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E-residents brought Estonia 31 million euros in direct income in six months

Э-резиденты принесли Эстонии за полгода 31 миллион евро прямого дохода

The direct economic effect of the e-residency programme for the state in the first half of 2024 was 31 million euros. According to a recent study, in addition to the taxes they pay to the treasury, e-residents leave more than 11 million euros in Estonia every year by using business services from Estonian companies, said Liina Vahtras, head of public relations for the Estonian e-residency programme. Liina Vahtras. Liina Vahtras. Photo: Laura Nestor September 10, 2024, 09:24

The direct economic effect of the e-residency programme for the state in the first half of 2024 was 31 million euros. According to a recent study, in addition to the taxes they pay to the treasury, e-residents leave more than 11 million euros in Estonia every year by using business services from Estonian companies, said Liina Vahtras, head of public relations for the Estonian e-residency programme.

"If we talk about the taxes of e-residents' enterprises in the first half of the year, 76 percent, or 22 million euros, were taxes on labor and 24 percent, or seven million euros, were special income taxes, mainly on dividends. In addition to taxes, the economic effect of the program includes an additional two million euros in state fees paid by e-residents," Vahtras noted.

In the first six months of this year, 6,037 foreign citizens received e-resident digital IDs (there were 6,482 applications in total, with a 93 percent approval rate), and in the first half of the year, e-residents established 2,450 new businesses.

The most active participants in the programme and founders of enterprises were citizens of Spain, Ukraine and Germany, who from January to June of this year submitted 917, 448 and 378 applications to the Police and Border Guard Board for an e-resident digital ID, respectively, and also founded 454, 173 and 170 Estonian enterprises.

According to Liina Vahtras, the programme is working steadily, although the rate of increase in the economic effect caused by the programme is slowing down. "Interest in e-residency and company formation in Estonia remains high: in the first half of the year, seven percent more applications for e-residency were received compared to the same period last year, and seven percent more new Estonian companies were founded by e-residents. This is more than we could have hoped for and expected in the conditions of the ongoing economic downturn," Vahtras said.

She added that the main goal of e-residency is the growth of the Estonian economy and the benefit of the Estonian state. "In our daily activities, we can achieve this in two ways: firstly, by attracting enterprising e-residents to Estonia, and secondly, by contributing through them to the development of the service economy ecosystem in Estonia, which will also create jobs and generate income for local companies," Vahtras noted.

According to a recent study, in 2023, the turnover of Estonian companies operating on the official e-Residency Marketplace service provider platform was at least 11.43 million euros just from serving e-residents.

“For a growing number of service providers in our market, serving e-residents accounts for more than half of their business, often reaching 80-100%. Service providers grow and evolve alongside e-resident businesses, providing a valuable and growing customer base and expanding their global playing field,” Vahtras said.

Local companies are typically early stage or rapidly growing, she says, so they most often purchase services for setting up a business, creating a virtual office, and maintaining accounting records, as well as legal and tax advice.

Taavi Kotka, Chairman of the e-Residency Advisory Board and one of the founders of the programme, believes that the service economy sector, which is gaining momentum thanks to e-Residency, plays a key role in increasing the state’s revenue base and supporting e-government exports.

"No country has yet reached Estonia's level in providing digital business services, and if it has, Estonia also has many years of experience and knowledge in serving international entrepreneurs. As competition between countries in digital services and entrepreneurship becomes increasingly fierce, it is the quality and reliability of the Estonian service sector that will determine whether foreign companies will come to Estonia to do business," Kotka said.

He added that Estonia's competitive advantage will only be maintained if e-residency boldly takes the next leap in technological development.

"We must start to trust and use new technological possibilities, such as collecting fingerprints and facial images, as well as real-time identification of documents and individuals using mobile applications, so that e-residency becomes even more secure and useful for the state, as well as user-friendly. At the same time, it is necessary to completely eliminate the need for a physical e-resident digital identity card as soon as possible," Kotka emphasized, adding that pilot projects are actively developing and, according to plans, will become available to e-residents in the next couple of years.

In 2023, the direct economic benefit of e-residency for the state (labour and dividend taxes, as well as state fees) amounted to 67.4 million euros. The total costs of the e-residency programme, including the contribution of partners from government institutions, amounted to seven million euros in 2023, of which, in addition to the targeted funding of the e-residency programme EIS, the Police and Border Guard Board invested 627 thousand euros, the Information Technology and Development Centre of the Ministry of the Interior (SMIT) – 197 thousand euros and the Tax and Customs Board – 93 thousand euros.

The e-residency program was launched on 1 December 2014 with the aim of providing foreign citizens with secure access to the electronic services of the Estonian state. Since then, more than 117,000 people (excluding revoked statuses) from 185 countries have become e-residents. There are currently 59,500 e-resident digital IDs in circulation, each valid for five years.

E-residents have founded or co-founded more than 32,200 Estonian companies, or about every fifth new Estonian company per year, and 38 percent of Estonian startups are also connected to e-residents. The direct economic impact of the e-residency program on the Estonian state since its inception has amounted to 244 million euros.

The economic impact of the programme is determined based on a state-approved model that takes into account the labour taxes paid by Estonian e-resident companies and income taxes in special cases (mainly on dividends).

E-resident enterprises are those Estonian enterprises in which the role of an e-resident in the enterprise is established at the time of establishment or within 90 days thereafter, and the e-resident status of a foreign citizen who joins the enterprise must be established before the establishment of the enterprise.

E-residents are regularly and thoroughly checked at the state level before and after registering a business. Within the scope of their powers, the Police and Border Guard Board, the Security Police Board (KaPo), the Tax and Customs Board, and the Money Laundering Intelligence Bureau carry out state supervision of the use of digital identity cards by e-residents.

E-residency does not grant citizenship, tax residency, a residence permit or permission to enter Estonia or the European Union. The e-resident’s digital ID is not a physical identity document or travel document and does not have a photo.

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