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e-Residency of Estonia

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e-Residency identity card

e-Residency of Estonia(also calledvirtual residencyorE-residency) is a program launched byEstoniaon 1 December 2014. The program allows non-Estonians access to Estonian services such as company formation, banking, payment processing, and taxation. The program gives the e-resident asmart cardwhich they can use to sign documents. The program is aimed towards location-independent entrepreneurs such assoftware developersand writers. The first e-resident of Estonia was British journalistEdward Lucas;the first person to apply for and be granted e-residency through the standard process was Hamid Tahsildoost from theUnited States.[1][2][3][4]

Application

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An application for e-residency can be madeonlineby filling in a form, supplying a scan of a national passport and a photograph, and giving the reason for applying (which does not strongly affect the outcome of the application). Kaspar Korjus, former managing director of the e-residency program, said that applicants who had been involved in financial misbehaviour such asmoney launderingwould be rejected. Successful applicants would be invited to an interview in Tallinn or an Estonian embassy about three months after applying, and would then, if successful, be issued their card.[5]The certificates of the document are valid for five years, up from three years when the program was first announced.[6]After that period, if a person wishes to continue usinge-services,they have to apply for a new document. The application process will be the same as when they first applied. A state fee needs to be paid again when they submit a new application.

Benefits and limitations of e-residency

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E-residents will have their financial footprint monitored digitally, in a manner stated to be transparent; the reaction to the widespread financial misbehaviour at a high level revealed by thePanama Papersleak was suggested to be a factor helping the more transparent Estonian initiative according to Korjus. E-residency itself does not have an effect on income taxation — neither does it establish an income tax liability in Estonia nor does it relieve from income taxation in the resident's home country.[5]

E-residency allowscompany registration,document signing,encrypted-document exchange,online banking,tax declaration, and fulfilment of medical prescriptions. Other services become available as the scheme is expanded.[7]A digital IDsmart cardissued by the EstonianPolice and Border Guard Boardin Estonia or at an embassy is used for access to services.[8]

Entrepreneurs can obtain EU residency after purchasing real estate in Estonia as a long-term benefit. The Estonian side benefits in particular by developing Estonia into an international business center with expanding service offerings for foreign entrepreneurs and investors in the disciplines of finance, consulting, accounting, and law.[9]

Korjus said that registering an Estonian business was "useful for internet entrepreneurs in emerging markets who don’t have access to anonline paymentprovider ", and for startups from countries such as Ukraine or Belarus which suffer financial limitations from their governments.[5]

E-residency is not related to citizenship and does not provide the right to physically enter or reside in Estonia.[8]

It is not a way to avoid paying taxes in the country of actual residence - instead, one becomes a taxpayer both in Estonia and in the country where one is a citizen and tax resident. The e-residency program was developed primarily for location-independent startups and companies offering digital services.[10]

Possible negative effects for the business

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In addition to the numerous advantageous facets associated with obtaining e-Residency in Estonia, it is imperative to acknowledge that such an arrangement can also yield adverse consequences for businesses, primarily attributable to the dearth of comprehensive understanding surrounding this innovative initiative.

A noteworthy phenomenon is the reported instances wherein e-Residency holders residing in foreign nations have encountered challenges with their established business relationships. Specifically, some of these e-Residency entrepreneurs have faced contract cancellations and a reluctance to sustain collaborative endeavors by their long-standing partners. The underlying rationale for such actions often stems from the fact that these businesses are registered in Estonia, which is perceived as non-local to the counterparts.

Furthermore, there have been cases wherein potential clients have exhibited a preference for abstaining from engaging with companies solely due to their place of registration, further exacerbating the challenges encountered by e-Residency enterprises.[1]

Background

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E-residency was led byTaavi Kotka,the vice chancellor of communications and state information systems in theMinistry of Economic Affairs and Communications.[11]Although the idea of issuing ID cards to non-residents had been discussed at least from about 2007,[12][13]and proposed again in 2012 by Estoniancybersecurityexpert Anto Veldre,[14]the concrete proposal ( "10 million e-residents by 2025" ) was presented by Taavi Kotka, Ruth Annus, and Siim Sikkut on an idea contest by Estonian Development Fund in 2014. The project was initiated with the prize money from the contest. It is developed by a state-owned foundation,Enterprise Estonia.[15][16]

