Freelancing is all about being free to travel and work, regardless of where you are physically based.
With instant payments and the ability to Zoom with anyone across the world, the idea of being limited to a certain country is looking increasingly old fashioned.
One of the most exciting developments for those who want to work internationally is a successful initiative from Estonia’s innovative, tech-savvy government. 99% of the Estonian government’s services are available online, which is why Estonia has been able to seamlessly offer its e-Residency to more than 60,000 people across the world already.
They began offering e-residency, to encourage entrepreneurs and freelancers to make use of their online infrastructure, and start Estonian based businesses.
Having actually been through the process myself, and setting up an Estonian, EU based business – Destination Marketing – I want to help others work out whether this is a programme that can help them or not, and many of the pros and cons.
So I’m writing this article for my past self and aiming to include everything I wanted to know in one article. I’m putting it here with the hope that I will help some of you, offer some clarity, or at least save you time on doing your own in-depth research.
Table of contents:
- What is the e-Residency Program?
- Benefits of e-Residency Program
- Things to consider before you apply for e-Residency
- Is e-Residency the right option for you?
- How to apply for e-Residency?
- Next steps
- More resources
What is the e-Residency Program?
The e-Residency program was launched by the Estonian government back in 2014, with a simple idea: to allow any non-Estonians access to Estonian digital, techy business environment.
The program allows literally anyone worldwide, no matter your country of origin or your passport, to apply for Estonian e-residency.
If successful, you have the opportunity to start an EU-based company without ever having to even set foot in Europe – if you don’t want to.
When you become an e-resident of Estonia, you get a digital ID card, which then enables you to access the Estonian marketplace and set up a company that you can be managed from anywhere in the world.
The best part is – you can do everything completely remotely. You can sign any contracts and agreements using your ID card, and it’s all perfectly legal and valid.
The only part where you need to be physically present is going to an Estonian embassy to pick up your ID card, but I will cover the entire process later.
So what’s the catch?
When something sounds too good to be true, it’s always a little suspicious. So when I first heard about the programme, the first thing that came to my mind was – what’s the catch?
Having been an e-resident for over a year now, I can assure you – there isn’t one. The programme itself is great, but it’s not perfect.
There are still some things that are a bit of a hassle, but thankfully, you can manage them while being location independent.
Also, the program is not for everyone. There are a lot of people who won’t benefit from starting a company in the EU for different reasons – and I will talk about that in a bit.
But the bottom line is, the e-Residency program is not too good to be true – and that’s good news. It is commonly misunderstood, however.
What does Estonian government get out of it?
Estonia’s government system is very modern, pretty advanced and very techy. Everything they could – they moved online, and eventually, created a digital business environment.
However, Estonia is a very small country. With only 1.3 million of people living there, they need more people.
Technology has allowed more people to start digital nomading. Travelling the world and working online.
This lifestyle is great, but it also raises many issues.
Being location-independent, and still being able to make money while freelancing is a dream for many freelancers worldwide. But, due to different taxing systems, laws and regulations, it was either too expensive or it wasn’t even possible to run a company while living on the road.
So, there was an opportunity on the market, and Estonian government spotted it.
By opening the doors to its digital business environment, they have allowed people to live the digital nomad dream. At the same time, they have hugely grown the number of Estonian-based businesses. So they have attracted more customers to make use of their digital marketplace services, and Estonian businesses.
But let’s talk more about how you can take advantage of it!
Benefits of e-Residency Program
Depending on where you are from, the benefits of this program can increase or decrease. Let’s look at some of the main benefits:
1. You can start a location independent company
If you live on the road, or are planning to change the country you call home often – then being able to run every part of your company completely online is a huge benefit.
For example, I am originally from Serbia. I applied for e-Residency while in Cyprus. When I was in Vienna, I received the confirmation that my application has been approved, and I officially set up my company while I was in Budapest. I have never been to Estonia, and there is no need for me to go there at all (although I would like to soon!).
