Case studies & success stories of e-Residents
As you may have noticed, I will be talking on the panel of the next e-Residency related conference (more info here).
For that I would kindly ask some input and help from our community.
Please take a minute and share your personal experience thus far regarding e-Residency. If, then how and for what have you used it for? Has it been a benefit for you in any way? Or not? Has it enhanced your business /personal life? Also share if it has not been what you expected.
Great thanks in advance for your insights!
Eriklast edited by Erik Ehasoo
Skype / twitter: erikehasoo
Lynwood Sewell Bell
Hi Erik, I would be delighted to share my experience and perhaps a Skype chat is in order but my main points are:
- my early application and card pick-up both required trips to Tallinn. I didn't mind and it made me more excited to be involved. I feel like I have a 4th nationality! Cdn, Anguilla, UK and ee
- the benefit I sought was primarily as a government backed "due diligence" credential and it is very powerful as such. The fact that your banks will now use that as a primary form of ID for a new account ... without being physically present ... is awesome!
- as a "talking point" regarding Estonia's advancements in a digital world it is excellent. On average I demonstrate the card and reader to at least three people each day.
- I don't know of another digital credential available to the general public globally that is as certain and secure and where a government has checked out the holder ... as is an Estonian e-residency card!
- areas requiring more work (but surely these are coming along) include - 1) some language issues for those of us that are unilingual dorps; 2) overcoming the 'not invented here' syndrome .. especially with other governments who may feel they have to build their own; 3) some technical (ease of implementation) tools like those that Kaspar Triebstok and I are discussing re Apache and iginx incompatibilities; 4) we need a killer app that attracts new e-resident applicants ... maybe that is the eResNetwork!
Let's continue this discussion as I think of more points you may be able to use.
Cheers and good luck with your panel!
Arjan Van Eersel
Let me start by stressing that I see e-residency a tool and not a purpose on itself. If the Estonian business environment wouldn't be as it is then e-residency wouldn't be successful at all, because it wouldn't give the user an added value.
I am Dutch, but I live in Bulgaria for over 5 years now. My background is both IT and international taxation/business consulting and I'm doing business in various countries in these sectors. When advising clients on international business matters I always stress not only to focus only on the lowest tax rate, but just as much to look at other strengths of countries. A country might very well have low taxes, but still not be the proper location due to other factors. As a citizen of the European Union I can use the advantages of freedom of movement and the single European market. So when a person comes up with a business idea, it's always a good thing to look for the right jurisdiction and that isn't always a person's home country.
My motivation to become an e-resident is that I wanted to do business via Estonia. When I came up with a business idea for a infomedia company focussed on EU-business I had to conclude that Estonia was the right place for this business. Basically the company will offer a product which combines my knowledge about IT and business consulting. The alpha version of my product should be released in a few months and hopefully that will be the start of something good.
It's a business which will (eventually) need well skilled IT people who will work remotely, access online payment systems, perhaps access to funding options and administrative staff (preferably again remote workers). How logical would it be to setup this business in the country where I live? Well let's look at the Bulgarian situation:
- I can get well skilled IT people in Bulgaria, but the majority uses different platforms than I prefer;
- Access to online payment systems is extremely difficult if you are not just trading goods;
- Employing people is in extremely difficult because of an outdated labour code. Remote working exists in Bulgaria because of the creativity of accountants, not because of a modern labour code. I don't like my business to depend on such a insecure principles;
- Access to i.e. crowdfunding or comparable forms of finance is difficult, as Bulgarian limited companies are obliged to have a preemption clause in their articles, so unless I'd get a public limited company it would be quite difficult. Not to mention that crowdfunding hardly exists in Bulgaria due to harsh regulation;
- The average level of knowledge of foreign languages in Bulgaria is extremely poor;
- The fact that Bulgaria has the lowest rating (number 113) of all EU members in the transparency international's list on media freedom is also not really helpful
Now let me compare this to Estonia:
- I can find people with the required knowledge of the technical frameworks I use without problems in Estonia;
- Estonian labour code is not problematic towards remote working and this widens the pool of potential professionals even more;
- Finding payment service providers for a company providing services is not an issue at all in Estonia, the bank my company is with even offers this;
- Estonia has a clear tax and labour system, which is easy to understand and straight forward;
- Even an Estonian private limited company isn't obliged to have a preemptive clause in the articles and shares can even be listed at the Estonian registry of securities. No wonder that things like crowdfunding work in Estonia and not in Bulgaria;
- Estonian people usually speak at least one foreign language at a good level. I have never had a problem communication with Estonians in English or German. I did start to learn Estonian, not because I need it for doing business in Estonia, but from a linguistic interest, as it is a rather unique language;
- Estonia is ranked as the 14th on media freedom in the earlier mentioned list, which is not bad at all;
- Estonia offers an awesome e-government system and applies it in the right way. Any person with even the smallest affection with IT will want to cry when seeing how the Bulgarian e-services are, if the government department offers it at all...
