This kind of stuff only happens in very small nations in my experience. They often have very little to lose, and the barrier to make major changes is small. This has been true in many of the smaller nations I've lived in, but I can't see the United States and other larger nations ever being efficient with the transition to this.
The problem is that in order to operate as a startup, as the whole point of the e-residency is, it's not that easy.
Getting a bank account as of end of September is quite hard, border line of impossible. Without a bank account, no startup can be setup properly.
Other than that - very good idea and probably the execution will be even better in the near future.
Right now yes, to open a bank account in Estonia you need to visit a local bank physically (although then it is very easy). Part of the money laundering regulations common in Estonia. Luckily this law will change in spring.
Why is this considered hard? A date flexible return flight from Toronto is $935 ($725 USD). Compared to what a developer can make in really any Western country, I don't really see what the issue is.
Compared to what a developer can make in really any Western country.
In my Western European country, we make less than $20k/y on average, so that is kind of high (~ 2 months' rent) for developers on the lower end of the scale.
I'm not arguing against you, just pointing out that salaries for devs are very variable even in the Western countries.
He quoted you a price from Toronto. You can probably find Ryan air for under 200€ roundtrip - bigger problem will be that you'll probably spend 2 days on it.
Also 20k $/year as a developer ?! You earn more in Eastern Europe unless you're a PHP "developer" or something like that.
In the Nomad Forum where Estonia is currently giving an AMA, they mentioned that many of the applicants are coming from India & Malaysia, where the cost of a flight would be a much bigger deal.
Not myself, but a very good friend tried that. He submitted all the paperwork electronically and went to Estonia for a week to open a bank account.
From the 3 banks that are supporting E-residency they all denied to open the account. One of the managers he talked with explained that the bank do not open accounts without physical address in Estonia.
Probably that will change, but that's experience from end of September this year.
Not to mention the disappointment for the whole process, which is not as advertised, although he did a very nice trip to the country itself and was worth it (his words).
Try opening a bank account in the UK, if you think it's hard in Estonia. Unlike Estonia, you CAN NOT just come to the UK from a foreign country and open a bank account. Even if you've lived here for a while, it's still an unbelievably ridiculous, frustrating and wasteful process.
Let's start with having to call the bank weeks or months in advance for an appointment, like everything else in the UK. Even though your appointment is for a specific hour, once you arrive on time, be prepared to wait hours before someone sees you. You will then need two different proofs of address, alongside endless other documents. For a business account, you need all partners to be present at said appointment and you will be asked endless questions about the nature of your business and your expected cashflow. If for some reason your conversational English happens to be not so good, be prepared to be flat-out refused a bank account, without much explanation. All of this is usually justified by Know-Your-Customer and anti money lanundering procedures, which is a bit ironic, considering that HSBC are the ones doing all the money laundering to begin with.
Totally agree. It has been an exceptionally difficult process to open a bank account for my UK company. Ridiculous amount of nonsense. Your point about the money laundering irony is also spot on.
I moved to the UK from a foreign country (from the EU though) and found it quite easy to start my company and open my accounts.
It really depends on the bank and branch you're walking into. My advice: Avoid doing what I did and don't apply for your first current account online. It might seem more efficient and time-saving but it's actually not - because of your non-existent credit history in the UK - they will have to ask you for endless documents.
Once you're in the UK, walk into a high-street bank that is actively seeking customers. Lloyds Bank or Barclays comes to mind. Ask for a basic bank account, which they will open for you without proof of address. Make an appointment with the same bank for a startup current account - sometimes they will send you to a different branch - if they don't do business banking themselves.
They will ask you about your business and estimated turnover. Make sure you bring your incorporation documents.
It's worth noting that I'm the only director of my limited company and the companies registered office was my home address - so no further proofs of address were required.
Waiting for your cards to arrive in the mail is what takes the most time, but I was able to use my online banking account even before I had my card.
Been there, done that.
