As digitalization advances relentlessly, an intriguing development has emerged: the possibility of becoming an "e-resident" in certain countries. This status allows individuals not residing within the nation to access a suite of online services, including business establishment. This officially sanctioned program is designed to facilitate digital entrepreneurship without serving as a conduit for tax evasion. Estonia, a leader in this initiative, has welcomed over 120,000 e-residents from 170 countries. Here's how it works.
Understanding E-Residency
It's important to clarify that e-residency, often termed electronic residency, does not equate to citizenship nor grants the right to physically reside in the associated country without a visa.
E-residency primarily serves as a digital identity initiative for professional purposes. It allows individuals of any nationality to establish a business and utilize electronic governance services in a host country without the need to physically relocate there.
For digital nomads who frequently travel, e-residency offers a stable registration for their business, avoiding complex administrative processes regardless of their location changes.
This program is particularly beneficial for entrepreneurs looking to access stable and competitive markets, like the European Union, which is possible with Estonian e-residency.
Consider the case of Mike, who founded a startup in Kenya that connects developers with clients. Needing a branch in North America or Europe, Mike initially considered a talent visa in the UK. However, he soon opted for Estonian e-residency, enabling his company to function as a European entity and facilitating easier market access while maintaining operations in Kenya.
Which countries offer E-Residency?
The e-residency initiative is gaining traction globally, with approximately 8 to 10 nations currently offering this digital identity service. These include Estonia, Azerbaijan, Lithuania, the Palau archipelago, Portugal, Spain, South Africa, Georgia, and Brazil, where e-residency programs are in various stages of implementation.
Estonia: A pioneer in E-Residency
Estonia stands out as a trailblazer in the e-residency space, having launched its program over a decade ago. Since 2014, the country has strived to position itself as a global hub for digital entrepreneurs. Through this initiative, nearly 33,000 companies have been established.
Estonia is renowned for its robust digital infrastructure, which supports online identification and offers a highly secure digital signature system, underscoring its commitment to digital innovation and security.
What exactly does E-Residency allow?
We primarily focus on the Estonian program, which has achieved the greatest maturity in the realm of electronic residency.
- Register and manage companies remotely
The primary goal of this program is clear: once you've obtained your electronic residency card, you can open your business 100% online within just one to two days.
- Access online banking and financial services
E-residents can:
- Open professional bank accounts in Estonia, enabling easier management of financial transactions;
- Sign and encrypt documents online with digital signatures
- Declare taxes to the Tax and Customs Office
- Access government services, such as online company reports, which facilitate the management of business administrative duties.
How to become an E-Resident?
The process to become an e-resident is primarily online but requires fingerprinting, which means you will need to visit one of the 50 offices established worldwide for this purpose. These offices are located in major cities across five continents.
The application process for e-residency lasts a total of 3 to 8 weeks. The documents you'll need to prepare include:
- Your CV;
- Information about your main motivation for applying;
- A copy of your passport;
- An identity photo.
The steps cost, on average, 150 euros, covering the administrative fees associated with the application.
Where to pay taxes when you are an E-Resident of a given country?
It's crucial to note that obtaining an e-residency does not automatically confer tax residency status for you or your company in the country of e-residency. It's essential to differentiate between personal income tax and corporate tax obligations.
Your tax responsibilities will vary based on your specific circumstances. It's important to examine the tax agreements between the country where you habitually reside and the country where you have established your business through e-residency. International tax treaties are designed specifically to prevent conflicts between different national regulations on taxation.
For those who need to navigate these complex international tax waters, it's advisable to consult relevant tax treaties. This resource is instrumental in determining where and how much tax you are obligated to pay, ensuring compliance with international tax laws.
What you should keep in mind
To repeat, e-residency does not grant a visa to live in the country in question. Consequently, aside from their structure, electronic residents also cannot be employed by companies in the country unless they obtain a "classic" work permit or a separate resident status.
You will not have rights regarding access to the country's social security system.
As mentioned, e-residency requires taking time to clarify your tax situation (based on agreements between countries), since it does not exempt you from your other tax obligations. Be particularly careful not to find yourself subject to double taxation (in the country where you have an e-residency and the one where you physically reside).
Although e-residents can open a professional bank account, the process can be tedious. E-residency is entirely legal, but some banks may be suspicious (of attempts at money laundering, for example). As a result, some financial institutions require in-person verification, which can be inconvenient if you have not planned to travel there. There may also be restrictions on international banking transactions.