Kotka stated that, while the further goal of the project would be to gain millions of e-residents, its purpose was to increase the number of active enterprises in Estonia. The private sector must be able to develop concrete services on the legal and technical platform provided by e-residency, while the state would continue developing the legal framework according to the needs of the enterprises.[12][17]It has also been discussed in Estonian media that e-residency could be used to spread knowledge about Estonian culture online to develop cultural export.[18]By 18 January 2015, there had been applications from 225 countries, most of them from Finland (224), Russia (109), Latvia (38), the United States (34) and the United Kingdom (22).[19][failed verification]

By the end of 2023, Estonia's e-Residency program had welcomed over 100,000 individuals from 181 countries worldwide. In less than a decade since the initiative's inception, these e-residents have established more than 27,000 Estonian enterprises, with the number continuing to grow rapidly.[20]The Estonian virtual residency program shows how established nations may adopt strategies similar tomicronations,providing an example of what citizenship might look like in apost-nationalworld.[21]

Reception

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In general the e-residency project was positively reviewed in the news media, being recognized for its innovativeness and potential.[22][23]Estonia's former Minister of FinanceJürgen Liginoted in 2014 that it was as yet unclear how e-residency would bring capital to Estonia.[24]Some legal experts warn that using e-residency to incorporate aletterbox companyin Estonia might under certain circumstances make that company's profits subject todouble taxation,as this is a completely new legal status that has not been considered in the framework of existing international agreements to avoiddouble taxation.[25]

There has been international interest in different countries, with the issue being covered by media in the United States (The Atlantic;[26]The Wall Street Journal;[27]Ars Technica[28][29]), United Kingdom (The Guardian;[30][31]Wired UK,[32]Finland (Helsinki Times[33]), Australia (ABC[34]), Italy (Wired-it[35]), and others. In neighbouring Finland, it elicited some fear that e-residency might give Finnish enterprises an urge to move to Estonia.[33]

There was an increase in interest after thePanama Papersleak pointed out the need for greater transparency in offshore business. AfterBritain voted to leave the European Union,companies were seeking options to continue to be able to trade in euros, and others had other reasons: in the two weeks following the referendum, applications from Britain (with 616 e-residents hitherto) increased tenfold.[5]

Security concerns

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One of the biggest challenges for the Estonian government and other institutions is how to secure the certainty ofpersonal identificationin the case of people from countries with whom Estonia does not have justice, security, or law enforcement cooperation. It is also impossible to effectively check the backgrounds of such countries' citizens or, if required, prosecute the crimes they have committed. Furthermore, the ability to function as an entrepreneur provided by e-Residency may greatly complicate criminal investigations, because, for example, identifying a person who has committed tax fraud or fraud and conducting processes can be difficult due to his or her permanent presence overseas. As a result, criminal investigations, evidence gathering,court hearings,bankruptcy proceedings,and other processes may be slowed or halted.[citation needed]

In 2017, the Estonian government froze[36]the digital ID cards of the e-residency program, two months after discovering a major security flaw that could enableidentity theft.ID cards that were issued between 16 October 2014, and 25 November 2017, were suspended until owners updated to a new security certificate by March 2018.

The Estonian government first revealed the original flaw in September,[37]but gave no details until much later.

Partner services

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The e-residency program offers a marketplace of trusted services of potential use to businesses run using the program.

