Estonia offers online residency to business owners

Three years ago, Estonia issued an invitation to all foreigners to take part in their futuristic experiment and join the “new digital nation”. At first, the offer to become an ‘e-resident’ of Estonia flew largely under the radar, with just a few tens of applications trickling in each week. But the number of people taking the country up on its offer is now picking up pace. Those who have registered their identities with the Estonian Government include Shinzō Abe, Angela Merkel and tens of thousands of entrepreneurs.

While it does not equate to a travel document, the e-residency programme invites people to become a virtual resident of Estonia. In the words of Estonian President Kersti Kaljulaid, it makes it possible for non-Estonians to join Estonia’s “exclusive club of digitally empowered citizens”. By this, Kaljulaid means that e-residents are granted access to the blockchain-enabled Estonian digital system, which is one of the most advanced governmental infrastructures in the world, connecting everything in Estonia from banking and buses to policing to schooling.

Becoming an e-resident is relatively simple: applicants must fill out an online form, pay €100 ($123) and provide fingerprints to an Estonian embassy. After having their details checked, applicants are granted an official digital ID card and they are free to get involved in the Estonian way of life – virtually, that is. It also means they are able to set up and run an Estonian business from anywhere in the world.

The Estonian way
It’s the digital system that underpins each ID card that makes the Estonian experiment so interesting. The tech goes much further than any ordinary government-issued ID, in large part because each card functions as a secure online identity with a cryptographic key that acts as an online signature. This makes it possible for people to identify themselves remotely, enabling secure virtual interactions with banks, accountants, the police, lawyers and more.

It is through these cards that Estonians have become accustomed to an internet-enabled lifestyle, where every possible process has been made digital. The full range of bureaucratic procedures, including taxes, medical prescriptions and voting, has been shifted to slick and intuitive user interfaces. Data synchronises smoothly and securely between private and public sectors so that forms such as tax returns and bank loans are filed automatically and without hassle.

Estonians have become accustomed to an internet-enabled lifestyle, where every possible process has been made digital

It’s the ability to access this system through an ID card that makes it possible for e-residents to run an Estonian business from afar. With e-residency, foreigners can gain access to the same system used by Estonians – save for a few features, like voting. Armed with a secure online signature, e-residents can open an Estonian bank account from anywhere in the world.

If they choose to register an Estonian business, the company will have full access to the EU market, as well as to the complete breadth of government support for businesses, including free consultations and business support from service providers. It also creates a neat loophole for UK businesses wishing to maintain access to the EU market (though, notably, it is not a tax loophole), and a new approach to running a business remotely.

A pragmatic gamble
In a sense, the e-residency offer is a way of showing off Estonia’s digital society. Once a week, Estonia receives 20 delegations from around the world, consisting of both business groups and foreign government leaders and officials. Primarily, the visitors are there to understand what the country’s e-residency programme could provide for them. They are also there to get to grips with how the tiny post-Soviet republic of 1.3 million people got so far ahead.

“In Estonia, we see internet access as a human right,” Arnaud Castaignet, Head of Public Relations for the e-residency project, told Business Destinations. Anywhere else, this would sound like a futuristic statement, but it’s old news in Estonia. The country’s public Wi-Fi network, which is one of the widest in the world, was first established as long as 15 years ago, and even stretches into forested rural areas.

The second key component of the Estonian digital society is digital ID cards. These were also established back in the early 2000s, shortly after the first e-government services were launched in 1999. Now, Estonians use their ID cards for everything from banking to checking their grades at school and paying for parking. There is no paperwork for banking, accounting or even lawmaking; everything is monitored with the same secure login.

Of course, with so much riding on it, people are sure to want a guarantee that their information is secure and the threat of identity theft is non-existent. And yet, despite the well-known fact that attempts to hack into the system are commonplace, it appears that security breaches are not a big source of anxiety. People’s IDs are connected to the X-Road, a blockchain-enabled infrastructure through which data is held locally. It’s based around the principle that residents have ownership of their data, and the system will inform them if anyone – such as a doctor – has used it to access their information.

