Estonia: The E-country With Unlimited Digital Possibilities

Estonia e-country
Estonia is a small Eastern European country that shares a border with Russia. It has 1.3 million citizens and an area of 14 thousand km2 (17 thousand mi2). It has young democracy that has been restored in 1991 after the collapse of the Soviet Union. In 1994, the government decided to popularise IT, all schools received Internet access and IT classes were added to the teaching programme. Technology education and computer skills as a basic knowledge were popularized among both young and old, largely on the initiative of the private sector. Later in 2002, Estonia started using ID cards as the main identity document which allowed for a digital breakthrough to happen. Jelizaveta Katsan reports.

Estonians benefit from e-country ideology on multiple levels. Currently, statistics show that 98% of 16 to 44 year olds in Estonia use the Internet on a daily basis while 90% of households have the Internet at home. Use of ID cards as a primary document and government webpage allowed to link all the services to one platform – education, health care, policing, voting, legislation, taxes and banking. Last year, 99% of bank transfers were made electronically, 98% of tax returns were filed electronically and 95% of prescription drugs were purchased on digital prescription. Every digital service is available through personal identity ID card, that gives access to the database with all the relevant information about individuals’ relatives, medical history, working experience, taxation etc. 

Recently, Estonia became very friendly towards foreign businesses. If you decide to expand your business and open a branch in Estonia, you could apply for an E-Residency. In 2014 Estonia was the first country that allowed foreign entrepreneurs to establish and administer an EU-based paperless business, from anywhere in the world. E-Residency allows businesspersons to start an EU company, grow business remotely, complete all paperwork online and most importantly, to be location independent. If an application is successful, the entrepreneur received an ID card that allows accessing government services online. According to statistics, so far more than 70,000 people from more than 170 countries have applied for e-Residency, establishing over 12,000 Estonian companies. It is important to understand that it is not a travel document or a visa that allows you to enter the country. It is suited for freelancers, consultants, solo entrepreneurs and other digital entrepreneurs interested in establishing a digital services company they can manage from anyplace in the world. Currently, only Estonia and Azerbaijan offer E-residency for entrepreneurs. 

An additional bonus is that in Estonia, the corporate income tax rate is 20%. All retained earnings are tax-free. In Estonia, corporate income tax is payable only on profits, which are distributed as follows: dividends; share repurchases; capital reduction; liquidation section; profit allocations (eg transfer price adjustments, expenses and payments not related to business, gift, donation or entertainment expense). From 1 January 2019, a reduced tax rate of 14% may be applied if your company’s taxable profit for a calendar year is less than or equal to its average taxable profit for the previous three calendar years.

Estonia was not always the desired place for immigrants because of the low social benefits package and rather a cold climate. Though, during last year’s Estonia has seen an influx in working immigrants. Since 2015 immigrant net rate is positive and growing. Immigrant flow from Ukraine was so high that in 2019 Estonian government suppressed its decision of 2010, which exempted Ukrainian citizens from paying the state fee for considering applications for

long-term visas. According to Minister of Popular Affairs Riina Solman, recent foreign immigration rate is at worrying levels. Solman pointed to 2018’s figures, saying non-Estonian citizens accounted for over 80 per cent of net immigration that year. It happened mostly due to the rise in temporary residence and short-term employment in Estonia, mainly among Russian and Ukrainian citizens – these groups had seen around a 25 per cent rise last year. 

Between 500 and 600 people apply for Estonian citizenship every year. Usually, it is a combination of Russian and Ukrainian citizens with residents with Alien passports or “undefined citizenship”. Becoming an Estonian citizen is a straightforward process: you should live in Estonia five to seven years (depending on your residence permit), you should pass Estonian language examination, you should pass the examination of knowledge of the Constitution of the Republic of Estonia and the Citizenship Act, lastly, you should have a permanent legal income. 

While in Covid-19 era a great number of businesses moved online, Estonia as a highly developed digitally country has a lot to offer to foreign entrepreneurs.