Once you set up a company via e-residency, you can fully manage it from anywhere – as long as you can offer your services online.
If you’re constantly on the road, it’s easy to miss a letter or warning if it has to be sent to a physical address. Having a location independent business removes problems and worries like these.
2. You will own an EU-based company
Estonia is an EU member, hence, if you set up a business there, you are becoming a proud owner of an EU-based company.
Depending on your business plans, owning a company that is EU-based can help your reputation and, more importantly, open the entire EU market for you without having to worry about EU laws and regulations.
This can make life much easier than trying to access the EU market as a non-EU business.
This leads us on to the thorny issue of Brexit and whether this is a good option for UK freelancers. We’re still assessing the consequences of the new trading arrangements, and whether e-residence can help with Brexit related issues. I’ll update this post when we know more!
3. You will have access to Estonian service providers
Once you are an e-resident, you can use any Estonian service provider from the marketplace.
These are all providers who operate remotely, so again, you don’t have to move from your location. What I personally love about being able to use Estonian providers is that the process is completely worry-free. I don’t have to think about any rules or regulations. They have services that are specifically designed to meet e-residents’ needs, so you can be sure you are in good hands. They know what they are doing.
Also, many have great offers and deals for e-residents – especially if you are a digital nomad. For example, worldwide health insurance, co-living and co-working – so you can find a provider for almost anything you would need.
New companies are constantly entering the marketplace too.
4. Smooth and easy processes
Everything related to e-Residency is very simple, straightforward and free from nasty surprises.
Applying for e-Residency takes about half an hour, and the entire application process only takes two-four weeks.
You’ll find there is a large and very active community of e-residents across the world. So you can easily find help and people who are facing similar issues to you.
Setting up a company is also easy-breezy, and I will cover that in depth in a separate article.
Things to consider before you apply for e-Residency
Before you rush to apply to become an e-residents, here are the things you need to consider beforehand.
As I said earlier, the e-residency program is not a perfect fit for everyone.
First things first – taxes.
As Estonia doesn’t want the e-residency program to have a bad reputation or any connection to scams and tax evasions, they are very strict when it comes to this.
Estonia is not a tax haven
It should be very clear that e-residency is not your ticket to tax evasion and Estonia is not a tax haven. You will need to pay all taxes you need to pay and you will have to prove that you are following the laws.
When you set up a company in Estonia, your company becomes an Estonian tax resident, hence, your company pays taxes in Estonia. You, on the other hand, as a citizen of a certain country, are also a tax resident of that country so you will pay your social taxes there.
Many countries have agreements to avoid double taxation. So if your country has that agreement with Estonia, you won’t need to pay any corporate taxes in your home country, as your company has paid them in Estonia.
Your company also pays corporate taxes when you pay yourself a salary, or have any other expense that cannot be claimed as business expense. Then, once you receive your salary, you pay your social taxes in the country where you are a tax resident.
You are a tax resident of your home country by default, unless you stay in one place longer than six months
You, personally, are a tax resident of your home country by default. So it doesn’t matter if you are on the road all year – as long as you are not staying in one place longer than six months, you are a tax resident of your home country.
If, on the other hand, you stay in a country for more than six months – you will likely become a tax resident of that country, and you will pay your social taxes there. This is a rule for Europe, it varies for other countries, and some countries that have Digital Nomad Visa (DNV) programs that exempt you from some of this. Of course, you need to have DNV for that to be the case.
Check your taxing situation with your local accountant
This is the trickiest part of the entire program, as everyone’s situation is different and there are many exemptions. So the best advice I can give you on this is to go and talk to your local accountant and check what taxes you would need to pay if you establish a company in Estonia.
In some cases, even if there is an agreement between countries to avoid double taxation, you might still need to pay corporate tax there as well, so the tax percentage can be very high.
But, unfortunately, I can’t advise you on your specific case. So the best thing to do is talk to an accountant and understand your tax obligations. You might also find you need to explain the e-residency to your accountant, as some of them are not up-to-date with the latest options!
