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Estonian e-Residency

Patrick Jones

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I live in a country that is technologically a decade behind the rest of the world and suffers from a bureaucracy that makes a Hieronymus Bosch painting look like rainbows and unicorns (Germany).

When I first entertained the thought of starting my own SaaS business, I researched the administrative background and wasn't all too happy about what I unearthed.

After a couple of days of reading I wiped the vomit off the corner of my mouth and started looking for alternatives.

The requirement: Just let me run my business!

As a former digital nomad I still had a foot in the DN community and plugged back in to find out how people run businesses in foreign countries.

The answer that popped up surprisingly often: Estonia.

So far I only knew the country as a way for Finns to buy cheap booze, but apparently this little piece of land in the European north-east is fast becoming a tech hub.

And the main reason it is so popular with digital nomads: You can become an e-resident and run a business out of the country without ever setting foot in it.

What is e-Residency | How to Start an EU Company Online

Sounds too good to be true? Well I decided to find out.

In early October I filed my online application, transferred the €100 fee and expected to hear back within 6-8 weeks.

By the end of November I received an email from the Border Guard Board that my application had been received (sic!). By that time I had expected for it to have been processed, not received.

Then, in the last days of 2018, the happy news: My e-Residency had been granted and my documents would soon be ready for collection at the nearest Estonian embassy.

Not having received further news by the end of January, I followed up and learned that my e-Residency kit had long arrived at the embassy. The latter had just forgotten to send out the email.

Oh well.

Yesterday the moment finally came and I headed over to the Berlin west to receive my digital identity card and card reader from the consulatory staff.

Next step: Get in touch with Estonian providers that can help me set up the actual business:

Service providers | e-Residency

Will keep you posted.
 

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There are tax implications regarding running a business in Estonia if you live in Germany. I'm not an expert, but you'll most likely be subject to German taxes and regulations unless you open a physical office in Estonia, hire employees there, and possibly spend time there as well.
 

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Patrick Jones

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I'm not an expert, but you'll most likely be subject to German taxes and regulations [...]
Jup, the European countries are closely linked in that regard. That's fine with me though, I'm not doing this to get around taxes. The aim is to avoid the hassle (and cost!) of registering and running a company in Germany.

@GlobalWealth is your guy, there is some good info in this thread https://www.thefastlaneforum.com/community/threads/progress-thread-building-out-a-crypto-mine-step-by-step-ama.83420/ whereby he plots the trials and tribulations of setting up a business in Estonia as an e-resident.

Spoiler alert, you'll need an Estonian lawyer, and/or someone on the ground.

Good luck, and please keep us posted.
Thanks for the link, I'll check it out!

They have a list of "people on the ground":
Service providers | e-Residency
Services and prices vary quite significantly, so will need a couple of days to enquire with a few of them.
 
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Patrick Jones

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There are a couple of Estonian companies that provide both a postal address in the country as well as accounting and reports. Prices for that vary greatly and it is a bit of a mess to understand.

One key factor for me was that I'll be running a SaaS and with that will have a huge amount of comparatively small purchases. That's opposed to a more traditional business where you will often have just a few invoices each month. That factor ruled out most of the available providers, as they only include 5-10 sales receipts each month and will bill extra for additional ones.

In the end I decided to go with LeapIN (LeapIN – Start and run your micro business) as they offer a plan especially for SaaS businesses.

Their website is outstandingly smooth and the support is responsive. It took less than two days to found the business and all was done from the comfort of my desk chair. Pretty happy with that so far.

Next step is the bank account and I initially decided to go with Holvi. Getting an account with a "proper" Estonian bank requires a trip to the country and I'm not yet ready to do that.

Experience with Holvi has been pretty shitty so far. Their website is cumbersome and the support non-responsive. Will ditch them in favour of TransferWise.
 

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Things like this give me hope that countries are going to start "feeling the burn" of international competition...

Ideally at some point in the next 40-50 years, countries will have to earn our business instead of monopolizing force.

I have subscribed!
 

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I recently moved in and from what I see Berlin is a top destination for tech industry (correct me if I am wrong).
I do understand that the internet is not so great and the service on almost anything is terribly slow but why is so bad to start a company in Germany? Also, most businesses in Germany are small to medium size companies.
 
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Patrick Jones

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I recently moved in and from what I see Berlin is a top destination for tech industry (correct me if I am wrong).
You're not. It is considered by many the European equivalent of the Silicon Valley. Cheap cost of living, lots of young talent, central European location - it is a good place.