If one can set up shop anywhere in the world through e-residency, then the role of national borders will become increasingly diminished

The story of how Estonia managed to get so far ahead goes back to its past life as an outpost of the Soviet Union. When it gained independence in 1991, the country’s state infrastructure had to be built from the ground up – and on a tight budget. In retrospect, this was a blessing in disguise, as it granted the government an all-important clean slate that neatly coincided with the take-off of the internet.

Placing so much faith in the possibilities of the world wide web now seems an obvious move, but would undoubtedly have been experimental at the turn of the millennium. “I suppose you could say it was a pragmatic gamble,” commented Castaignet.

Perhaps the success of the government’s first digital experiment can explain its current mind-set, which is teeming with ambition and big ideas for how the e-residency experiment could help build a better world. The official government goal is to attract 10 million e-residents (the number currently stands at 27,000). If achieved, there would be eight e-residents for every regular resident.

While, in many ways, the programme is a clever way to lure economic activity to Estonia, policymakers are not protective of the scheme. They envision a future in which e-residency takes off on a global scale, with other states also offering e-residency, or something similar. Castaignet explained that he sees the e-residency concept as a natural next step for the world’s technology. “We strongly believe that in the future, countries are going to compete to acquire e-residents,” he said.

It’s in this way that a relatively simple scheme can provide a glimpse into a future in which people interact digitally with states of their choosing, and pick their country of residence based on convenience rather than physical presence. States will have to work to keep their e-populations on the merit of their e-services.

“When we hear that other countries are launching similar systems, we are very happy for this kind of competition, because we believe that even if some countries want to build a wall, ultimately countries are going to compete for people physically and digitally,” Castaignet said. The implication is that if one can set up shop anywhere in the world through e-residency, then the role of national borders will become increasingly diminished.

The e-residency experience
Of those who have decided to become e-residents, some are simply enthusiasts of the Estonian system, but most are interested in the business prospects it provides. According to official data, 41.1 percent of applicants cited the appeal of running a location-independent business as their primary motivation for applying to the programme, while 26.9 percent stated they wanted to bring business to Estonia.

One of the big selling points of the idea is how easy it is to get going with a new business. According to the Estonian Government, an Estonian company can take as little as 12 minutes to set up. Business Destinations spoke to Ellenor McIntosh and Alborz Bozorgi, who were some of the first to found a business through the project. “It wasn’t overly arduous but it did take a couple of days,” McIntosh said, describing the registration process. They explained, however, that this time frame was largely down to the fact that they were in the early stages of the business, and didn’t have a solid business plan yet.

McIntosh and Bozorgi were drawn to the idea of e-residency in direct response to the instability caused by Brexit and the fear of losing access to the single market. Their company, Twipes, is a London-based eco toilet paper manufacturer that is gearing up to start mass-producing its products. According to Bozorgi: “We [joined the programme] for risk mitigation. As soon as Brexit came through, we lost an investor and a supplier.” Thanks to the e-residency scheme, Twipes is now registered in both the UK and Estonia, which means that when the Brexit process is completed, it will retain full access to EU markets.

Unsurprisingly given the convenience of this opportunity to dodge Brexit-related risks, the official numbers show that e-residency applications from UK residents are some of the most common.

The draw of access to European markets is also a key factor for entrepreneurs further afield, such as Deepak Solanki, founder and CEO of Velmenni, a tech start-up working on new solutions for in-flight Wi-Fi. “I started the company in India and then moved to Estonia back in 2014 and became one of the initial e-residents of Estonia,” he told Business Destinations. Three years on, and his company has secured a deal with Airbus to explore the use of his ‘Li-Fi’, or light fidelity, internet technology on its aeroplanes.

But perhaps the most significant benefit of the e-residency scheme is the fact it provides access to financial services without the need to be physically present or sign any documents in person. Arzu Altinay, a small-business owner whose Istanbul-based walking tours company crumbled when Turkey was struck by political unrest in late 2015, has benefitted from this feature.

