Estonian e-residency simplifies UK-EU trading
Estonia’s e-residency scheme allows Brits to found a company in the EU in the simplest way possible
Everyone loves a shortcut or life hack. For UK companies looking to improve the way they trade with the EU, a scheme offered by Estonia looks like one of the best around. Estonia is the pioneer of e-residency, a sort of honorary citizenship. With it comes the ability to open a company in Estonia, able to trade across the EU.
It does away with paperwork stopping invoices pinging over the EU-UK border, simplifies tax and admin, and most remarkably of all can be done without leaving our shores.
Creating an Estonian company via e-residency is fast becoming the most efficient way to trade with the EU.
One entrepreneur to take advantage is Rhian French. She’s the founder of a PR agency called Three Trees and a Map, which operates in the niche area of digital mapping and geospatial industries. Her clients include Ordnance Survey, Brussels-based EuroGeographics, and German satellite imagery company UP42.
When it became clear the UK was leaving the single market, French realised her business was in peril: “I wondered how I was going to carry on working. My clients are mostly in Europe. They were worried about the complexity of buying services from the UK.”
At a conference she’d heard a delegate from Estonia mention the e-residency scheme. It had attractive details. Estonian e-residents are supplied with an Estonian ID card, which brings access to 5,000 online services. One of the options available to e-residents is the right to found an Estonian registered company via the nation’s legendarily slick online interface. A key detail is the absence of any physical requirement – it can be done remotely. In fact, e-residents gain no physical rights at all: visa requirements to live and work in the EU are unchanged.
She researched various post-Brexit strategies. “It was daunting,” says French. “Terribly grown-up and complicated. So I looked at Estonian e-residency.”
She applied in early 2020. Got approved. Picked up her card. And then founded a new company in Estonia. “I thought I’d misunderstood. It was so easy. I couldn’t quite believe it was the answer.”
To make life even simpler, she used the official website to find an agency which specialises in helping freelancers and small firms, called Xolo. “It was so quick and efficient,” says French. “I am not one for giving away free publicity, but they are fantastic.”
She connected her Xolo account with a euro bank account provided by fintech company Wise. Now she can invoice her clients in euros from her new Estonian company.
“I couldn’t work without it,” she says. “I take a monthly salary, as advised by Xolo, who sort out my invoices and VAT. It really is straightforward for someone who is into words, not numbers.”
And she still hasn’t been to Estonia: “I’m desperate to visit! My expectations are set very high!”
So who is the scheme right for? The Estonian e-residency team is admirably candid about what it can and cannot do. You cannot, for example, evade rules of origin regarding manufactured goods. Nor can you evade tariffs or quotas, where applicable.
“We have two big groups using it: business consultancy and IT,” says Katrin Vaga, a spokesperson for the Estonian e-residency scheme. “Anything involving digital services, digital products, and ecommerce.”
Estonia offers a 20% flat rate tax on dividends. If profits are retained, there is no tax to pay. Whether taxes are payable in the UK or Estonia requires a tax specialist to advise. “E-residency doesn’t mean automatic tax residency”, says Vaga. “If you establish a company through e-residency and you are based in the UK your personal taxes are still paid in the UK. Corporate taxes depend on your business model.”
The line is that Estonia isn’t a tax haven, it’s an admin haven. The Tax Foundation rates Estonia as number one in the world for tax efficiency, calculated across 40 metrics. Paper and crude PDF forms were eliminated years ago. HM Treasury can only dream of Estonia’s digital mastery. This is a nation where 99.6% of bank transactions are done electronically, and 96.3% declare income online.
Estonia is so efficient at tax and corporate law that 40% of new companies in the country are formed by EU residents, with Germany the number one source. It says something that Germans would rather register a company in Estonia than their homeland. There is a parallel with Delaware in the US, where two-thirds of the Fortune 500 are registered. “We have some research comparing us to Delaware,” reveals Vaga – currently yet to be published, but likely to be favourable, judging by her huge smile.
Are there any rivals? Portugal is launching e-residency. Lithuania launched e-residency in 2021, with upgrades planned for summer. Lithuania is modelling its scheme on Estonia’s. Aušrinė Armonaitė, minister for the economy and innovation, says, “Lithuania is implementing the e-residency scheme starting July. Entrepreneurs in the UK will be able to establish a company in Lithuania without stepping out of their offices in London. Our aim is to minimise the bureaucracy associated with incorporation and running a company which comes as part of the mission to make Lithuania the most entrepreneurial nation in the EU.”
The economic gains brought to Estonia by e-residents is a clear motivator. One in five new Estonian companies is established by e-residents.
“Lithuania is committed to supporting our new e-residents,” says Armonaitė. “We want them to start with e-residency and use that as a bridge to learn more about our country, and maybe in the future to visit and invest.”
So far 4,048 Brits have taken up Estonian e-residency, with 857 companies started. For French, it has been a life-saver. “I want to travel to Tallinn and thank the e-residency team personally,” she says. As word spreads, she won’t be alone.