And finally I like the business atmosphere in Estonia. As a business consultant I travel a lot, I dealt with many countries for company registrations and larger consulting projects and the difference is quite visible to me. The positivism and entrepreneurial spirit of people within the Estonian business environment is already a motivation by itself and, believe me, it is something you won't find at many other places.
So despite the fact that from a pure tax point of view I might have even been better off in Bulgaria with only 10% corporation tax, 5% dividend tax and 10% personal income tax, it still couldn't beat what Estonia had to offer.
I do must add here that the Estonian tax system is unique for the moment of taxation of corporate income, which is at distribution. This is of course perfect for startups which need to build up capital, because as long as they keep the income in the company there will not be any taxation.
So far for my motivation and experience as an e-resident myself. Now let me give my opinion on e-residency based on my experience with international taxation principles:
E-residency eliminates technical borders and because of that I can use any service I need right now, right here while being in the middle of the Bulgarian mountains. E-residency doesn't eliminate legislative borders and that is what brings a certain weakness to e-residency. Let's look at the tax treaties which are currently in use. The primary rule to determine where a company is obliged to pay taxes is the place of EFFECTIVE management. This means that a person can have a company registered in Estonia, but if the person will perform the effective management in the Netherlands, then it's the Netherlands which will get to right to impose taxes. Secondary it matters whether or not there is a permanent establishment. So no matter how technically advanced e-residency is, we are still obliged to deal with tax treaties based on an old-fashioned way of working.
For me personally this isn't an issue, as I am willing to travel often enough to Estonia and to have a permanent establishment there, but I can imagine companies which are 100% cloud based and which actually don't need any physical infrastructure, such companies might become the vicim of old school tax and law principles even though e-residency takes away practical and technical borders.
The newer OECD tax treaties more focus on substance, so where a company actually performs its business, this is only partially good for Estonia, as tax rates are acceptable and labour costs are still quite lower than in most Western-European countries. However, this isn't too good for e-residency as these principles are based on old-fashioned businesses with premises where people will come to work.
The tax world radically needs to change its perception of how business is done nowadays. We are living in 2016, not in 19-flintstone. Physical premises are no longer a requirement for business and business is getting more and more international. The future is small offices which are rather facilities for group meetings than permanent working places. E-residency is yet another proof that there are no technical and practical borders to doing international business anymore.
Hence the Estonian government will have to change the way of thinking when negotiating tax treaties and hopefully open some eyes within the OECD. New standards have to be set, I can't stress enough how important this is. Why the Estonian government has to do this you might ask? Well, because Estonia is the most advanced country here and is already having companies which are working exactly this way. Thus it is important to stress this, so that e-residency will be much more than just an advanced practical tool, but the beginning of business 3.0.
I spent a bit more than a minute to answering you, because I think this is an important subject. Hopefully my input is useful for you.
Arjan van Eersellast edited by Arjan Van Eersel
Arjan van Eersel
Lynwood Sewell Bell
Excellent, comprehensive perspectives Arjan! Well done!
Thanks @Arjan-Van-Eersel for a very analytical answer! Very helpful of you!
And I do agree with your points plus it's good to hear your experience with Bulgaria and other regions. Regarding the old-school tax system, I agree that Estonia has lot of work to do in EU and it is quite hard regarding the fact that we are still the small player and EU is led by the big boys a lot. But I'm happy that Estonia is working hard for this new mindset - our own leaders (the President, Prime Minister and Andrus Ansip the VP of European Commission) are all very tech savvy and understand the new economy. But of course these things always take way too much time.
By the way, I wonder, if Estonia reaches its goal to get 10 million e-residents, will we also become a bit closer to the big boys and get a louder voice?
