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Why aren’t other e-residencies as good as the Estonian one?

Why is Estonian e-Residency better than others?

Estonia introduced the e-Residency program in 2014, but the idea of giving some sort of digital ID to non-residents circulated in Estonia way earlier than that, and it was mentioned to the public for the first time in 2012 by the journalist and IT expert Anto Veldre.

In the meantime, Taavi Kotka, a digital entrepreneur and former chief information officer for the Estonian Government, and also co-founder of Skype and Transferwise (now known as Wise), was already shaping the program with the goal in mind of reaching 10 millions of e-residents by 2025.

Since its launch, more than 90,000 people received a digital ID card. That might seem a failure, compared to the prospect of having 10 millions of e-residents by 2025, but just consider this simple fact: in 2021 there have been as many new e-residents as newborn babies in Estonia.

While e-residents originally come from all over the world, it’s mostly those who live in extra-EU countries to open their business here, with the top countries being Russia and Ukraine.

Clearly the perspective of entering the EU single market is a big decisional booster, but that’s not the whole story.

Estonia was the first country to launch an e-residency scheme, but it’s no longer the only one. While we can’t judge which e-jurisdiction is best, we can undoubtedly state that Estonia e-Residency is the most known and popular one, and we want to explore the reasons behind its success.

Other countries that offer e-residency

Like we said, Estonia isn’t the only country to offer digital residency. There are a few options and more will come in the next few years. Let’s briefly examine the alternatives available.

Lithuania

Lithuania e-Residency

Lithuanian e-Residency was launched in January 2021 and applications started in June 2021. Key advantages of the program are obviously the chance to open a business in Lithuania, pay taxes there and access the EU single market.

Lithuanian fintech companies offer bank accounts with a Lithuanian IBAN, thus enhancing the possibilities of businesses run by e-residents.

Furthermore, Lithuania has a very favourable jurisdiction when it comes to crypto licences, and after the recent changes to Estonian regulations, it might be in fact the best crypto-friendly jurisdiction in the world.

Azerbaijan

Azerbaijan e-Residency

Not just one, but two digital residency programs: e-Residency and m-Residency. Both of them allow you to open a location-indipendent business and pay taxes in Azerbaijan. Both of them offer the chance of opening a business bank account in the country.

The only difference is the way you authenticate and e-sign documents: you get a USB token with e-residency and a SIM card with m-residency.

Basically, this means you can use your m-Residency card in a smartphone, making business management easier.

Advantages, however, end there: there is no EU single market access, and corporation tax is a standard 20% that doesn’t really move the needle.

Ukraine

Ukraine e-Residency

Ukraine launched its e-Residency program in 2021 and, just like its competitors, grants the right to open a company in Ukraine without being physically in the country, as well as open an account at a local bank.

Ukraine has one of the most flourishing IT industries in Europe and possibly the world, and it’s home to a lot of highly skilled developers, so it’s not a surprise that the e-Residency in Ukraine was planned for IT businesses, therefore giving them substantial benefits, i.e.: exclusive access to the program, in fact, you can only apply if you intend to run a company in one of the few government-approved industries, such as computer programming, videogames development, web hosting and similar.

Hiring Ukrainian developers with an Ukrainian company is also easier and more convenient than doing so with a foreign company.

Obviously, the conflict is a huge burden on the country, but when better times will come again, the e-Residency program might be a big

What’s the plus of Estonia, then?

There are multiple advantages to talk about.

First of all, Estonia is part of the EU, that means easy access to the EU single market, allowing extra-EU businesses to trade in the area without all the complications that such a difference in jurisdiction normally comes with.

If we look at the top 10 countries with the highest number of Estonian e-residents we find out that 6 out of 10 are extra-EU, including people from countries with high volume economies like China, Russia and USA.

Another big plus is the taxation: clearly the standard 20% rate of Azerbaijan, the standard 15% rate of Lithuania and the 5% flat tax of Ukraine don’t measure up with the absence of corporation tax in Estonia. What entrepreneurs value the most is their profits, and the fact that they are taxed only when they’re distributed is crucial.

Regulations also play an important role: Estonia developed its e-Residency program before any other country, so it had plenty of time to fix the issues and make it work for everyone, with crystal clear AML policies, as well as fair and easy licence application processes, from cryptos to gambling.

Estonia e-Residency

The fact that the whole bureaucracy system is almost fully digital is of mutual benefit for the entrepreneurs and the Estonian institutions, let alone the speed of application processing and response: if you avoid any deadlock, the whole economy is smooth and runs efficiently.

If we take a look at other regulatory bodies in other European countries, we see a general tendency to act too late when it comes to digital transformation and regulation of new kinds of digital assets, hence, making investments in innovation more uncertain. This does happen in Estonia, but at an acceptable level, as regulators strive to keep up with the advancing new.

Furthermore, Estonia e-Residency is very inclusive and open to any kind of business. Whatever industry you work in, there’s an opportunity for you. Of course, a model like the Ukrainian one might offer more advantages to IT companies, especially if Ukraine manages to enter the EU, but the fact that anyone can become an e-resident of Estonia and found a company shows how flexible the whole jurisdiction is.

Developing an e-Residency scheme isn’t easy, in fact, many countries are open to this idea and are either planning (USA, Singapore) or developing (South Africa, Portugal) one, but Estonia has a time advantage that makes it the most popular and competitive country to offer something like this.

About the author, Mario Palmieri

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About Estonian Crypto Licenses

Estonian Crypto Licenses is a trading name of TechIuris OÜ, a company based in Tallinn, Estonia and specialised in legal and compliance solutions for European FinTech companies. We are a fully licensed company, and EVEA and e-Residency marketplace members. Here on our blog, we share the latest news on topics such as NFTs, cryptocurrencies, blockchain and much more.

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