It took me almost two months to open a bank account once I was there and even then I was considered lucky given the requirements at that time.
But it is not that easy in Estonia either, second hand experience from a friend - he went there to setup a startup to be used later, but no luck.
If you are e-citizen in estonia you can easily open a company there.
Taxation in estonia is pretty nice since basically the only tax you pay is when you pull money out of the company, not when you sell something, as long as the money are inside the company you don't own anything.
(Of course is a little bit more complex that this, but here is the idea, you need to pay tax if you have employee for example)
If you do not reside in Estonia then, when you extract money, you get to keep 80%, minus the dividend tax of your country of residence.
Despite there being double-taxation treaties with several countries, Estonia taxes the company paying dividends, and not the individual receiving them, so you may not be in a double-taxation situation. But I am not a lawyer or an accountant; it is better to consult with one.
The exiting news is that estonia is working let people open a bank account remotely, it should be live in Autumn 2016 [1], which is an year from now, but it will really bring a lot of changes...
How much is the cost of being an Estonian e-citizen?
When i was there i understood there was some cost, roughly < 100 euros.
Is every step of the procedure online? or some paperwork has to be done in Estonia (this is was my understanding of last time)
I applied to this. It was a form online, and I paid €50.99 at the time. (€50 for the application fee and a €0.99 charge to cover the cost of paying with a Visa or MasterCard.) It took about twice as long as they promised with my application (although this was just after they'd started online applications), but with a little nudging by email, the package (card, reader, PIN numbers, etc) arrived at the Estonian embassy in London. A signature and some fingerprints, and they handed over the package.
I feel they could have been a little more transparent and clear about what stage my application was at, but overall it was fairly easy.
You don't actually have to go to Estonia to collect the card or do any of the processing in person there anymore. It can be done all online and everything delivered and finalized at your local Estonian embassy or consulate. When the program first started, to apply you had to make a physical appearance in Estonia. You still do to open up a bank account -- for now.
The software does work on Ubuntu. There's poor or no support for other distros IIRC.
I've yet to incorporate or actually use it for any practical purpose, but I expect to in the coming month or so. Estonia is doing some really cool things and it seems to be a decent jurisdiction to run a location-independent business from. I've still got a lot of experience to gain though.
The online application (€50) was very easy to fill out, and I received status updates via email. My e-Residency was granted 51 days after submission, and the card was ready to be picked up 8 days later.
I picked up my card at the Estonian consulate in NYC over the summer. You just have to bring ID, and they will fingerprint you while you're there.
I think it was the most pleasant interaction I've ever had with a government.
It's worth noting that you can get similar benefits from Singapore.
Singapore doesn't have a cute "E-residency" program, but a foreigner can just pay a local agent and have a corporation opened. Corporate taxes are a clean 17% (lower for small businesses and startups), no dividend taxes, etc.
You also get a fairly stable and well established set of corporate law, which unfortunately Estonia doesn't offer (yet).
The real tricky bit for Americans is how Singapore's tax system (just corporate income tax!) would interact with the US's crazy one (e.g. dividends, capital gains, random other things).
Estonia benefits from not taxing profits. So if you invest your profits into the company or just keep the cash in the company there is not tax. Distributed profits are taxed at 20%.
Depending on what you do this may benefit you and makes deferring taxation indefinitely trivial.
I don't believe corporations in the U.S. pay taxes on dividends they disburse. Generally the principle in the U.S. is that whenever you receive money you get taxed. There are lots of ways to reeive money hence lots of different taxes. It seems reasonable. If one form of income were not taxed then things would end up getting skewed in that direction.
>I don't believe corporations in the U.S. pay taxes on dividends they disburse. Generally the principle in the U.S. is that whenever you receive money you get taxed.
This is not true. While many countries do not do this, dividend payments are not tax deductible in the US. In fact, they are double-taxed (at both the corporate and individual level) which is one of the reasons/arguments for individual taxes on dividends being taxed lower than income tax rates.
