Estonia’s e-Residency program launched in 2014 and has quite frankly taken the world by storm. It has already garnered positive reception from all around the globe and has been a gateway for entrepreneurs to conduct ‘cost and time saving’ business.
If you are a remote worker, you might already be aware that this program allows anyone in the world to access Estonian services, such as incorporating a company, as well as banking, payments, and taxation. In fact, by 2016, the Estonian Government had accepted 17,000 applications for the program, and the numbers have surged ever since.
Even world leaders and public personalities such as German Chancellor Angela Merkel, Japanese Prime Minister Shinzo Abe, Daily Show Host Trevor Noah, and U.S. President Donald Trump have joined the bandwagon to make full use of the facilities offered by this program.
Now let’s understand what the hype is actually about and how YOU can benefit from it:
1. Easy business throughout the EU
The e-Residency program can be an excellent and cost-effective means of conducting business with other EU member countries, especially if you are a citizen of a non-EU country, since you now have a strong base in the European market.
You will be able to legally sign documents online, manage your accounting work with the self-service tax system and access digital identification facilities. You don’t need to travel to Estonia for anything, neither do you need to have an actual physical address there. Service agencies like LeapIN, 1Office, Incorporate and Sunny Business are popular among e-Resident startups to set base in Estonia.
Please be aware that the e-Residency program doesn’t grant you an Estonian citizenship, nor does it grant you the right to physically reside anywhere in the European Union.
2. Corporate tax relief
Generally, all over the world, if you start a company and when you break even, you start paying ‘Corporate Income tax’ at a fixed rate to the Government treasury. When the accumulated profits are returned to the shareholders, there is usually another incidence of the tax, called Dividend Distribution Tax.
Estonia has a unique Corporate tax regime where, regardless of the amount of profit/ income the company is earning, Corporate Income tax (which is essentially a Dividend Distribution tax in this case) is 0% till the time such gross profits/ income are distributed to the shareholders. Then the charge of tax is at a flat rate of 20%.
As of January 2018 the Estonian Government has further lowered this down to 14% for sums distributed in the previous 3 years, hence retaining the top rank in the International Tax Competitiveness Index. It’s important to note that Estonia has signed treaties with 57 countries throughout the world to avoid double taxation, so you might want to check whether you are exempt from double taxation in Estonia.
This corporate tax is applicable only to companies and doesn’t impact the income tax payable by a tax resident in his/her country. Further, you may also be taxable for VAT charges which ranges between 9–20%.
3. Low startup maintenance costs
The application procedure for setting up and establishing the Estonian company is effortless and quite cost-effective. It costs a mere €100 to apply for e-Residency. You can then opt to incorporate a new company in Estonia for another €190 and pay €25 for the state fee registration. This allows you to share capital through the state portal at the time of application or choose to defer the payment for later. You will receive a letter of the decision within one month of your application, after which you can go and pick up your e-Residency ID from the nearest Estonian Embassy within 3–4 weeks of receiving the letter.
4. Revenue, costs and financial reports in Euro
Avoid currency fluctuations by using the steady Euro and handle all your business transactions with the help of services like PayPal and Transferwise through an Estonian bank account which you can set up without actually having to visit Estonia (Holvi, a banking service agency, is known to help in providing this unique feature starting at €35,00 per month).
Furthermore, inward investment is more likely in the Eurozone, so using a European bank account is an asset.
The effects of e-Residency have echoed worldwide!
To bolster the startup ecosystem in Estonia, the e-Residency program intends to collaborate with developers and service providers from countries like Singapore, India, the US, etc. and has already gained quite the momentum over the past few months with support being drawn from the U.N.
Entrepreneurs and startup companies can benefit immensely from the 0% corporate tax rule, which they would only need to pay if they decide to go for profit distribution. With companies from the UK soon losing ground in the European Union in the wake of a possible “hard Brexit”, a lot of them are likely to adopt this route to stay in the game.
Estonia’s reputation due to e-Residency has already garnered much-needed attention in the international community, with rumors circulating that the Catalonian Government has considered setting up the infrastructure for a more open and digital administration. Countries throughout the world have taken note of Estonia’s innovative program and have begun to implement laws allowing easy remote-working visas such as for ‘digital nomads’ in Thailand.
Is e-Residency something you would consider as a remote worker? Is the tax structure and procedure still not entirely clear to you? To help make this information even more accessible to you, please fill out this short survey.
Meanwhile, you can drop your ‘two cents’ in the comments and the Flexpat team will be sure to get back to you as soon possible!
Disclaimer:
The author is a contributing writer working for Flexpat and has taken out the time to conduct extensive research on this topic. Please note that the views expressed in this article should not be taken as legal advice or consultation.