I do understand that the internet is not so great and the service on almost anything is terribly slow
Internet is good, at least up to the city limits. In regards to anything "service", Germany is a desert.

but why is so bad to start a company in Germany? Also, most businesses in Germany are small to medium size companies.
It involves a lot of bureaucracy, lawyers, notaries, etc. The latter two of which charge dearly.

To found my company in Estonia, all I had to do was fill out some online forms and plug my identity card in. Cost of running it is at a mere €49/m currently. That is just in a different league.
 

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Hey!

Great to read that you're working on getting e-residency!

I am a local guy so if you need some help or have questions then let me know! :) I'm definitely not a specialist but it is maybe easier for me to contact local businesses and government on your behalf.

Best wishes from Tartu, Estonia!
 

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Am I the only one seeing this? Anyone looking for a Fastlane business: simplify setting up a business in Germany.
 

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Patrick Jones

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I am a local guy so if you need some help or have questions then let me know! :) I'm definitely not a specialist but it is maybe easier for me to contact local businesses and government on your behalf.

Best wishes from Tartu, Estonia!
Thanks for the offer, much appreciated!
What's the reputation of the whole e-Residency thing among the locals? Do people know about it?

Am I the only one seeing this? Anyone looking for a Fastlane business: simplify setting up a business in Germany.
The lawyers already provide that service, i.e. they talk you through it and then fill out the forms. You still have to rock up at the notary though. Don't think this is CENTS compatible.
 

richRich

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Am I the only one seeing this? Anyone looking for a Fastlane business: simplify setting up a business in Germany.
Provide an automated service/solution somehow, would be an interesting thing.

I am not sure, though, who exactly the target group would be.
I opened a small e-commerce one-man-business here once and it was basically filling out two forms (one to the tax authorities and one to the Trade Office).

It may be a whole different story for a complex SaaS business, as Patrick seems to have, but to be honest I don't see it.
As of my understanding, if you want to keep the lawyers out and you have never opened a business in Germany before, you'll spend a few days figuring out what form of enterprise is the right for you, what insurances you need, what type of bookkeeping you'll have to do and then fill out the forms.

I'd be really interested why exactly setting up the business in Estonia would be much different from that process.
 
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Patrick Jones

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I opened a small e-commerce one-man-business here once and it was basically filling out two forms (one to the tax authorities and one to the Trade Office).
If it was a simple "Gewerbeanmeldung" then liability would be a big issue. I.e. if you screw up, they can take every last cent you own. To get around that, you need a business "mit beschränkter Haftung", which then is a completely different story.
 

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I was in a similar situation some years ago. Did look at the e-residency thing, but it was still new and I didn't go that route.

For anybody reading this who might be interested:

I ended up setting up my company in Hong Kong. I lived in Asia at the time so it was a logical choice. It was easy (the company setup - it can be done remotely). The only big problem with Hong Kong is that opening a (business) bank account in a huge pain in the a$$. You will need to visit in person, be well prepared, and hope for the best. I'm with HSBC, which was basically the only option and I was 'lucky' to be accepted - still their compliance paperwork is just terrible (they can ask for all sorts of paperwork, certified copies, $$$, yearly if you are unlucky.

Btw, both Paypal and Stripe is available in HK and that's all I need.

Taxes is another plus. Accounting and rules, etc is easy.

That being said - there is a (relatively new) great alternative for the traditional bank, they allow you to open an account remotely (requires an onboard process with a video chat), comes with a business credit card, receive payments (soon multi currency and international receiving accounts in EU, GB, USA). Don't want to look spammy, just a happy customer, PM me for details if interested).

Another option would be Singapore. It's about the same cost, maybe a bit more - but the downside is you need a local director for your company - you can 'rent' them, but still...

Anyway, didn't mean to hijack the this threat. Just dumping some thoughts.
 

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If it was a simple "Gewerbeanmeldung" then liability would be a big issue. I.e. if you screw up, they can take every last cent you own. To get around that, you need a business "mit beschränkter Haftung", which then is a completely different story.
Exactly it was. I didn't realize it was so much more pain. I really thought it's some of "reading yourself into the topic" and fill out the GmbH forms!

But I like the perspective that are always different ways to do something. Hope it works out well for you with the banks and all. Why are you not "ready" by the way to get the bank registration rolling in Estonia?
 

