A few years ago, Estonia had a problem. The small, Baltic nation had spent the past several decades in the midst of a technological revolution, using the term “e-Estonia” to describe a set of sweeping digital reforms: Citizens could vote online, pay their taxes online, and track government legislation online. Parliament went paperless in 2000, the same year the government declared internet access a human right. By 2013, they’d even hired their first-ever chief information officer, Taavi Kotka, to continue fine-tuning the kind of technological literacy that would come to define the nation of 1.3 million people. And yet, it still wasn’t quite enough to make Estonia the Silicon Valley of Europe.
The problem was, no one wanted to live there. In fact, more people were leaving Estonia than moving there, and they were taking their business ideas with them. It didn’t help that their Nordic neighbors, like Sweden and Norway, had better social benefits to attract EU migrants, driving immigration elsewhere.
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“Nobody wants to come to Estonia physically,” Kotka recently told me over Skype, tilting his computer’s camera toward the window by way of explanation. Outside, the city was covered in a blanket of gray. “And this is spring.”
And so, the internet capital of the world had an idea: What if they could entice people to bring their companies and their tax dollars here, to Estonia, without requiring them to actually move to Estonia? What if they could use the internet to fundamentally alter the relationship between the government and the people it serves? In 2014, they decided that they could—and with that, “e-residency” was born.
When the e-residency program was introduced, the government set a goal of bringing in 10 million e-residents by 2025. So far, they’ve attracted about 10,000. In exchange for setting up companies in Estonia, e-residents can freely use some of the digital services that Estonian citizens already enjoy—like the ability to register their company online, use e-banking to cover transactions, and a super efficient online tax system that reportedly takes about five minutes to file each year.
“It’s pure business,” Kotka told me on Skype. “If you think about government like a company, to get more revenue and profit you need more customers.” To get more customers, you have to compete with the stuff that already exist—in this case, the civic services provided in other countries.
Taavi Kotka. Photo courtesy of Taavi Kotka
If you’re looking for digital efficiency—as an entrepreneur or otherwise—you could do worse that Estonia. There’s free, public WiFi just about everywhere you go, and the people there seem obsessed with using the internet to improve daily life. You want to buy a train ticket? Do it online. You need a prescription from your doctor? It’s online. You want to give the government the name of your newborn baby without making a trip to the hospital? You can do that online, too.
Offering some of those services to people outside the country is a “promising model,” according to Ev Boyle, the founder and director of Civic Tech USC, a project that studies the intersection of technology, citizenship, and government. “Government is a service, and people are paying for that service—that’s what taxes are. So if government can become more efficient, easier to access, and easier to use, that’s what governments should be doing.”
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There are a lot of things that e-residency is not: It’s not a tax shelter, it’s not an easy path to EU citizenship, it’s not even official residency in Estonia. Instead, e-residents get a digital ID card with a cryptographic key to securely sign digital documents, eliminating the need for ink signatures on official paperwork. They can also open bank accounts using Estonia’s e-banking system and set up an Estonian company using the country’s online system. It might not sound like much, but by eliminating the bureaucracy and hassle of establishing a business, e-residents can spend more of their time actually running their business. And unlike most countries, Estonia offers a zero percent tax on undistributed profits—meaning, if the profits are reinvested into the company, you don’t owe any corporate taxes, which can be a huge deal for start-ups.
“People are more mobile than ever before, and with increasing mobility, governments are going to compete with one another,” said Boyle, who pointed out that Americans already do this when choosing where to live or establish a business. There are, for example, a stunningly high number of corporations registered in Delaware, because of its low tax rates. (“Companies choose our state, and we are proud of it,” Richard Geisenberger, Delaware’s chief deputy secretary of state, told the New York Times, noting that tax revenue from these companies accounted for a quarter of the state’s budget.) Estonia’s e-residency program introduces that same type of competition on an international level, but with the added bonus of better business technology.
Arvind Kumar, an entrepreneur from India, used the e-residency program to establish his manufacturing technology company, Kaytek Solutions OÜ, in January. He told me it took about half a day to create the company, register it online with the Estonian government, and open a dedicated company bank account. That was it. Then he moved on to actually working with clients.
“Civic technology in Estonia is far ahead of India,” Kumar told me. Had he founded the company in India, he said, there would have been mounds of paperwork and procedural formalities. Plus, since his company is global-facing, having it registered in Estonia allows him to transact with EU clients, something that would have been much harder with an Indian bank.
Of course, the e-residency program is far from perfect. One American writer, who signed up for e-residency last year, was more puzzled than dazzled by the program. He also noted that setting up a business wasn’t quite the 15-minute breeze that had been advertised, and he couldn’t do it without having an Estonian address.
Kotka, who worked in the private sector before he was hired by the Estonian government, isn’t bothered by those kinds of complaints. “We wanted to run this like a government startup,” he told me, “and with any startup, you [continue to] develop your product when you get to market.”
When the program first launched, applicants had to visit Estonia to apply, get government clearance, and open an Estonian bank account. Now, you can apply online, pick up your digital ID card at an Estonian embassy, and applicants will soon be able to open an Estonian bank account without having to meet a teller face to face. You still need a physical address in Estonia to start your company, but Kotka thinks that’ll change soon, too—and there are already services renting out “virtual office space” for entrepreneurs who want to claim a square foot of Estonian land to run their business. The government is also hosting a hackathon to inspire new ideas for the e-residency program later this year.
In Kotka’s vision of the future, government services will start to look more like the private sector, and people will be able to choose between them the same way people can freely choose to use a service like Spotify over Google Music. But Boyle isn’t convinced it’ll go that far.
“There’s a lot we don’t know about the future, but what government does and provides is still mostly local,” said Boyle. “You’re not going to go to a doctor in Estonia using Skype. Your streets are paved by your local government—Estonia’s not going to do that for you through the computer.”
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