Sunday

27th May 2018

Focus

Estonia wants e-residents to pump money into its economy

  • There are some 120,000 businesses in Estonia. Some of them have been founded by e-residents from outside the country (Photo: Peter Teffer)

Estonia, a country of 1.3 million inhabitants, wants to provide almost 10 million people worldwide with electronic identities in the next 7.5 years.

Adam Rang, head of communications for Estonia's e-residency programme, admitted the goal is “quite ambitious” for one of the EU's smallest member states.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

  • German chancellor Angela Merkel (l) became Estonia's 11,867th e-resident last year, when then prime minister Taavi Roivas gave her an e-residency card (Photo: Government of Estonia)

“But we are a startup, we need ambitious goals,” he told journalists, who were visiting Tallinn last week on a press trip organised ahead of Estonia's presidency of the Council of the EU.

The programme currently has around 20,000 e-residents. They have so far set up 3,256 companies in Estonia, and half of them are completely new businesses.

Acquiring e-residency in Estonia allows people from all over the world to set up a company that has access to the EU's single market.

According to Rang, the scheme is particularly popular among freelancers, consultants, e-commerce businesses, and “digital nomads”.

Most applicants come from Finland (14.5%), Russia (7.5%), Ukraine (5.9%), US (5.8%) and the UK (5.3%).

Brexit

The week in which the British voted to leave the EU in June last year also saw a record number of applications for e-residency, 797.

Estonia's e-residency programme could be a solution for some UK businesses after Brexit.

“If you run a fish and chips shop, you don't need this. You don't need access to the EU market, you don't need to trade in euro,” said Rang, who himself is British.

“However, if you are working above the shop, as an online entrepreneur, as a marketing consultant, if you sell your services online, then suddenly it becomes a lot more attractive.”

Ukraine

He also recently noticed a big increase in interest from Ukraine (7% of e-residents' companies), a non-EU country, where access to international payment services is a challenge.

Most founders of new businesses through the e-residency scheme came from nearby Finland (8%).

“The word has spread [in Ukraine] that e-residency is a great way to open a PayPal account in a country which is restricted from PayPal and a lot of other services,” said Rang.

Digital payment company PayPal did not respond to a request to comment, but Rang said the Estonian system is “trusted by PayPal”.

Before applicants are accepted as an e-resident, they have to pay €100, which will be spent on a background check.

“If you think this is a scheme where you can hide away, you are going to be very disappointed,” said Rang.

Siim Sikkut, ICT adviser to the Estonian government, later added that applicants are checked against blacklists from Europol, Nato, and the EU.

“If there is any hint that you have something shady in the past, even if it is just a hint, just to be safe, you are not going to be an e-resident,” said Sikkut, Estonia's chief information officer.

There is no appeal process for applicants who have been put on some blacklist wrongly.

“E-residency is not a right. it is basically an opportunity. We don't have to give you an e-residency,” said Sikkut.

Even German chancellor Angela Merkel, who received e-residency last year, was subject to a background check by Estonia's Police and Border Guard – although she did not have to pay the €100 fee.

Not in it to become a tax haven

Rang and Sikkut both denied that the e-residency programme is an attempt to transform Estonia into a tax haven.

“We are not in it for the tax money,” said Sikkut, noting that Estonia is much more interested in the additional money that's being pumped into the economy.

According to Sikkut, companies set up through the e-residency programme have spent around €6 million in the Estonian economy, by paying for local services such as banking and accounting.

Becoming an e-resident does not automatically make you an Estonian citizen or taxpayer – individuals still have to pay taxes where they reside.

Some tax money is entering the Baltic state's coffers, though.

According to a press officer for the Estonian Tax and Customs Board, companies set up by e-residents have paid a total of around €1.5 million in labour tax since the programme started 2.5 years ago. The figure is only a tiny portion of Estonia's annual tax revenue of some €7.5 billion.

Those companies should also pay corporate tax, but in Estonia that only happens once the dividend is paid out. The corporate tax rate then is 20 percent, although it will drop to 14 percent next year in some cases.

But Sikkut noted that Estonia's corporate tax rules have been around since before the scheme, and even before it joined the EU.

Sikkut also said that Estonia did not have a target for the number of companies set up by e-residents, but Rang said they are hoping for “exponential growth”.

“What's going to happen when there's more e-residents than citizens? To be honest, I don't know, we don't know. That's a national conversation that Estonia needs to have,” said Rang.

Number of companies could increase sevenfold

Moreover, if Estonia does indeed reach 10 million e-residents by 2025, and the share of e-residents that set up a company remains what it is now, Estonia could see an additional 852,200 enterprises set up.

That is seven times as many as Estonia's current number of registered companies. Is the Estonian state prepared for that?

Ruth Paade, head of the revenue department of Estonia's tax board, chose not to elaborate when EUobserver asked whether her office was prepared for a sharp increase in companies that would need to be audited.

“We hope we don't need more staff, because we have very good e-solutions,” she said.

It also seems that Estonia has not yet put much thought into the fact that an explosion of new companies could also mean a necessary increase in oversight activities.

After all, in many cases in EU law, the country where a company is registered is responsible for its market surveillance.