“Governments issued travel warnings against travel to Turkey,” she said, talking to Business Destinations. “To add to the drama, PayPal stopped operating in Turkey. I was able to reach my clients but very [few] were willing to travel to Turkey, and those who were willing to travel weren’t able to pay me. I just sat and watched my business disappear.” It was only when she happened upon the “beautifully designed blue website” of Estonia’s e-residency project that she was able to find a way to access the financial services she needed to keep her business afloat.

The ability to access virtual banking is also a big driver of applications elsewhere. For instance, the fact that PayPal is suspended in Ukraine can explain why the number of Ukrainian applications is higher than that of any other country. According to Castaignet, visitors from Ukraine and Turkey constitute some of the fastest-growing groups of business delegations.

The government is also pulling out all the stops to support e-residents with their business ventures, with a particularly enthusiastic focus on start-ups. Business service providers are readily available to guide entrepreneurs through the process of setting up their business, offering assistance with navigating the process, finding accountants, obtaining a bank account and the like. Each business that creates a physical product is also offered a free five-hour consultation provided by the government, available in English.

McIntosh and Bozorgi described this experience as being “quite odd”, since all five hours took place over Skype rather than in person, but also genuinely helpful. They stressed that the consultation made a tangible difference to their success as a start-up by supporting them through practical milestones, such as how to best approach a manufacturer and how to present their idea to potential investors.

Talking about one occasion when they were due to make a presentation to investors, Bozorgi said: “At the time, our presentation was trash. But one of the reasons that we have won so many competitions now is because [our consultant] picked it apart for us.”

On Estonian soil
While e-residency means that businesses can be run without their founders setting foot in Estonia itself, many of its e-residents end up visiting in real life too. “I’ve been to Tallinn twice. It’s a surprisingly beautiful city!” said Altinay. “When I get to Tallinn, I meet my accountant for coffee and go to Swedbank to receive a card or change my PIN calculator,” she explained, though she emphasised that this isn’t a necessity.

Meanwhile, McIntosh commented: “Whenever we can, we do try to pop by.” The Estonian start-up council puts on an array of networking events to bring entrepreneurs to the country, from hackathons to venture capital competitions and e-services anniversary events. The impression is that Estonia has a buzzing social scene for young entrepreneurs. McIntosh and Bozorgi’s trips have found them bumping into Estonia’s former prime minister as well as going for drinks with some of Estonia’s top footballers. Meanwhile, McIntosh explained that the country’s burgeoning start-up industry is more laid back and product-focused than the ruthless business environment in London.

A generally enthusiastic attitude towards start-ups and entrepreneurialism is also very much part of the Estonian experience. It’s difficult to have a conversation about e-residency in Estonia without hearing a mention of Skype, which was invented by three Estonian programmers in the early 2000s.

Democratising entrepreneurship
The goal of attracting 10 million e-residents may sound ambitious, but ambition is what the Estonian digital experiment is all about. “One of the key principles of the e-residency project is inclusiveness, so no one is excluded from the opportunities it presents,” Castaignet explained.

One constraining factor, however, is that to become an e-resident, people must travel to an Estonian embassy to pick up their ID card. This is a problem for those living in South America, South-East Asia and Africa, where there are very few of these (there are none in South America or South-East Asia and just one in Africa).

In response to this pressing issue, the Estonian Government is partnering with the private sector to set up e-residency offices overseas, which people can visit in person to pick up their ID cards. In December 2017, the first e-residency office was launched, and Castaignet has underscored that there are plenty more in the pipeline.

This drive for inclusivity is an important facet of the ideology that the e-residency project is working towards. Castaignet explained: “What the world really lacks is equal opportunities. Right now, it’s easier to become an entrepreneur in the US or the UK, but depending on where you live, you won’t have access to the same services.”

The e-residency scheme aims to break this inequality down by harnessing the internet to provide entrepreneurs across the world with access to European financial services and market infrastructure. Ultimately, this is the big e-topian idea. “We want citizens around the world to reach their entrepreneurial potential. The project is really focused on how to democratise the access to entrepreneurship,” Castaignet said.