventually set up their home base in Estonia?
I think that if you come from outside the Schengen region, you should travel around and explore Europe. See how you can tap into the ecosystem. Estonia has a population of 1.3 million. Your market is not Estonia; it’s the single market of the European Union. You have access to 500 million people. That should be the focus. The whole idea is increasing and improving digital nomadism in the Schengen region. Estonia is your gateway to the European Union and the European single market. But of course, we are very happy to see more and more people visiting Estonia and potentially settling down there.