I believe the principle is that whenever you receive money you get taxed. There are some exceptions and money is taxed at different rates depending on the way you receive it. But for the most part the idea is that whenever you directly receive money there are tax implications. This seems reasonable to me.
In the case of corporations and dividends to shareholders you are correct. I don't know of any other such examples.
No, shareholders pay taxes on dividends. It's a more or less meaningless distinction - as a shareholder your business profits are taxed on the way in and again on the way out.
If one form of income were not taxed then things would end up getting skewed in that direction.
This is wrong. The problem is that different paths of money get taxed in different ways. If you buy stock, then sell it back during a stock buyback, you get taxed at one rate. If you receive dividends, you get a different rate. If instead of buying stock you loaned money, you'd be taxed at a third rate.
Plus, to minimize taxes, people now need to minimize the # of times money moves rather than making the most productive investment.
An additional cost of these various taxes result in the bizarre situation that you get more consumption if you consume today rather than in the future: http://www.themoneyillusion.com/?p=28842
Singapore (and Estonia) are doing it right, and the US is doing it wrong. The most economically efficient tax (besides properly calibrated pigouvian taxes) is a single tax on consumption by humans and the next best is a single tax on income by humans.
With regard to shareholders and corporate and dividend taxes you are correct. My statements on this were wrong.
The general principle I stated is the one employed in the U.S. Generally, when one receives money there are tax implications. There are some exceptions to this principle but this is the general idea. The different ways of receiving money have different tax rates and this causes a skewing of how "income" is begotten in the U.S. by the very wealthy. They prefer getting money via capital gains since the tax is less that route.
I don't think one can reasonably argue that not taxing one form of income would lead to people preferring to get income via that tax free route. The objection I had to your original post is that the U.S. tax principle is bad. It is reasonable to tax all income streams. I don't know the optimal for each stream but given that taxes in the U.S. are low relative to the past 70 years suggests the rates aren't burdensome.
Yeah, I wasn't disputing that this is how the US does it. I was disputing that absent this, things would be skewed.
The issue is not taxing personal income, the issue is taxing corporations. A nearly ideal situation would be to eliminate all corporate taxes and tax individuals at a fixed rate when corporate wealth is transferred to shareholders. The only better situation would be eliminating all income taxes and replacing them with consumption taxes.
Unfortunately, this is a political non-starter - it would eliminate the ability of politicians to pretend they aren't indirectly taxing people when corporate taxes are raised.
From my (limited, I Am Not A Lawyer, etc.) understanding:
First, it's expensive - you should count a good S$5k SGD/year if you go through an established player (e.g. Hawksford, who you are quoting), maybe a bit less otherwise. This ad infinitum, as you need a local director to keep the company open. And unlike in Hong Kong not so long ago, it has to be a real director - someone who theoretically can open bank accounts and hire people - so you're taking that risk too (the director will, conversely, be taking the risk that you might be a scammer or other criminal whose acts he'll have to answer for in court).
Then you have to put in S$50k in capital in order to be able to apply for a visa (EP) for yourself, should you want permission to work in Singapore (if not, you'll get taxed at home when repatriating profits); this visa will require, today, at least S$4-5k/month in "salary" (which will be taxed).
This also assumes that the Ministry of Manpower doesn't suddenly catch upon this very convenient way of getting yourself what is effectively an investor visa at a fraction of the investor visa cost (which they did two years ago with the EntrePass, which is today utterly useless for most foreign founders due to its requirement to have funding from a short list of approved VCs). Guessing what MoM wants and is going to do seems to be a bit of Kremlinology which HR directors love talking about as their special value add, but it is a bit opaque and the rules change with time, elections and special circumstances (like the famed riots last year, or the Ferrari and taxi incident).
The "plan" should you want to take advantage of Singapore's otherwise fantastic conditions for running a business is to get PR, which takes up to 3 years employed locally (depending on salary - someone on a high salary and from a "desirable" country might get it in 6 months). Singapore is fantastic... for local founders. Or if you're willing to pay.