“The vast majority of these businesses have very small liabilities, because they do tend to be online consultants,” Rang told EUobserver.

“It does raise a lot of interesting questions, to which we don't have all the answers yet,” he added.

Digital currency, the Airbnb and Uber killer

The digital currency Ethereum allows people to run so-called smart contracts, potentially creating a decentralised sharing economy, and could be the beginning of the end for firms like Uber and Airbnb.

Estonia tests water for own virtual currency

Following the success of cryptocurrencies, such as Bitcoin, some in the Baltic nation propose introducing their own version for their e-residents. But what about the euro?

Are EU data watchdogs staffed for GDPR?

The success of the new general data protection regulation (GDPR) will depend on whether data protection authorities enforce the new rules - which, in turn, will be at least partly determined by how many people they employ.

Eight countries to miss EU data protection deadline

The EU starts enforcing its general data protection regulation on 25 May - but Belgium, Bulgaria, Cyprus, Czech Republic, Greece, Hungary, Lithuania and Slovenia won't be ready. The delay will cause legal uncertainty.

News in Brief

  1. Italy set to pick eurosceptic finance minister
  2. UK foreign minister fooled by Russian pranksters
  3. Rajoy ally gets 33 years in jail for corruption
  4. Close race as polls open in Irish abortion referendum
  5. Gazprom accepts EU conditions on gas supplies
  6. Facebook tells MEPs: non-users are not profiled
  7. Commission proposes ending France deficit procedure
  8. UK households hit with Brexit income loss

Stakeholders' Highlights

  1. Counter BalanceEuropean Ombudsman requests more lending transparency from European Investment Bank
  2. Nordic Council of MinistersOECD Report: Gender Equality Boosts GDP Growth in Nordic Region
  3. Centre Maurits Coppieters“Peace and reconciliation is a process that takes decades” Dr. Anthony Soares on #Brexit and Northern Ireland
  4. Mission of China to the EUMEPs Positive on China’s New Measures of Opening Up
  5. Macedonian Human Rights MovementOld White Men are Destroying Macedonia by Romanticizing Greece
  6. Counter BalanceControversial EIB-Backed Project Under Fire at European Parliament
  7. Nordic Council of MinistersIncome Inequality Increasing in Nordic Countries
  8. European Jewish CongressEU Leaders to Cease Contact with Mahmoud Abbas Until He Apologizes for Antisemitic Comments
  9. International Partnership for Human RightsAnnual Report celebrates organization’s tenth anniversary
  10. Nordic Council of MinistersNordic Cooperation Needed on Green Exports and Funding
  11. Mission of China to the EUPremier Li Confirms China Will Continue to Open Up
  12. European Jewish CongressCalls on Brussels University to Revoke Decision to Honour Ken Loach

Stakeholders' Highlights

  1. Sustainable Energy Week 2018"Lead the Clean Energy Transition"- Register and Join Us in Brussels from 5 to 7 May
  2. EU Green Week 2018Green Cities for a Greener Future. Join the Debate in Brussels from 22 to 24 May
  3. Nordic Council of Ministers12 Recommendations for Nordic Leadership on Climate and Environment
  4. Macedonian Human Rights MovementOxford Professor Calls for an End to the Anti-Macedonian Name Negotiations
  5. ACCAPeople Who Speak-Up Should Feel Safe to Do So
  6. Mission of China to the EUProgress on China-EU Cooperation
  7. Nordic Council of MinistersWorld's Energy Ministers to Meet in Oresund in May to Discuss Green Energy
  8. ILGA EuropeParabéns! Portugal Votes to Respect the Rights of Trans and Intersex People
  9. Mission of China to the EUJobs, Energy, Steel: Government Work Report Sets China's Targets
  10. European Jewish CongressKantor Center Annual Report on Antisemitism Worldwide - The Year the Mask Came Off
  11. UNICEFCalls for the Protection of Children in the Gaza Strip
  12. Mission of China to the EUForeign Minister Wang Yi Highlights Importance of China-EU Relations

Stakeholders' Highlights

  1. Nordic Council of MinistersImmigration and Integration in the Nordic Region - Getting the Facts Straight
  2. Macedonian Human Rights MovementMacedonians in Bulgaria Demand to End the Anti-Macedonian Name Negotiations
  3. Counter BalanceThe EIB Needs to Lead by Example on Tax Justice
  4. ILGA EuropeTrans People in Sweden to be Paid Compensation for Forced Sterilisation
  5. International Partnership for Human RightsThe Danger of Standing Up for Justice and Rights in Central Asia
  6. Mission of China to the EUChina and EU Must Work Together to Promote Global Steel Sector
  7. Swedish EnterprisesEU Tax Proposal on Digital Services Causes Concern for Small Exporting Economies
  8. European Jewish CongressCondemns the Horrific Murder of Holocaust Survivor Mireille Knoll in Paris
  9. Mission of China to the EUAn Open China Will Foster a World-Class Business Environment
  10. ECR GroupAn Opportunity to Help Shape a Better Future for Europe
  11. Counter BalanceControversial Turkish Azerbaijani Gas Pipeline Gets Major EU Loan
  12. World VisionSyria’s Children ‘At Risk of Never Fully Recovering', New Study Finds