Brexit and possible trade barriers thrown up against UK companies is a vexing problem which could be solved by becoming an e-resident of Estonia .
The advert on Twitter reads: “Worried about Brexit? Estonian e-residency is your gateway to the EU company.” It’s a tantalising offer. Escape the uncertainty of Brexit and become Estonian. And as no ordinary citizen, but an e-resident – a cyber Estonian.
Keep your eyes peeled and you’ll see other ads for the scheme popping up online. It turns out German chancellor Angela Merkel is an e-resident of Estonia. So is Japanese prime minister Shinzo Abe.
But what does it all mean? What is an e-resident? And does it really offer an escape for Brits fretting about life after Brexit?
The man to talk to is Taavi Kotka, Estonia’s chief information officer and co-architect of the scheme. Arranging an interview is spookily simple.
Estonians love transparency in government, so much so ministers list their personal e-mails and telephone numbers online. It takes 30 seconds to find Mr Kotka’s, ping an e-mail and 11 minutes later our interview is arranged. It can be harder to book a table in the local pub.
He explains the gist. An e-resident can use all the services open to ordinary Estonians. E-residents get a card and digital ID, making it possible to form a company, transmit documents, administer a company and conduct e-banking (a visit to a bank in person will be necessary to open an account). “The beauty of the whole programme is that it costs zero to us,” says Mr Kotka. “It’s the same processes and the same functions as Estonians use.”
The one thing missing is travel and residency rights. This is not a passport. Forming a company is the big attraction. Estonia is famously free market and anti-bureaucratic. “You can do the same in Luxembourg for €10,000 a year,” concedes Mr Kotka. “In Estonia it’s €1,000.”
To apply for e-residency, head online to apply.e-estonia.com. If approved, a trip to the Estonian embassy is mandatory – a security precaution which prevents mass applications and other abuses. And that’s it. The welcoming kit includes a chip-and-PIN card, a USB card reader and codes to access Estonian public services.
Already some clever Brits will be thinking this could be the ideal way to lower their tax bill. Estonia indeed has the most competitive tax system in the developed world, according to the International Tax Competitiveness Index. It ranks number one on corporation tax and second on individual taxes. Alas, no, says Mr Kotka.
“We are not selling it on tax. OECD [Organisation for Economic Co-operation and Development] countries already share information and tax, and they agree that taxes should be paid where value is created,” he says. “You are not physically in Estonia and you don’t use our roads or schools, so we don’t tax you. But if you are, for example, in the United States, you use those things there, so you need to contribute to US taxes.”
He emphasises the point again: “We are not a tax haven. If you want that you have several other choices.”
Tax experts agree with this assessment. Carl Bayley, author of the Taxcafeguides, says it would be necessary to move to Estonia to take advantage of their low rates. “If you are in the UK, you’d pay tax where you run the company. So in this case you’d need to move to Estonia, and hold board meetings and run the company out there,” he says.
Even then, repatriating profits to the UK while retaining British residency status wouldn’t be easy as dividends are payable to HMRC. Mr Bayley says: “Offshore companies work for people who can afford to tick all the right boxes and make sure the company trades abroad for ten years, accumulates profits, builds up reserves and then they emigrate to collect it.” Not easy. Nor is finding a tax lawyer who understands Estonian tax laws.