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Why do you think, it's not worth it in OPs case or in general?
I was one of the first Estonian e-residents. I think I am #80 or thereabouts.

I did it as a test for myself to determine ease of use and options for my clients.

In only a couple of special circumstances would I recommend an Estonian company. Even then, it is very specific to the person's situation.

An Estonian company "may" be good for crypto/blockchain related businesses due to their tax laws related to cryptocurrencies and it would be a good option if you have a physical presence in Estonia since all company and director information is very transparent for suppliers making business transactions smooth.

Unless you fall into one of these 2 categories, there are much better options than an Estonian company.

There is a ton of misinformation on the interwebs about Estonian companies claiming it is a low/no tax jurisdiction. I've even had client calls where the client swears Estonia has a tax holiday for non-residents because he read that on a very well known blog for expats/nomads.

This is completely false. In fact, many of the webpages for the Estonian company and tax information is only in Estonian. I had a call last year with the Estonian tax department trying to sort out the process for applying for and registering a VAT number and I was told on the phone that this information is ONLY offered in Estonian language.

Considering there are only about 1MM Estonian speakers on the planet, this does not seem very user friendly for a location independent entrepreneur looking for a simple solution.

There are WAY better options for most location independent entrepreneurs.
 

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Am I the only one seeing this? Anyone looking for a Fastlane business: simplify setting up a business in Germany.
Germany would be one of the last places on this planet where I'd recommend setting up a company.
 

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There are tax implications regarding running a business in Estonia if you live in Germany. I'm not an expert, but you'll most likely be subject to German taxes and regulations unless you open a physical office in Estonia, hire employees there, and possibly spend time there as well.
As a German resident you will definitely be subject to German tax on your Estonian company.
 

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I was in a similar situation some years ago. Did look at the e-residency thing, but it was still new and I didn't go that route.

For anybody reading this who might be interested:

I ended up setting up my company in Hong Kong. I lived in Asia at the time so it was a logical choice. It was easy (the company setup - it can be done remotely). The only big problem with Hong Kong is that opening a (business) bank account in a huge pain in the a$$. You will need to visit in person, be well prepared, and hope for the best. I'm with HSBC, which was basically the only option and I was 'lucky' to be accepted - still their compliance paperwork is just terrible (they can ask for all sorts of paperwork, certified copies, $$$, yearly if you are unlucky.

Btw, both Paypal and Stripe is available in HK and that's all I need.

Taxes is another plus. Accounting and rules, etc is easy.

That being said - there is a (relatively new) great alternative for the traditional bank, they allow you to open an account remotely (requires an onboard process with a video chat), comes with a business credit card, receive payments (soon multi currency and international receiving accounts in EU, GB, USA). Don't want to look spammy, just a happy customer, PM me for details if interested).

Another option would be Singapore. It's about the same cost, maybe a bit more - but the downside is you need a local director for your company - you can 'rent' them, but still...

Anyway, didn't mean to hijack the this threat. Just dumping some thoughts.

The problem with both Hong Kong and Singapore now is that it is almost impossible to open a bank account for your HK or SG company unless you are resident in those places.

It is not impossible, but just very difficult and costly. As you noted, in SG you can get a local director, but you are also giving them full access to your company and bank account.

Under the new CRS directives established in 2016 (and just being enforced over the past few months) many HK and SG banks are also closing accounts for persons and companies who no longer maintain residency in those jurisdictions.

I have had several clients over the past couple of months have their HK company bank accounts get closed when they cannot prove they still have HK residency. Same with SG.
 
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Patrick Jones

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They apparently have mode some changes over the years.



Name one?
I am aware of the changes and currently have an Estonian company, but in a very specific niche that necessitates an Estonian company.

I am also in Estonia at least twice per month and have a place there. One of my partners lives there.

Additionally I went to law school in the Baltics.

As for naming one, that really depends on the situation.

But I can say I would almost never recommend an Estonian company to a client.

Sent from my VTR-L29 using Tapatalk
 

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Germany would be one of the last places on this planet where I'd recommend setting up a company.
For location independent people, completely get it. But for people with a business based in Germany? Or a large base of operations in Germany? Would assume a GmbH would make sense for them no?