Share capital payment
Your company is a separate entity from you – so you will have a separate business account for it and your personal finances won’t be connected to it at all.
But, to be financially separated from your company, you need to put a share capital payment. The minimal sum for the share capital is €2.500, and until you pay it in full, you will still have financial ties to your company, as if you were a sole trader.
The good thing about the share capital is that you can pay it in as many instalments as you want, at any pace you want. But, this money has to be added from your personal account – you can’t declare the money you earned as share capital. Or I should say that you can, but it has to go like this:
Clients pay you for your services to your business bank account → you pay yourself a salary from that money to your personal account → your company pays corporate tax for that, you pay your social taxes → you put money from your personal account to your business account as a share capital instalment.
You can’t do this:
Clients pay you for your services to your business bank account → you declare that money as share capital payment.
You can use your capital payment for your business expenses. That’s not frozen money, and you can use it as soon as it’s on your business account.
While you can pay this without time pressure, you still have to pay it at some point. So this is a very important thing to keep in mind – you will need to invest in your business at least €2.500 in share capital payment.
You will need a service provider to help you set up your business
I will cover the entire process of setting up your company in a different article. But what you need to know here is that you will need a service provider to help you with the process.
Even though you will manage your company remotely, you still need to have a physical business address and a contact person in Estonia. You will also need someone to sort out your taxes at the end of the year – and you can’t do that on your own. Which is probably a good thing really!
So you will need to use at least one service provider. For example, I only use Xolo for my company, which offers everything you need as a freelancer or solopreneur.
I’ve found them great to deal with, and super friendly. I had a lot of questions (!) and they helped me patiently with all of them.
Of course, you will pay for this simplicity, but the fees are stated clearly upfront. You will have fixed monthly costs, which you should take into account and budget for.
To get a 100€ starting bonus on your Xolo account, click here or use my referral code MARNEN.
Is e-Residency the right option for you?
Taking everything previous into account, for some of you, the answer will be ‘YES’, for others, ‘NO’. But if by now you are still not sure to which category you belong, I hope this categorization will help you.
Who is e-Residency for:
E-Residency Program is a great option for professionals who:
- Want to set up their own company hassle-free with relatively low administrative costs
- Want to run a company while being location independent i.e digital nomads
- Are offering services online
- Work as freelancers, contractors or solopreneurs
- Want to set up an EU-based company
- Want to easily operate across borders, without the need to be physically present in multiple countries
- Plan to expand their businesses in the EU market and take advantage of EU business environment
- Are unable to access financial services and business tool they need because they are not available in their country of residence – services like Stripe and Transferwise
- Want to more easily make payments within the Single Euro Payments Area (SEPA)
Who is e-Residency NOT for:
- Professionals who want to avoid taxes.
- Large companies and professionals who have complex organisation and fixed locations – though they could have some benefits of e-Residency, it’s not the perfect solution in most cases.
- Professionals who want to travel visa-free within the EU area – e-Residency doesn’t give you any travel rights. There is another program called Startup Visa that can help you relocate to Estonia.
- Professionals who want to get Estonian or other European citizenship
- Professionals who are residents of countries that are categorised as “high risk and non-cooperative” by the Financial Action Task Force. Note that this is based on residency, not nationality.
How to apply for e-Residency?
So far, I have explained everything that I wish I knew about the program when I first heard about it. My advice is to make a list of the things you need to check on for your circumstances – things like social taxes – before jumping in too far and applying.
You don’t want to waste money, time and energy on the application if you are not going to use your e-Residency at all.
So take your time to think about it. Don’t hesitate to reach out if you have any questions that we could help you with – or at least direct you to where you can find further assistance.
Once you’ve decided to become an e-Resident, this is the process you need to go through. It’s hassle-free, I promise!
