What E-Residency in Estonia Is, and How to Get It

First Published: 2015-02-04

First published at International Man and posted here with the kind permission of the author. Subscribe to International Man here… Find more from Nick Giambruno here…

It’s self-evident that we’re living in a day and age where national boundaries are becoming less relevant. People and capital become are becoming more mobile and are attracted to where they can thrive.

I view this is as an unquestionably positive trend. Politicians, on the other hand, do not.

Governments want their citizens to be like captive customers—like a city with only one cable TV/Internet service provider. People living in such a city would have to put up with that cable company’s service even if it was really poor since they have no alternatives. They’re trapped and totally dependent, which is exactly how governments prefer their taxpaying citizens.

Thankfully, advances in technology have given ordinary people options they didn’t in the past, by making it easier to diversify internationally. Doing so frees you from absolute dependence on any one country and makes it difficult for bureaucrats of any country to control your destiny.

One country that understands this trend is Estonia.

A Breath of Fresh Air in the Baltics

Estonia is a relatively tax-friendly EU country located in the Baltics; it uses the euro currency. It borders Russia, relatively nearby St. Petersburg.

Estonia has the most competitive tax system in the OECD according to the Tax Foundation (a think tank on tax-related issues). It created a global benchmark, the International Tax Competitiveness Index, that takes into account 40 different tax variables. While Estonia is numero uno, the US by contrast ranks #32, between Italy and Portugal.

What makes Estonia particularly attractive is that it has a 0% corporate income tax on retained earnings or undistributed profits. So if you’re an entrepreneur or want to grow your business, you can reinvest your profits into your business or retain them and pay zero taxes, which is extremely attractive. You only would pay taxes if the owners take a distribution; at that point the tax rate is just around 20%.

Estonia is a reputable jurisdiction. If you look up anything about offshore companies on the Internet, you’re likely to find a cornucopia of people promoting incorporating in shady jurisdictions. This shouldn’t really appeal to anyone who is doing serious and legitimate business. So if you’re looking to incorporate in a reputable EU jurisdiction with low taxes and a business-friendly environment, Estonia should be on your checklist.

Besides the attractive corporate tax policies, there is no gift tax, wealth tax, or estate/inheritance tax in Estonia.

It’s also worth mentioning that Estonia has an incredibly low amount of debt, just 10% of GDP—the lowest in the EU.

A Tech-Savvy Country That Gets It

While Estonia is small—its population is under 1.5 million people—it is a very tech-savvy country, generally speaking. Estonians were instrumental in creating Skype, for example.

Besides low tax rates and simplicity, the ability to complete many tasks online helps make the Estonian tax system the most competitive in the OECD.

Given how tech savvy the country is, it’s no surprise that Estonia has developed a system that gives its citizens and residents access to thousands of services online, including managing their banking, registering a new business, signing contracts, reviewing medical records, voting, and much more. The cornerstone of this system is a digital identity provided by the Estonian government.

What makes Estonia unique is that it is essentially the first country to open up such a program to foreigners. That means anybody in the world—not just Estonian citizens and residents—can apply for what has been dubbed e-residency.

I think it’s sort of inaccurate to label the program “e-residency,” as it doesn’t entail any sort of actual legal right to live or work in Estonia, like citizenship or traditional residency would. A more accurate way to think of e-residency is as a digital identity, one that is backed by the Estonian government.

Foreigners who obtain e-residency are able to do things like register and manage an Estonian business, file Estonian taxes, sign contracts, and open Estonian bank accounts. Starting in 2015, anyone will be able to apply for e-residency at any Estonian embassy or consulate in the world.

The fact that Estonia is opening up e-residency to the entire world shows that the country understands where the world is going—people and capital will continue to be more and more mobile.

It will be much harder for governments to keep their productive citizens as captive customers with no options. As such, governments will have to compete—by offering low taxes and favorable business environments—to attract productive people and companies in order to prosper. This trend is undoubtedly a good thing.

When you look at everything that Estonia offers—a reputable EU jurisdiction that uses the euro; the most competitive tax system in the OECD; a business-friendly and tech-savvy atmosphere that opens its doors to productive foreigners—planting an offshore flag there can make a lot of sense.

In addition to Estonia, there are other attractive jurisdictions that are cause for optimism. International Man is all about making the most of your personal freedom and financial opportunity around the world. From the best countries to obtain legal residency and a second passport to the best offshore banking and company formation jurisdictions and much more, you may wish to check out our Going Global publication.


 

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