As a side note, not sure how this is in Germany, I’m based in the Netherlands. Here some people also look for a way to not incorporate locally because an U.K. or HK limited is cheaper. But there are no banks that I know of in NL that would open an account for a new foreign company. Too little to gain, too much compliance headache. And even with a foreign limited, if you have your tax home in NL, you’d need to file taxes and paperwork as if you were locally incorporated.
 

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Provide an automated service/solution somehow, would be an interesting thing.

I am not sure, though, who exactly the target group would be.
I opened a small e-commerce one-man-business here once and it was basically filling out two forms (one to the tax authorities and one to the Trade Office).

It may be a whole different story for a complex SaaS business, as Patrick seems to have, but to be honest I don't see it.
As of my understanding, if you want to keep the lawyers out and you have never opened a business in Germany before, you'll spend a few days figuring out what form of enterprise is the right for you, what insurances you need, what type of bookkeeping you'll have to do and then fill out the forms.

I'd be really interested why exactly setting up the business in Estonia would be much different from that process.
Main reason I see a potential opportunity is because in The Netherlands we also need to go to a notary to incorporate, statutes etc. But if I compare today, to 10 years ago it’s much easier because of entrepreneurs who focused on making it cheaper and doing most of the work online. It used to take weeks and cost 3-5.000 Euro for a simple setup. Now I can get it done for 300-500. Also leads to more people starting businesses by incorporating so the market grows because of the service.
 

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For location independent people, completely get it. But for people with a business based in Germany? Or a large base of operations in Germany? Would assume a GmbH would make sense for them no?

As a side note, not sure how this is in Germany, I’m based in the Netherlands. Here some people also look for a way to not incorporate locally because an U.K. or HK limited is cheaper. But there are no banks that I know of in NL that would open an account for a new foreign company. Too little to gain, too much compliance headache. And even with a foreign limited, if you have your tax home in NL, you’d need to file taxes and paperwork as if you were locally incorporated.
If the business has a physical presence in Germany, then yes a German gmbh is most likely the best option.

There are other factors though.

For example, if the person is a Dutch citizen and resident of Germany then any company income will be taxed in Germany due to Germany's strict CFC rules.

This topic is quite complex and unless you are a professional, it's not a diy project.

Sent from my VTR-L29 using Tapatalk
 
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richRich

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Main reason I see a potential opportunity is because in The Netherlands we also need to go to a notary to incorporate, statutes etc. But if I compare today, to 10 years ago it’s much easier because of entrepreneurs who focused on making it cheaper and doing most of the work online. It used to take weeks and cost 3-5.000 Euro for a simple setup. Now I can get it done for 300-500. Also leads to more people starting businesses by incorporating so the market grows because of the service.
So, from what I've just researched, I can't see a huge business opportunity there. The main obligatory steps for the GmbH Setup are:

1. set up a "partnership agreement/contract" (I guess this is the part where you'd want some lawyers to help you out when you have a complex use case? With a "normal" use case, you can still spend a few days yourself, though, and create the contract on your own by using some templates and the help of many many online portals to do that)

2. Legitimize the contract with by a notary (cost: up to 1000€)

3. Entry in commercial register and similar (cost: around 200€)

Total time necessary for the legal process if you have everything researched and prepared: up to two weeks

Can't see much of potential here to help the founders with their GmbH setup...
 
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Patrick Jones

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To share a little more about Estonia: Things have been going smooth so far. Both a Transferwise account and a Paypal account have been set up.

Payment gateways and banks are something to keep in mind when considering Estonian e-Residency. From what I've gathered so far, many providers are very reluctant to support businesses run by e-Residents. Paypal is working though and Stripe is scheduled to open it's doors in the 2nd quarter of the year.
 

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So you don't have a bank account yet?

Local lawyers told me that it's really an issue. Banks reject many requests to open business accounts for e-resident companies.

Good news: they are more likely to open an account when the company's already in business for a few months and regularly paying a salary at least to the director. And it's possible to open a bank account in any EU country, it doesn't have to be Estonia. You're from Germany so it probably shouldn't be too hard.

P.S. Recently applied for E-Residency too (10 min + photo), my partners are still in progress... We're probably gone start with Hovli and Paypal, and open a bank account in Poland later.
That if our applications won't be declined...
 
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So you don't have a bank account yet?
With a traditional bank, no. With Transferwise, yes.

For me the bank account functions mostly as a thoroughfare. Most revenue the company makes, I draw out by billing matching amounts from my freelance business (quite common to do that, apparently). That way there is never much floating around.
 

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