1. Gather the required documents
As with any application, the first step is to prepare the documents you will need. Fortunately, the list, in this case, is short and the documents are fairly simple:
- A GOVERNMENT-ISSUED ID – In other words, your travel document/passport. You will need a clear photo of the main page of your travel document. The photo has to be very clear so they can read the information from it. If it’s not readable, they can deny the entire application. You will also need to show the same travel document when you go to the embassy to pick up your e-residency kit.
- A PASSPORT-STYLE DIGITAL PHOTO – Again, this photo has to follow the guidelines, or they can deny the application. So be sure to submit a proper passport photo in a digital form.
- MOTIVATION STATEMENT. Explain your reasons for why you want to become an e-resident. Write about your past professional experience and your future plans and how e-residency fit in there.
- YOUR CV. You will need to upload this as well, so make sure your CV is up to date and accurate.
- A VISA or MASTERCARD: as part of the application, you will need to pay the fee which is 100-120 – more information about the fee here.
2. Decide on your pick-up location
As I wrote above, the only part of this entire programme where you need to be physically present is when you go to collect your e-Residency kit. You’ll pick it up from an Estonian embassy.
Depending upon where you are located, you may or may not have an embassy in your country – so you will need to keep your plans flexible enough so you can travel to pick up the kit at some point.
You can see the full list of pick-up locations here. Have in mind that you will need to choose your pick-up location in the application form – so choose the one that is most convenient for you.
You can ask to change the location later, but that will add extra complications, and you will need to pay an additional fee.
3. Fill in the application
Once you have all the documents from above ready, and you know where you will go to pick up the e-residency, it’s time to fill in the online application.
You will see it’s a very simple form. It should take no longer than 20-30 minutes to fill it in – and double-check all of the information you’ve entered.
4. Application Review
Now it’s time to sit back and wait for your application to be reviewed.
It takes around four to five weeks for you to be notified of your approval. So don’t worry if you don’t hear back immediately.
You will also receive updates on your application status from the Estonian Police and Border Guard Board, so you will know when they have started reviewing yours.
5. Pick up your e-Residency kit
If your application was successful, you will receive a notification, which will let you know that your e-Residency kit is on its way to your chosen pick-up location.
The e-Residency kit contains your digital ID, a card reader and pin codes.
Once it’s there, you will receive another notification that it’s ready for collection from the embassy.
Then, you just need to arrange a pick-up time and date directly with the embassy. You have six months to do that. If you don’t collect within that time, it will be returned to Estonia and automatically cancelled.
My pick up location was the embassy in Budapest, and I needed a scheduled appointment there. They were only handling e-residency matters on Wednesdays – and for a very limited time frame – so the first available appointment was two weeks away. So just count that you might need to wait for a few days to be able to pick it up.
In the embassy, everything was super smooth. You just need to present your travel document, give your fingerprints, and sign a confirmation that you have collected your kit. Estonians are known for being extremely friendly and kind, so don’t worry it won’t be an awkward, formal experience.
Congratulations, now you are an Estonian e-resident!
The first thing you need to do when you get your kit is to check if your digital ID card is active. You can do that by entering its number here.
The activation can take up to 24 hours from the moment you pick it up, so don’t worry if it’s not active yet. But if it has not activated after 24 hours, you will need to contact the issuing authority at firstname.lastname@example.org.
In the kit, you will receive the following pins:
- PIN 1, which is for authentication in an online environment
- PIN 2, which is for digital signing – a digital signature is equal to a handwritten signature
- PUK code, which enables you to reset blocked PIN codes in DIgiDoc software
You can change both of pins using the digital ID software.
And that’s it, you are ready to set up a company – which we will cover in-depth in the next article!
More resources coming soon!
I hope I have been able to clear a few things up about the programme and provide some helpful information if you are trying to decide whether e-Residency is the right option for you or not.
My next article on this will cover how you can set up your own company using the service provider that I went with – Xolo. They offer a great, easy solution for freelancers and solopreneurs, so make sure to check back to our blog regularly.
We will also publish an FAQ article about the programme as a follow-up. If any question has been left unanswered so far, please let us know in the comments.
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