The days where you could be in business for USD 1,500 and a flight to Hong Kong appear to be, unfortunately, over. I'd love to be proven wrong...
I was suggesting incorporation in Singapore as a possible alternative to Estonia. The goal is to have a good legal home for a business which is not location dependent, not to actually live there.
A few years ago, I opened and closed a company there with no problems. Did it again recently (post the various money laundering laws) and it was much more paperwork. When I flew to HK to get the bank account opened, they stressed I might not get it and that many foreigners could not get an account opened. 4 weeks later, HSBC denied me an account so the company lies empty until I decide to close it.
In a previous thread, someone said they managed to open an account so maybe it's on a case by case basis.
Any experiences creating merchant account on Play store with this? (from unsupported countries). Do you also have to pay income/sales/other taxes to Estonia?
I am a citizen and a resident of another EU country, and have established a company in Estonia recently. Obtaining e-residency was fast and straightforward. I picked up the card in Tallinn, and opened the company the same day. You will need an address in Estonia, but there are companies that provide that service. I used LeapIn (https://www.leapin.eu) which also provide accounting services (disclosure: my only relationship to them is that I am their client). Their fees are very reasonable and they can help speed up the entire process.
I tried opening a bank account in two banks. One rejected me because (despite having the company) I did not have sufficient ties to Estonia. The other (Swedbank) was very friendly and opened the account the same day. Again, LeapIn smoothened the process for me. I picked up my banking card three days later and everything worked perfectly.
Obtaining a VAT number is more difficult, and I wouldn't have managed without LeapIn's help. You need to convince the tax authorities that there is a legitimate reason why you need it. You need to present evidence (I had a previous company in another EU country) and there are several rounds of dialogue (knowing Estonian, and the local rules is very handy).
Overall, I was amazed at how efficient the process is, and how much effort Estonia is putting into making it even better. This really looks like a major strategic initiative for the country, where they are putting a lot of thought and investment.
Tallinn really deserves a separate post. It is a very beautiful city, with lots of life and things to do, really good atmosphere, good food, and reasonable prices. Very well worth my one-week trip!
51 comments
[ 4.8 ms ] story [ 116 ms ] threadhttp://motherboard.vice.com/read/lets-all-become-e-residents...
so in addition to leading the way in digital citizenship, they also have impressive data coverage? Count me in!
Joke aside, I'm very interested in seeing how bigger countries will implement something similar
Other than that - very good idea and probably the execution will be even better in the near future.
In my Western European country, we make less than $20k/y on average, so that is kind of high (~ 2 months' rent) for developers on the lower end of the scale.
I'm not arguing against you, just pointing out that salaries for devs are very variable even in the Western countries.
He quoted you a price from Toronto. You can probably find Ryan air for under 200€ roundtrip - bigger problem will be that you'll probably spend 2 days on it.
Also 20k $/year as a developer ?! You earn more in Eastern Europe unless you're a PHP "developer" or something like that.
https://nomadforum.io/t/i-m-kaspar-director-of-estonia-s-e-r...
Let's start with having to call the bank weeks or months in advance for an appointment, like everything else in the UK. Even though your appointment is for a specific hour, once you arrive on time, be prepared to wait hours before someone sees you. You will then need two different proofs of address, alongside endless other documents. For a business account, you need all partners to be present at said appointment and you will be asked endless questions about the nature of your business and your expected cashflow. If for some reason your conversational English happens to be not so good, be prepared to be flat-out refused a bank account, without much explanation. All of this is usually justified by Know-Your-Customer and anti money lanundering procedures, which is a bit ironic, considering that HSBC are the ones doing all the money laundering to begin with.
It really depends on the bank and branch you're walking into. My advice: Avoid doing what I did and don't apply for your first current account online. It might seem more efficient and time-saving but it's actually not - because of your non-existent credit history in the UK - they will have to ask you for endless documents.
