How a small country attracted enough virtual residents to fill a city

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In late 2014, Estonia launched its online residency program, becoming the first country in the world to offer government-issued digital identities to people wishing to start and run an EU-based business from anywhere. in line.

For the past seven years, the program has targeted entrepreneurs, business owners, freelancers and digital nomads. As of mid-February 2022, Estonia has nearly 90,000 e-residents from 177 countries, who have created more than 20,000 businesses, of which 4,700 were founded in 2021.

“I recently had a conversation with someone from the council of Tartu, the second largest city in Estonia. We were talking about numbers, and they pointed out that the number of e-residents in Estonia will probably exceed the population of Tartu this year,” says Lauri. Haav, Managing Director of Estonia’s e-Residency Program.

SEE: This tiny country continues to create tech unicorns. Here’s how it works

Haav says the initiative has now entered a phase of what is known in the business world as “hockey stick growth.” Many companies have become mature enough to hire new employees and become profitable; therefore, the tax revenue of the program doubled year-on-year in 2021 to reach 32.5 million euros.

Several factors can be attributed to the record 2021 results. For starters, the lockdown has prompted people around the world to discover new ways to live and work. Estonia e-Residency Program turned out to be one of those ways.

e-Residency has also entered new markets. Prior to April 2021, the application process was long and laborious, involving numerous documents and extensive background checks by Estonian police and border guards. This process would be followed by a trip of the applicant to the Estonian Embassy to provide fingerprints. Only when this process is complete will applicants receive their electronic residency “kit” and ID card.

This process has now been streamlined. Estonia does not have an embassy in every country, so the program has started cooperation with an international visa service provider who could facilitate this, says Haav. “It allowed us to launch our service in Brazil, South Africa, Singapore and Thailand.”

IT, online marketing, and e-commerce are the most popular areas for online residency businesses because they are not location-related. “Maybe you live on the island of Bali and operate your business from there; maybe your business partner is Ukrainian, your customers are based in Germany and maybe another shareholder is based in the United States. United States,” says Haav.

“We actually have such examples… Online residency is international, cross-border and virtual.”

This flexibility is what prompted Vicky Brock to become an Estonian e-resident in 2019 after co-founding Vistalworks, a company that provides tools, data and intelligence to combat illicit web-based commerce, the previous year.

“As many of our customers are government agencies and law enforcement across Europe, we couldn’t risk not being able to trade with the EU, so we decided early on that we needed ‘a European base,’ Brock told ZDNet.

Brock and his co-founders had considered other countries to settle in, but settled on Estonia due to its flexible e-residency system, fair and transparent tax laws, and home ownership environment. company, and its commitment to anti-corruption practices. For a small nation of just 1.3 million people – representing less than 14% of the population of London, the UK capital – Estonia is also home to a vibrant and thriving startup ecosystem.

Open to digital business

Although the e-Residency program can be seen as a convenient way for non-EU entrepreneurs to set up businesses, Haav says around 50% of applicants come from the European Union. Russian citizens make up the majority of e-residents, followed closely by Finnish and German citizens.

Haav believes Estonia’s welcoming business environment is what makes the country so attractive to entrepreneurs. “In some countries, there’s still this traditional thinking that being an entrepreneur is risky, and you shouldn’t start a business unless you have a million in your pocket as start-up capital,” he says.

“We don’t have this attitude in Estonia, because it’s easy and cheap to start and run a business. In many EU countries it’s much more difficult: it involves a lot of bureaucracy and you have to invest a lot of time, money, time and other resources”.

After earning a PhD in Applied Physics from Delft University of Technology in the Netherlands in 2017, nanomaterials scientist Santiago Cartamil-Bueno set out to discover how to put his scientific and engineering knowledge to good use.

He tried to become an entrepreneur in Germany, but the language barrier and bureaucracy proved too much. He finally applied for Estonia’s e-Residency program after spotting a post about it on LinkedIn. “I only signed up with my phone and with my wife’s permission,” he told ZDNet.

Cartamil-Bueno has since established a consulting, research and development company called SCALE Nanotech, which is registered in Estonia but operates mainly in Germany. The company is growing steadily and has benefited greatly from the Estonian tax system, as there is no corporate tax on reinvested profits. “The Estonian cash flow tax system has greatly helped my startup grow through the reinvestment of profits during the critical initial phase,” he says.

When the e-Residency program was launched in 2014, the hope was to have 10 million e-residents by 2025. This was revised in 2019, when the e-Residency 2.0 white paper was created. Since then, the focus has been on improving the quality of the service and the ecosystem that surrounds it.

SEE: Startup powerhouse: Why Estonia needs more developers, tech talent booming in jobs

With the number of e-residents and businesses numbering in the thousands, this growth has necessitated greater attention to security. To address this, more investment has been invested in the selection process, including the information required from applicants and how data is shared with government offices, which now involves the Police and Warden Board -Estonian borders, the Tax and Customs Board and the Financial Intelligence Unit, among others. .

For security reasons, applicants still need to provide their fingerprints in person — the technology isn’t quite there to facilitate that remotely, Haav says. “Obviously, there are many commercial grade solutions on the market, but no government grade solution yet, which would meet the requirements of the Estonian police and border guards.”

Either way, Haav believes the entire application process will go digital in the next few years. In the meantime, all indicators suggest that the e-Residency program will continue to grow: “If there are more people, they will create more companies, older companies will mature and the whole ecosystem will continue to grow. ‘to evolve.”

Brock is also optimistic about the future. Two of Vistalworks’ founding members have now moved to Estonia and become full residents, and in 2021 the company opened an office in the capital, Tallinn.

“The surprise, perhaps, was how easily we integrated the extremely dynamic ecosystem of Estonian tech startups,” says Brock.

“I didn’t expect to spend an hour a day studying Estonian for fun, but I chose to do it because I feel like I’m part of Estonia and I want to stay here and develop my business here.”

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