See also

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References

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  1. ^"President Ilves annab täna üle esimese e-residendi kaardi"(in Estonian). Estonian Development Foundation. 1 December 2014. Archived fromthe originalon 6 February 2015.Retrieved6 February2015.
  2. ^Eesti avab 2014. aasta lõpus oma e-teenused ülejäänud maailmaleArchived19 January 2015 at theWayback MachineMajandus- ja kommunikatsiooniministeerium (in Estonian) (Accessed on 6 February 2015)
  3. ^Milliste hüvede osaliseks saab Eesti esimene e-resident Edward Lucas?Eesti Päevaleht, 29 November 2014 (in Estonian) (Accessed on 6 February 2015)
  4. ^"E-residency – up against great expectations".E-Estonia. 13 January 2015. Archived fromthe originalon 6 February 2015.Retrieved6 February2015.
  5. ^abcdMaeve Shearlaw (15 September 2016)."A Brexit bolthole? For €100 you can become an e-resident of an EU country you've never visited".The Guardian.
  6. ^Saue, Victoria (4 May 2018)."Estonia is extending the validity period of its digital ID cards".Medium.Retrieved19 April2019.
  7. ^"Estonian e-Residency - Which services can I use as an e-Resident?".e-estonia.Archived fromthe originalon 5 June 2016.Retrieved15 September2016.
  8. ^ab"About e-Residency".Government of the Republic of Estonia.Retrieved29 October2018.
  9. ^Prause, Gunnar (31 March 2016)."E-Residency: a business platform for Industry 4.0?".Entrepreneurship and Sustainability Issues.3(3): 216–227.doi:10.9770/jesi.2016.3.3(1).ISSN2345-0282.
  10. ^"Estonian e-Residency: Pros and Cons".Redwerk.14 June 2019.Retrieved12 October2023.
  11. ^"Eesti infoühiskonna arengukava 2020"Archived3 March 2016 at theWayback Machine,pp. 2, 15, 22 (in Estonian) (Accessed on 6 February 2015)
  12. ^abHans LõugasTaavi Kotka: e-residentsus on üksnes vahend, vaja on paremat majanduskeskkondaEesti Päevaleht, 14 October 2014 (in Estonian) (Accessed on 6 February 2015)
  13. ^Kallemets, Kalev (18 September 2014)."E-residentsus aitab välisinvestoreid Eestisse"(in Estonian). Läänlane. Archived fromthe originalon 6 February 2015.Retrieved6 February2015.
  14. ^Anto VeldreInfoühiskonnast hereetiliseltPostimees, 9 November 2012 (in Estonian) (Accessed on 6 February 2015)
  15. ^Indrek KaldArengufondi ideekonkursil kolm võitjat "Äripäev, 12 June 2014 (in Estonian) (Accessed on 6 February 2015)
  16. ^"10 miljoni eestlase" idee pääses Arengufondi konkursi kolme võitja sekkaERR, 12 June 2014 (in Estonian) (Accessed on 6 February 2015)
  17. ^Taavi KotkaKui seda ei tee Eesti, siis teeb seda keegi teineMemokraat, 13 October 2014 (in Estonian)(Accessed on 6 February 2015)
  18. ^Ülo PikkovE-residentsus ja Eesti virtuaalne kultuuriruumSirp, 16 January 2015 (in Estonian) (Accessed on 6 February 2015)
  19. ^Kas e-residentsus toob rohkem venelasi Eestisse kinnisvara ostma?Äripäev (in Estonian), 6 February 2015 (Accessed on 6 February 2015)
  20. ^Nikiforov, Ilja."How to apply for e-Residency in Estonia?".Eesti Firma.Retrieved26 December2023.
  21. ^Keating, Joshua (26 June 2018).Invisible countries: journeys to the edge of nationhood.Nelson, Bill (Cartographer). New Haven.ISBN9780300235050.OCLC1041140240.{{cite book}}:CS1 maint: location missing publisher (link)
  22. ^Kaupo KaskMida kujutab endast e-residentsus?Advokaadibüroo Biin & Biin (in Estonian) (Accessed on 6 February 2015)
  23. ^Üks küsimusÄripäev, 15 December 2014 (in Estonian) (Accessed on 6 February 2015)
  24. ^Ligi: on ebaselge, kuidas e-residentsus raha sisse toobPostimees, 6 December 2014 (in Estonian)
  25. ^Kärt Anna Maire KelderE-residentsuse varjatud karid ehk mis juhtub teisest riigist juhitud äriühingugaEesti Päevaleht, 29 November 2014 (in Estonian)
  26. ^Uri FriedmanThe World Now Has Its First E-ResidentThe Atlantic, 1 December 2014
  27. ^Liis KängseppEstonia to Offer ‘E-Residency’ to ForeignersThe Wall Street Journal, 21 October 2014
  28. ^Cyrus FarivarEstonia wants to give us all digital ID cards, make us “e-residents”Ars Technica, 8 December 2014
  29. ^Cyrus FarivarI’m now an Estonian e-resident, but I still don’t know what to do with itArs Technica, 22 August 2015
  30. ^Nabeelah ShabbirEstonia offers e-residency to foreignersThe Guardian, 26 December 2014
  31. ^Anthony CuthbertsonEstonia First Country to Offer E-Residency Digital CitizenshipInternational Business Times, 7 October 2014)
  32. ^Ben HammersleyWhy you should be an e-resident of Estonia,July 2015
  33. ^abMerle MustEstonian e-residency attracts Finnish businessmenHelsinki Times, 12 December 2014
  34. ^Kirsten DrysdaleEstonia offers e-residency to allow non-citizens access to government services and business onlineABC, 25 November 2014
  35. ^Mila Ligugnanae-residency: residenza virtuale e digitale, in Estonia è già realtàWired-it, 17 October 2014
  36. ^"Estonia has frozen its popular e-residency ID cards because of a massive security flaw".Business Insider.Retrieved1 March2018.
  37. ^Korjus, Kaspar (5 September 2017)."Here's what e-residents need to know about the potential security vulnerability".Medium.Retrieved1 March2018.
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