Once you're in the UK, walk into a high-street bank that is actively seeking customers. Lloyds Bank or Barclays comes to mind. Ask for a basic bank account, which they will open for you without proof of address. Make an appointment with the same bank for a startup current account - sometimes they will send you to a different branch - if they don't do business banking themselves.
They will ask you about your business and estimated turnover. Make sure you bring your incorporation documents.
It's worth noting that I'm the only director of my limited company and the companies registered office was my home address - so no further proofs of address were required.
Waiting for your cards to arrive in the mail is what takes the most time, but I was able to use my online banking account even before I had my card.
Taxation in estonia is pretty nice since basically the only tax you pay is when you pull money out of the company, not when you sell something, as long as the money are inside the company you don't own anything.
(Of course is a little bit more complex that this, but here is the idea, you need to pay tax if you have employee for example)
Despite there being double-taxation treaties with several countries, Estonia taxes the company paying dividends, and not the individual receiving them, so you may not be in a double-taxation situation. But I am not a lawyer or an accountant; it is better to consult with one.
[1]: http://us9.campaign-archive1.com/?u=d439c8680308c578a74dbd36...
How much is the cost of being an Estonian e-citizen? When i was there i understood there was some cost, roughly < 100 euros. Is every step of the procedure online? or some paperwork has to be done in Estonia (this is was my understanding of last time)
I feel they could have been a little more transparent and clear about what stage my application was at, but overall it was fairly easy.
You don't actually have to go to Estonia to collect the card or do any of the processing in person there anymore. It can be done all online and everything delivered and finalized at your local Estonian embassy or consulate. When the program first started, to apply you had to make a physical appearance in Estonia. You still do to open up a bank account -- for now.
The software does work on Ubuntu. There's poor or no support for other distros IIRC.
I've yet to incorporate or actually use it for any practical purpose, but I expect to in the coming month or so. Estonia is doing some really cool things and it seems to be a decent jurisdiction to run a location-independent business from. I've still got a lot of experience to gain though.
The online application (€50) was very easy to fill out, and I received status updates via email. My e-Residency was granted 51 days after submission, and the card was ready to be picked up 8 days later.
I picked up my card at the Estonian consulate in NYC over the summer. You just have to bring ID, and they will fingerprint you while you're there.
I think it was the most pleasant interaction I've ever had with a government.
Singapore doesn't have a cute "E-residency" program, but a foreigner can just pay a local agent and have a corporation opened. Corporate taxes are a clean 17% (lower for small businesses and startups), no dividend taxes, etc.
http://www.guidemesingapore.com/incorporation/company/singap...
http://www.guidemesingapore.com/taxation/corporate-tax/singa...
You also get a fairly stable and well established set of corporate law, which unfortunately Estonia doesn't offer (yet).
The real tricky bit for Americans is how Singapore's tax system (just corporate income tax!) would interact with the US's crazy one (e.g. dividends, capital gains, random other things).
Depending on what you do this may benefit you and makes deferring taxation indefinitely trivial.
This is not true. While many countries do not do this, dividend payments are not tax deductible in the US. In fact, they are double-taxed (at both the corporate and individual level) which is one of the reasons/arguments for individual taxes on dividends being taxed lower than income tax rates.
In the case of corporations and dividends to shareholders you are correct. I don't know of any other such examples.
If one form of income were not taxed then things would end up getting skewed in that direction.
This is wrong. The problem is that different paths of money get taxed in different ways. If you buy stock, then sell it back during a stock buyback, you get taxed at one rate. If you receive dividends, you get a different rate. If instead of buying stock you loaned money, you'd be taxed at a third rate.
Plus, to minimize taxes, people now need to minimize the # of times money moves rather than making the most productive investment.
