Important updates to the Estonia e-Residency program

Written by Andrew Henderson
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Dateline: Antwerp, Belgium

In March of 2015 — just three months after its debut — I wrote about Estonia’s new e-residency program and whether or not it was a good idea for you. Since writing that article, I have somewhat changed my tune and have even become an e-resident myself.

Over a year and a half later, the program is still one of the most talked-about items out there. And just last month I received an email from Kaspar Korjus, the program director, explaining that 10,000 people around the world have already been registered as Estonian e-residents and that there are now 1,000 companies run by e-residents and 500 new companies created by them.

However, while many people are now registered e-residents, the program still isn’t huge. Korjus has stated that Estonia aims to attract at least 10 million e-residents by 2025, so there’s a bit of a ways to go.

What an Estonian e-residency is and is not

Since the program is in its infancy, there are still many misconceptions about what it is … and what it is not. For instance, I recently saw an article that referred to the programs as the first digital citizenship, when it is clearly not a citizenship in any way, shape or form.

There is an obvious need for clarification, so an update is imperative.

And here it is. First, the Estonian e-residency is NOT a real residency like the other second residencies we talk about here at Nomad Capitalist. It will, in no way, give you the right to stay in Estonia or the EU as a bona fide resident.

It’s also not a way to get out of paying taxes in your home country, it is not a second citizenship (or even a step on a path toward citizenship), and it is not a travel document.

What it is, however, is an Estonian ID card that allows you to use online services in Estonia, such as government websites and online banking services.

According to the Estonian government, becoming an e-resident will allow you to sign digital documents, establish a company within an hour, make bank transfers with ease, actively manage a company registered in Estonia, and submit Estonian tax returns online — all regardless of where you are located.

The best news is that things are getting easier as the program takes shape. It is also becoming more attractive; for example, the e-resident card will be recognized as an online ID for all EU countries come 2018.

But the e-residency is not for everyone. For a refresher as to why, read my original article. In summary, the electronic residence is best suited to those who either want to bank or run a business in Estonia, or both.

While I’ve written before about the positive aspect of doing business in the country, Estonian companies are NOT for everyone. Entrepreneurs with good cash flow should NOT use them. Certain entrepreneurs with a fast cash churn rate, however, SHOULD consider them for their 0% tax on non-distributed cash.

If the latter applies to you, Estonian e-residency would enable you to create a central base for you and your business transactions throughout the EU, allowing you to do anything a local can without having any connection to Estonia.

Banking in Estonia as an e-resident

The most exciting update I received from Kaspar Korjus was about the recent developments concerning bank accounts for e-residents. Up until now, if you wanted to open an account in Estonia as an e-resident you would have to make a trip to the country to set up your account in person.

Now, however, the Government of Estonia has approved a draft legislation that will permit e-residents to open bank accounts without an in-person visit to a bank branch. If the legislation is approved by the Estonian Parliament, you could be remotely opening your bank account in Estonia by autumn of this year.

Currently, there are only three banks that are open to e-residents. Two of the banks — SEB and Swedbank — are based out of Sweden and will charge you several hundred euros just to open an account with them.

Fortunately, the third bank is my favorite bank in Estonia and is much more open to nomads. In fact, I consider LHV to be the best bank in Estonia. While it is not a big bank, its small footprint means lower overhead and more affordable banking for you.

The other benefit of banking with LHV is that the institution is accustomed to working with customers remotely and does not require considerable investments of time and money in order to open an account for foreigners. It is one of the only banks in the country that will accept investments in the Estonian and Baltic stock market as sufficient justification for opening an account.

Other updates and the real benefit of Estonia e-Residency

Beyond banking, one of the most interesting updates includes a new e-voting pilot that will allow shareholders of companies in the Tallinn Stock exchange to use the e-residency electronic identity system to vote remotely in shareholder meetings.

Another new development since I last wrote is that applicants can now retrieve their ID card from one of 38 Estonian embassies and consulates located in 34 different countries, and hopefully hundreds more locations in the near future.

If done in Estonia, the process can be completed in just ten days. However, completing the process remotely is becoming faster and easier as time goes by. Originally, it took three months to process your registration, now it takes just one. Eventually, the goal is to reduce the processing time to a mere three weeks.

Still, as with all things offshore, people who took action early got a great deal. Due to the unexpected demand for e-residency, the application price has doubled from 50 euros to 100, or about $109 USD. It costs to delay, hem and haw.

Either way — whether you already have your e-residency or you’re still thinking about getting it — here’s the real benefit of becoming an e-resident: Estonia is credible.

Seychelles, Vanuatu, and Bahamas companies are fast going the way of the dodo bird. Countries like Turkey have refused to recognize some tax haven countries and even Panama is considered a tax haven… even to its own neighbors, like Colombia.

Tax enforcement is stepping up, which is why more creative solutions are needed.

The foolish will read a forum that says “Seychelles! Seychelles! Seychelles!” and then go directly to set up a company there, only to realize that the banks are horrible and the company is worthless outside of Seychelles.

The go-to tax haven countries are becoming more and more dicey in terms of compliance, banking, and even for your own image with your clients.

The good news is that countries like Estonia have favorable tax policies. I’ve written before about Estonia’s 0% tax on non-distributed profits and it looks like Georgia will soon be enacting a similar law based on Estonia’s success.

In the end, paying some tax might be helpful for your business. As I said before, Estonia is great if you churn money and re-invest; less so if you operate a cash flow business. Even then, the ease of use is important. (And I can tell you that ease of use is EXTREMELY important. That’s why I no longer recommend Hong Kong banks, except in rare cases. They’re hard to use, service is terrible, and they’re quick to freeze or close your account.)

The ease of e-residency doesn’t mean you won’t have to do any other work; you’ll still have to file tax returns, audited statements, and everything else that comes with an EU company. BUT you get the benefits of being in the EU and the blessing that comes with it.

After all, what tax dodger is using an Estonian company? Eventually, anyone with a company in Estonia will have to pay tax. That fact, in and of itself, gives you the credit you need to pass the sniff test.

And that’s increasingly important.

Estonia’s e-residency is not for everyone, and it’s not a panacea. Most people who get e-residency do so for fun, and I’m all for that — 100 euros is a fun thing to do. Just understand what it is, and — just like a pharma ad — ask if Estonia is right for your business.

The idea of e-residency is spreading, so keep on the lookout for new programs. Countries such as Singapore, the Netherlands, Latvia, Lithuania, Belarus, Finland and Japan are all seriously considering starting their own e-residency programs.

In an age when tax havens are rapidly disappearing, opportunities like electronic residency offer the honest offshore capitalists the necessary means to maintain a life of freedom.

Andrew Henderson
Last updated: Dec 27, 2019 at 3:00PM

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2 Comments

  1. Christoph Heuermann

    You forgot the main advantage of Estonian companies. Besides the retained taxation, it’s possible to get out of the company 1230€ a month tax-free. This is over the tax-free allowance while abroad, which basically everyone can use who is not normal resident of Estonia. While 1230€ is not much, it’s more than enough to live well in many regions of the world. And if you want a bit more you just pay 20%.

    Reply
    • Martin Vipp

      Hi Christoph! Where did you find information about the monthly allowance for non-residents? I know that if you are a non-resident then you will be taxed in you country of residence. Cheers, Martin

      Reply

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