“We are not a traditional government department,” says Ott Vatter, managing director of a highly successful e-residency program in Estonia.
Seeing Vatter and his young team in casual attire confirms that.
“We would like to think that we are the most informal part of the Estonian government, but Estonia generally already has an informal government,” he added.
Sten Tamkivi, CPO of Topia, a company that develops products that help people and businesses work from anywhere, is a member of the e-residency program's board of directors. A former senior manager at Skype, he is often described as one of the godfathers of this country's burgeoning technology scene. He likens e-residencies to startups.
“It's a government startup,” he tells me.
Even the offices of e-residency programs mimic those of start-up companies. It operates out of an old paper mill that has been repurposed into state-of-the-art office space and has a “no shoes” policy. Both employees and visitors wear slippers.
Launched in 2014 – the first-ever e-residency was to Edward Lucas, a veteran British journalist who covered the independence of the Baltic states in the early 1990s – and since then Estonia’s e-residency has gained some kind of global recognition has become one of the leading brands in this country and is coveted by startups.
In fact, as a marketing tool for Estonia and its digital society, it is invaluable.
“The level of media coverage by e-residency and the Digital Estonia Association is immeasurably higher than the actual revenue that e-residency generates,” says Tamkivi. “Deloitte was hired to calculate the exact value of the publicity generated by e-residencies. It turned out to be such an absurdly high number that no one believed it, so they stopped using it. .”
E-residency is a digital identity that allows entrepreneurs to set up and manage an EU-based company online from anywhere. No physical residence or tax rights are granted in Estonia. Taxes are usually paid in the country where the company has its main activities.
Applications are created online using a platform that, as you might expect, is very user-friendly. The application fee is 100 euros. Beautifully packaged physical electronic residence cards are collected from Estonian embassies abroad.
Otto Vatter initially joined the program temporarily to create user journeys for online applications. Initially, it was done offline, with applicants presenting to the Estonian police with a pen and paper.
“That was a stupid thing to do,” Vatter said. “No one uses paper and pen in Estonia anymore.”
“We went to the Ministry of Foreign Affairs, two guys in our mid-20s, and said, 'Here's what we're going to do.' The key to that was that successful e-residency applicants It was to enable us to receive cards from Estonian embassies abroad. The ministry official looked at us and said: “Estonian embassies are for Estonian citizens.” When we told them that what we were doing was innovative and no country had done it before, they were not impressed. For them, the negative was that no country had ever done it before. ”
In the end, Vatter succeeded in convincing the Ministry of Foreign Affairs that Estonia would have new business and new opportunities.
“And today, five years later, the bumpy road has smoothed out. It was a success,” he says.
There are currently more than 65,000 e-residents who have established around 12,000 Estonian companies. The rejection rate is low at about 3%. Most of those rejected have previous convictions for financial crimes. Background checks on all applicants are carried out by Estonian police and border guards.
Once an electronic residence card is obtained, the holder can use his digital ID to access various electronic services provided by Estonian public electronic services and international service providers. All of this is part of Estonia's open source X-Road. This will link all public services together and allow them to work in harmony.
All transmitted data is digitally signed and encrypted, and all received data is authenticated and logged. This means that e-residents and other users of X-Road's data are completely safe. This gives you the freedom to easily set up and run a global EU company completely online from anywhere in the world.
E-residents can set up a company in less than a day, run it remotely, apply for a business banking account or credit card, conduct electronic banking, use international payment service providers, and pay taxes. You can file tax returns and digitally sign documents.
“The main reason people become e-residents is to set up location-independent businesses,” Vatter says. “They want to sell their services all over the world, in different countries with different rules. And e-residency means they can set up an EU company in Estonia from anywhere, just by using an e-residency card. We have a lot of journalists, a lot of photographers, a lot of software developers. It's a service-based industry with customers in different jurisdictions.”
Abuse of electronic residency rights is almost non-existent.
“Fingerprints are taken when the card is collected. In addition, all information about companies registered in Estonia, from beneficiaries to tax returns, is made public. Select the jurisdiction in which to commit economic fraud If I wanted to, Estonia would probably be my last choice,'' Vatter said.
Since the UK voted to leave the European Union in 2016, there has been significant interest in e-residency from the UK.
Last month, e-Residents revealed that the number of e-residents in the UK has increased by more than 550% since 2016, reaching 3,297 people at the end of February 2020. UK businesses know they are safe by becoming an e-resident. You can trade with EU-based partners until trade arrangements are finalized.
“The UK business community needs certainty as the UK government negotiates a trade deal with the EU this year,” Vatter said. “Businesses remain very uncertain about the future of their organizations. In fact, over a third of UK executives are considering relocating themselves or their company out of the UK because of Brexit. We are proud to provide UK businesses and entrepreneurs with the support they need to grow and expand their business activities post-Brexit. It will be the next frontier in how the sector interacts with its citizens and the wider world, and Estonia is at the forefront of this digital revolution.”
The similarities between e-residencies and Estonian tech startups go beyond young teams and informal office environments. The roots are almost the same.
“Estonia has a small local market. You can't build a billion-dollar company by focusing on a market of 1.3 million people,” says Sten, regarding the global prospects of so many Estonian startups.・Mr. Tamkivi said.
Therefore, Tamkivi explains how to ensure that freelancers and companies who may never come to Estonia or who may not pay taxes in Estonia set foot in the EU, although there is a risk that e-residency will be used. I think it's just a matter of fact. I don't care about the stage. We are in growth mode. ”
Furthermore, although the program costs approximately 5 million euros per year to run, it is already profitable, bringing in more than 10 million euros in direct taxes per year. And that's before marketing is even considered.
“If you look at e-residency through a startup lens, I would definitely like to own the stock,” Tamkivi admits.
The coronavirus pandemic is likely to result in a significant increase in e-residency applications as people seek remote solutions that allow them to continue opening and operating international businesses without traveling. Even in EU countries that do not yet offer digital services, digital leakage to countries that do may occur.
Estonia is well placed to take advantage of this. Almost two decades after we started building a digital society, the rest of the world is still playing catch-up.