An additional cost of these various taxes result in the bizarre situation that you get more consumption if you consume today rather than in the future: http://www.themoneyillusion.com/?p=28842
Singapore (and Estonia) are doing it right, and the US is doing it wrong. The most economically efficient tax (besides properly calibrated pigouvian taxes) is a single tax on consumption by humans and the next best is a single tax on income by humans.
The general principle I stated is the one employed in the U.S. Generally, when one receives money there are tax implications. There are some exceptions to this principle but this is the general idea. The different ways of receiving money have different tax rates and this causes a skewing of how "income" is begotten in the U.S. by the very wealthy. They prefer getting money via capital gains since the tax is less that route.
I don't think one can reasonably argue that not taxing one form of income would lead to people preferring to get income via that tax free route. The objection I had to your original post is that the U.S. tax principle is bad. It is reasonable to tax all income streams. I don't know the optimal for each stream but given that taxes in the U.S. are low relative to the past 70 years suggests the rates aren't burdensome.
The issue is not taxing personal income, the issue is taxing corporations. A nearly ideal situation would be to eliminate all corporate taxes and tax individuals at a fixed rate when corporate wealth is transferred to shareholders. The only better situation would be eliminating all income taxes and replacing them with consumption taxes.
Unfortunately, this is a political non-starter - it would eliminate the ability of politicians to pretend they aren't indirectly taxing people when corporate taxes are raised.
First, it's expensive - you should count a good S$5k SGD/year if you go through an established player (e.g. Hawksford, who you are quoting), maybe a bit less otherwise. This ad infinitum, as you need a local director to keep the company open. And unlike in Hong Kong not so long ago, it has to be a real director - someone who theoretically can open bank accounts and hire people - so you're taking that risk too (the director will, conversely, be taking the risk that you might be a scammer or other criminal whose acts he'll have to answer for in court).
Then you have to put in S$50k in capital in order to be able to apply for a visa (EP) for yourself, should you want permission to work in Singapore (if not, you'll get taxed at home when repatriating profits); this visa will require, today, at least S$4-5k/month in "salary" (which will be taxed).
This also assumes that the Ministry of Manpower doesn't suddenly catch upon this very convenient way of getting yourself what is effectively an investor visa at a fraction of the investor visa cost (which they did two years ago with the EntrePass, which is today utterly useless for most foreign founders due to its requirement to have funding from a short list of approved VCs). Guessing what MoM wants and is going to do seems to be a bit of Kremlinology which HR directors love talking about as their special value add, but it is a bit opaque and the rules change with time, elections and special circumstances (like the famed riots last year, or the Ferrari and taxi incident).
The "plan" should you want to take advantage of Singapore's otherwise fantastic conditions for running a business is to get PR, which takes up to 3 years employed locally (depending on salary - someone on a high salary and from a "desirable" country might get it in 6 months). Singapore is fantastic... for local founders. Or if you're willing to pay.
The days where you could be in business for USD 1,500 and a flight to Hong Kong appear to be, unfortunately, over. I'd love to be proven wrong...
In a previous thread, someone said they managed to open an account so maybe it's on a case by case basis.
I tried opening a bank account in two banks. One rejected me because (despite having the company) I did not have sufficient ties to Estonia. The other (Swedbank) was very friendly and opened the account the same day. Again, LeapIn smoothened the process for me. I picked up my banking card three days later and everything worked perfectly.
Obtaining a VAT number is more difficult, and I wouldn't have managed without LeapIn's help. You need to convince the tax authorities that there is a legitimate reason why you need it. You need to present evidence (I had a previous company in another EU country) and there are several rounds of dialogue (knowing Estonian, and the local rules is very handy).
Overall, I was amazed at how efficient the process is, and how much effort Estonia is putting into making it even better. This really looks like a major strategic initiative for the country, where they are putting a lot of thought and investment.
Tallinn really deserves a separate post. It is a very beautiful city, with lots of life and things to do, really good atmosphere, good food, and reasonable prices. Very well worth my one-week trip!