PS. Bulgaria is an interesting choice, I have lived there for a few months (not regarding business though) - nice people, nature and a softer climate. Politics and business seemed kind of funny though (probably sad if I were to live there longer).
Thanks again and would be nice to meet you next time you visit Tallinn!
Best of all,
Eriklast edited by
Skype / twitter: erikehasoo
Arjan Van Eersel
@Erik-Ehasoo Business will change anyway in the direction I described, there are many important factors here, also green thinking and green politics play a role here. Estonia is just way a head of other countries in this area. So e-residency even helps towards green entrepreneurship. I agree with you that within the OECD quantity usually goes above quality, still I hope that Estonia will be stubborn on their vision on where we should go. The role Estonia plays in educating other countries about e-governments is also important here. It's all connected to a new way of doing business.
Now that you started about politics, I must say that Estonia has showed again a one of a kind attitude. Bulgaria and Estonia have in common that they once were under communist rule, Bulgaria wasn't occupied by the Soviets, but still governed in a similar way. After the collapse of communism (and the end of the occupation of Estonia) eventually a different kind of politicians stood up, a new generation people who weren't afraid of doing things in a different way and who weren't scared of modern technical possibilities and that is how the famous Estonian e-government started and this way also solve other problems, like for example corruption.
Bulgaria is a different story, as the same people that were in charge during communism kept being in charge. Most politicians governing Bulgaria at the moment are still somehow related to these people. The current prime minister of Bulgaria was actually the bodyguard of the former communist dictator Zhivkov. Although the Bulgarian government tries to attract foreign investments, they aren't as successful as they hoped for. The reason is very simple: Having just low taxes is not enough. The labour code is a serious problem for IT companies. Yet there are no concrete plans to reform the labour code. And the government fails time after time to reform the judicial system and the battle against corruption.
Some government organisations offer e-services, for example the trade register and the revenue service. However implementing e-government is more than just something technical. In Estonia when I want to transfer shares of my company to another person then every person needs to sign the share transfer contract, either via a notary public or via electronic signatures. However, every person involved (buyer and seller) will have to sign electronically, which is quite easy with the software e-Estonia provides. Then everything will be sent to the trade register.
In Bulgaria it doesn't work like that, documents will have to be printed and signed physically. The share transfer contract in front of a notary public. Then the documents will be scanned and the person submitting the documents will sign electronically. So what happened? Forged share transfer documents were submitted to the trade register via stolen electronic signatures (which are a USB stick here) and people actually lost ownership of their company this way. This is what I meant with wrong implementation of electronic services. In Estonia this kind of fraud would be much more difficult, as I would have to steal the ID cards of all parties involved in the transfer.
I am involved in a Bulgarian liberal political party, comparable to Eesti reformierakond. The party is in favour of an Estonian style e-government. For them I also developed a piece of software (for web and mobile) for sending proposals, electronic voting and communication with members. The software is now in the alpha stage, but soon to be released as open source.
As a country Bulgaria is nice. Stunning nature and also the climate is quite nice, this I definitely enjoy. Regarding politics and business there is lot that should be improved, Bulgaria has a lot of potential in my opinion.
I'll be in Tallinn again by the end of this month for the ICT week, would be nice to see you there!last edited by
Arjan van Eersel
Arjan Van Eersel
And let me add one more thing related to e-residency and companies. Even in the case that another country would claim the right to impose taxes there are still benefits.
Let's say that my company is performing it's activities in Belgium and that I want to finance my company via equity crowdfunding. In Belgium this is difficult, because private limited companies have similar limitations as I mentioned above. I can then form an Estonian OÜ, but register this OÜ in Belgium, where it's performing the actual business. Freedom of movement within the EU allows me to do so. This will allow me to overcome the disadvantages of the Belgian limited company and will give me access to Estonian financing options, while doing my business in Belgium.
In the US this is a very common way of doing business, most of the companies in Sillicon Valey are Delaware registered corporations with a foreign qualification in California. They do this because they prefer Delaware corporate law to apply to the entity, while doing business in California. In Europe this way of working is also possible, just the procedure isn't as smooth as it is in the US and acceptance of entities of other EU countries isn't at a comparable level like in the US yet.last edited by Arjan Van Eersel
Arjan van Eersel