Every year, e-residency attracts more and more IT-sector because such programs are an opportunity to quickly and legally become the owner of an e-card and open your own European company.
What is e-residency anyway?
E-residency is a state online service for foreigners, through which they can get remote access to public services and conduct business from anywhere in the world. In particular, it provides for obtaining an e-residency card. Its holder has the opportunity to register a company in a foreign country with a certain analog of an electronic digital signature.
Best practice e-residency in Europe
The first country to introduce e-residency was Estonia in December 2014. At that time, the online service had no analogs in the world. Thanks to this program, any foreign citizen had the opportunity to acquire the status of “e-resident” to get secure access to electronic services in Estonia.
Such a tool is most relevant for businesses and those wishing to go international, mainly to Europe. The program’s main advantage is remoteness, as an IT person can register a company remotely in Tallinn and sell their services to a customer from Germany or any other country. In addition, the Estonian company owner can communicate with regulatory agencies, make changes to company data, and even visit a notary electronically.
Estonia is now the best benchmark for other countries, and even the closest neighbors have decided to follow in its footsteps.
Thus, since June 2021, Lithuania has borrowed the e-residency system, which is generally an analog of the Estonian one, but with certain nuances.
The period of e-residency status in Lithuania is 3 years, while in Estonia — 5. Its functionality also differs considerably. Since the system is new, its participants can only do elementary things: go to public e-services and put a digital signature.
So far, there is no possibility to register a company, use the tax system or open a business account. In addition, the process of obtaining a resident identification e-card in Estonia is completely remote: you apply online and pick it up at one of 45 issuing points around the world.
To obtain a similar card in Lithuania, you must be physically present in the country. All this is because the Lithuanian e-residency system is very young and is only in its infancy.
But such “unpleasant nuances” in the era of covid complicate the system and make it almost “irrelevant” in 2021 for IT.
When choosing a jurisdiction, one should also be guided by the tax regimes that can be used within the framework of e-residency. In Estonia, the corporate tax rate is 0% until the distribution of dividends. At the time when the owner needs to pay dividends, it will be necessary to pay 20/80 (effective rate of 25%), or if the dividends are paid regularly, it is possible to use the reduced rate of 14/86 (effective rate of 16,3%). In Lithuania, the corporate tax is 5% for the companies whose income does not exceed EUR 300.000, and the number of employees is 10. Or if such limits are exceeded — 15%. Unlike Estonia, Lithuania does not need a contact person, and in the ranking of ease of doing business in 2020, it ranks 11th, surpassing Estonia by 7 positions.
Phantom e-residency in Azerbaijan
A bit of a comeback in 2018.
On October 24, 2018, the second international conference, “Digital Trade Hub of Azerbaijan,” was held in Baku, where electronic and mobile residency was officially introduced.
Such a step could well make Azerbaijan a super-powerful and developed IT hub because such innovations increase the country’s attractiveness for business.
But as the practice has shown, during our appeal to several Azerbaijani representative offices in 2021, with a request to help with the issue of obtaining e- and m-residency for the client, we were told that they do not know about such a project.
But, most interestingly, the representative office emphasized that such a program was discussed in 2018, but in reality, this scheme has not started.
Experimental project of E-residence in Ukraine
Ukraine decided not to fall behind, and in July 2021, deputies in the first reading adopted a bill regulating the experimental system of e-residency.
Oh yes, there could be happiness.
However, this system is somewhat peculiar because the relevant circle of persons will be foreign IT specialists and freelancers.
The idea of the project is to attract foreigners to the jurisdiction of Ukraine, which in turn gives favorable tax conditions. Thus, every IT worker can obtain e-resident status and work remotely from anywhere in the world as FOP of the 3rd group, i.e., pay only 5% of the personal income tax. The procedure of obtaining e-resident status in Ukraine is quite simple. First, you need to fill out a form on the Diia web portal.
According to the current legislation, the submitted documents will be checked by the Ministry of Internal Affairs and SSU. If all is well, a TIN is reserved for the applicant, and only after that s/he undergoes the identification procedure at the Ukrainian consulate. So everything is not so simple…
The final step is to obtain a digital signature, after which Diia will be able to provide the e-resident with an electronic trust service, i.e., to register an FOP. In addition, the foreigner will have a personal English-speaking manager and the opportunity to open a bank account without physical presence.
Looking at Diia, I want to believe that our government is doing everything possible to attract investment in the IT-sphere and that in the next six months, we will receive a boom of requests from foreign representatives.
Countries planning to introduce e-residency
Not so long ago, Portugal became such a country, working on developing an e-residency 2.0 program. It is scheduled to launch in November 2021. The details have not been disclosed yet, but it is expected to have the same benefits as its counterpart — the Estonian e-residency.
In particular, the program aims to reduce bureaucracy and the transition to the online modes for doing business, access to company registration and banking services, and payment of taxes according to the tax system in Portugal.
Such actions aim to create a favorable business climate for foreigners and reduce the physical movement in the covid era.
Although the citizens of the African continent participate in the Estonian e-residency program, they still do not have their own analog. Although there are “rumors” that South Africa plans to introduce something similar in its territory, to attract IT specialists to Africa 🙂
In October 2020, Estonian authorities presented a scheme to expand e-residency to other countries (as if they decided to borrow their engine and the scheme for implementation in other states). In particular, Brazil was considered a promising country for introducing the program because, in the business community, it has received the status of an investment paradise for various business sectors.
The development of e-residency is planned in several other countries: the U.S., Japan, Singapore, etc. So far, there is no specific information on this, but such a step would be quite expected, and perhaps in 2022, these countries will please us with their IT innovations.
Practical experience and where is the best place to go for an e-residency?
Our many years of experience in the field of e-residency, as a tool for the remote opening of companies, makes it clear that to date, the best option is the Estonian e-residency. Firstly, this online service has been working fully and efficiently for almost 8 years. That is, it is time-tested and trusted by Ukrainian IT. Secondly, the general characteristic of Estonia as a jurisdiction for doing business, its digitalization, and tax system attracts many entrepreneurs, who eventually grow into IT “unicorns.”