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The secrets of the Estonian e-residency beyond the marketing
We explained to our readers how to become e-resident of Estonia, and how then to create a company with the same status. While Estonian authorities and the press, invited in the cozy showrooms, present everything in the best light (lower taxation, simplified procedures, etc.), here we share the practical negative aspects. And some secrets well kept by the administration.
CONFIDENTIAL REPORT - E-resident company: How to open a bank account in Estonia (and how to keep it)
E-residence is not a right of residence on the land of the country. It's a smart card that allows to have access to almost all the services available to real residents' identity card without ever coming into the country. Such as electronic signature of documents. In fact, it is mainly used in the first place to open a company on the Internet in a matter of just few minutes. But many e-residents are stranded at this stage, having paid their e-residency card (100 €), the commercial register (190 €), the rental of a postal address and the accountant services (a commitment of several hundred euros).
Narrow-minded banks
Indeed, many e-residents complain about banks refusing to open an account. These banks criticize them for not having any link with Estonia, in a direct contradiction to the philosophy of e-residency that targets digital nomads and worldwide activities. Sometimes banks ask for a prove of profitable activity for several months before opening an account. But how to be beneficiary if you have no account to start the activity? Three banks were supposed to support the status: LHV (which we really do not recommend!), Swedbank and SEB. The latter is even no longer recommended by the e-residency team, and it might not be entirely SEB's fault. Moreover, other Estonian banks, never mentioned by the administration, can open accounts (if the file is solid) to non-residents, without regard to whether they have an e-residency card or not. For LHV and Swedbank, the e-residency team instructs to use a service provider to facilitate the account opening, which represents a significant extra cost with no guarantee of results. The name Leapin is pronounced with a frequency that causes nausea, the administration nearly treating the (often cheaper) competitors as if they didn't exist, whereas some of them are announced as partners. Again, the list of providers who can help is way longer than the one provided by the administration.
Non-banks
Besides, the long-promised possibility of remote bank account opening, that Estonian law has been updated for, is not available to the e-residents to this day. Then, the e-residency team again and again advises a Finnish payment institution Holvi as an alternative. But, contrary to what the administration has said way too many times, Holvi is not a bank, nor banking, but only a part of banking services. So it would be more honest to talk about a "non-bank account": many services, like loans, are not available, the funds are not guaranteed up to € 100,000 per customer, for the case that the bank that keeps them for Holvi bankrupts (an important piece of information not presented clearly by officials), Holvi prohibits its customers from many legitimate activities and it overcharges e-residents compared to other customers (35 € per month!).
In fact, there is a variety of financial services, some older than Holvi, that allow to have an IBAN (a bank account number, virtual here) and/or a debit card, while not being banks. For example: Transferwise, Paysera, Revolut (pending a banking license), Payoneer, WestStein, Viabuy, GQ Card, IbanFirst, LeuPay, Pocopay, Veritas Card, etc. Due to a lack of space, we have to stop this list here, partly extracted from the one provided by the Estonian Financial Inspection. The colleagues in the e-residency team prefer to put forward only one partner, because this partner promotes the e-residency in return and allows to connect with a smart card. But e-residents would willingly agree to connect with a classic password in exchange for a much cheaper (sometimes free) service than 35 € per month. In short, marketing is set over the e-resident interest and there is a surprising lack of transparency here compared to other public services in Estonia. In fact, the team responsible for e-residency behaves more like a company that has to grow (it's called a "startup" by insiders), than a neutral administration that should offer a list of several names of providers and let the e-administered choose the one that suits him best.
Let's go back to the banking alternatives: apart from Transferwise (which must be linked to an external prepaid card) and Pocopay, the accounts are based elsewhere but Estonia. This can be embarrassing. Braintree, for example, is an intermediary for collecting payments. It requires a real bank account and in Estonia to work with them. In addition, the e-residency team infers that it would be possible to block the capital in a bank outside Estonia, or a pseudo-bank (this transaction is needed to be done before paying dividends to shareholders), while refusing to contact the commercial register for confirmation. So we contacted the commercial registrer and were told that this is not possible!
Pay attention to taxes!
Since we are talking about shareholders: while it is easy to create a company on the Internet, it is impossible to make online changes regarding shareholders. For example, to get people in or out of capital. It is yet impossible to change the shareholder's country of residence, whether online or even through a notary services. This seems like a detail, but as the Estonian administration automatically sends all the information to other countries (shareholders, income…), shareholders might be requested to pay taxes in countries where they no longer live.
If the management or the work of Estonian company is done on the land of another country following the recommendations of the OECD, it is as if the Estonian company has a permanent establishment there. The e-residents will then have to declare this establishment in their country of residence, fill in the same "paperwork" as the local companies and pay corporate tax within their country (we insist). Some people say that the tax is only payable in Estonia if the dividends are paid and that there is no tax to pay in the director's and the shareholders' country of residence. In reality, it's wrong in most cases. The e-residency team has too often been unclear about these points, and so did providers recommended by them.
What for then?
As stated, many people will have no tax or administrative interest in becoming e-residents having an Estonian company. This would simply add extra steps to a company in their country because of the Estonian company's local permanent establishment's declaration. There are, however, some cases when suchlike company is usefull. It allows, for example, a person outside of Europe to have an activity within Europe in a simpler way. It also allows to open a Paypal account in countries where it is not possible directly, Ukraine, for example. In cases, where there are multiple shareholders located/based in different places, meetings/meeting processes will be simplified, as everyone would be able to digitally sign the same documents online, without having to go through sending printed copies back and forth. The digital nomads who really travel permanently, while having a residence in a country not taxing foreign income (the French tax, for example, will seek to deny you this status by all means ...), can also use an Estonian company and taxation, although a country with lower taxation and simpler administrative procedures would undoubtedly appear more attractive to them.
Other troubles
The e-residency is a good idea on paper, but still suffers from many bugs. In fact, it is still in the "beta" phase, even if it is not clearly indicated. The e-resident who makes an error in a form while setting up his company will receive e-mails in Estonian only. Translations into English would be helpful, but the administration doesn't seem to care much about the e-administered once he has paid and got sucked in. Or they try to redirect him/her to one of the private providers in the country, once again. Same suggestion is implied, when, at the beginning, it is requested to choose a postal address for the company, while a public solution has been promised at the launch of the e-residency (we have no update on that).
Two smart cards for one person
In theory, it is not possible to be both e-resident and resident at the same time. In practice, we met several people who possess two together. We have also seen Estonians holding an identity card and an e-residency card - something that should not be possible, but the e-residence application seems to have been made due to a second nationality.
Unrecognized documents
Electronic signatures have legal value in Europe, in theory. Unfortunately, not all countries are at the same stage of digital development. Your document digitally signed in Estonia will rarely (if ever) be accepted in France, for example, because the Estonian software is not used. You would have to turn to paper documents, nay notarized. Luxembourg recognizes electronic signatures as well, but its format is different from Estonian.
CONFIDENTIAL REPORT - E-resident company: How to open a bank account in Estonia (and how to keep it)
Read also:
FAQ and tips for Estonian e-residents
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