Escape Brexit: How Opening A Company In Estonia Can Help British Entrepreneurs
With the deadline approaching, and the perspective of a no-deal Brexit quickly becoming a reality, entrepreneurs in the UK are looking for ways to escape Brexit.
For some years now, I am an e-Resident of Estonia. I own two businesses in this small baltic country. I didn’t even need to go there to open my first Estonian company, I did everything online. In my case, the e-Residency was the answer to a different problem. Namely, having a truly location independent business in a country that understood my nomadic lifestyle. I needed a company that would travel with me. A company I could manage completely online. No hassle, no red tape, no visits to physical offices, no paperwork.
While all these reasons still hold true for British entrepreneurs, they have to add Brexit on top of that. I will not enter into any political discussion here. However, economically speaking, Brexit is bad idea, every way you look at it:
Under any scenario, the UK’s exit from the European Union will leave the country worse off. Free trade deal or not. Cuts to migration or not. Trade barriers or not. Every way you look at it, Brexit will make the the economy smaller compared with remaining in the bloc.Quartz
In this article, I discuss why becoming an e-Resident and opening a company in Estonia can be the best solution for location independent British entrepreneurs willing to stay in the single largest market of the world.
You may have noticed that I am emphasized “location independent”. This is an important factor. Later in this article, I explain why.
The e-Residency Program of Estonia
While we are not yet certain about the impact of Brexit on British businesses, we know for sure it’s not going to be a positive change. And UK citizens know that. Applications from UK nationals to the e-Residency program have boosted in Estonia since Brexit was announced.
What’s the e-Residency program?
Estonia is considered the most advanced digital society of the world. After becoming independent from the former Soviet Union, following the collapse of the USSR, they started anew. They found in technology, and the then young internet, a way of getting rid of the Soviet past, and becoming a modern, European country. So in a bold move, they decided to digitalize their society and make all public services available to their citizens 100% online.
Estonians can do virtually every administrative paperwork online. Their parliament is paperless. They were the first ones to introduce online voting and, in the last elections, almost half of the votes were cast online,
In 2014, they went one step further and introduced a major breakthrough into its digital nation. The e-Residency program, allowing anyone, regardless of their citizenship or country of residence, to become virtual residents of the Estonian’s digital nation. While this does not grant you any physical residence rights in Estonia, it allows you to enter their digital society. And probably the most alluring aspect of being a member of that digital nation is the possibility of opening a company in Estonia. Without ever visiting the country.
Launching And Running Your Company Online
Ironically, not so long ago, some entrepreneurs in other places of Europe looked at the UK to open a company online. The process was fast and cheap, with plenty of websites promising to open your company in a matter of hours. However, managing the company online was not that easy.
Opening a bank account required a series of hacks to “prove” that you had an address in the UK. And of couse the bookkeeping requires a British accountant, and they are expensive. You always had the feeling of not being in control of your company.
The e-Residency program is completely different. It has been designed to empower location independent entrepreneurs. So not only you can launch a company online, but you can run it online too. Every aspect, from opening the bank account to doing the accountancy and paying your taxes, can be done online. You can do your own bookkeeping and pay your taxes if you want to. Not that I would recommend that, but you can. You don’t need to visit Estonia ever. And you are in control of your business.
A Location Independent Business
One thing I’ve always admired about UK citizens is their adventurous spirit. For someone like me, coming from a country where entrepreneurship is discouraged or even demonized, and where being a civil servant is the dream of the majority of the population, this mindset is refreshing. British are not afraid of leaving everything behind to travel the world, pursuing their dreams.
Being a digital nomad myself, I’ve had the pleasure of meeting a lot of British people during my trips. Many of them were young entrepreneurs. Traveling is certainly in their DNA, but most of them also confessed that they were trying to escape Brexit by moving overseas. They were still, nevertheless, worried about their businesses in the UK.
And this is where the e-Residency program of Estonia shines. It allows them to become truly location independent entrepreneurs and take their businesses with them. No matter what happens after Brexit. No matter where they go. Their businesses will still be members of the European Union.
Staying In The Single Largest Market Of The World
Free trade, and being part of a larger economy is good news for any business. That’s one of the reasons why being in the EU has allowed so many businesses to grow to unprecedent levels once they became part of the European Union. The single currency -euro- and the free movement of people makes it easy for any business to hire employees and deal with other EU businesses.
You may argue than being part of the EU also means greater competition in products and services. That’s true. But competition is not only good for consumers. In the framework of the EU, it also means more business opportunities for your company, more potential allies and more possibilities of associations.
Believe it or not, being part of the European Union also means a reduction of business costs and a greater business efficiency. I have witnessed how in Spain, for example, applying the EU directives has led to less paperwork and less administrative costs for businesses.
Finally, being an European business, your company is protected against anti-competitive practices, such as monopolies.
Put another way, your business has more opportunities to grow and faces less costs if it stays in a European country such as Estonia, specially when dealing with EU customers.
Zero Hassle, Zero Red Tape
Another important advantage of having your business in Estonia through the e-Residency program is the minimal red tape. You would be surprised of how easy it is to do certain things.
One important example is registering employees for your company. The employee registry is one click away, and filling in the data for a new employee takes 5 minutes. There’s no additional verification process. You don’t need to wait until someone from the registry office “approves” this employment contract or gives you authorization. You can actually even register an employee sending an SMS. That’s control over your business.
Another poignant example is power of attorneys. In Spain, for example, there is a ridiculous number of administrative paperwork that requires you to visit a notary. In person. The only task of this person is stamping his or her signature in a piece of paper. In the XXI century, with asymetric cryptogtaphy, digital signatures, and digital identities, that’s a complete anachronism.
Estonians understand this. That’s why you can do things like granting someone a power of attorney to do the accountancy of your company, register your employees or apply for the VAT number of your business. Completely online thanks to your digital signature. Without requiring the presence or approval of a notary. And immediately revokable too with just a few clicks.
When you see technology leveraged to make things as simple and fast as that, you wonder why, in 2019, still other countries require visits to offices, the signature of a notary, or physical documentation. Technology is power. It’s about time to start using it.
Who is this for?
Unfortunately, the e-Residency program is not the right solution for everyone. The UK, as many other countries, has CFC (Controlled Foreign Corporation) rules. These rules were created to prevent citizens of high-tax countries to open companies in low-tax territories, such as tax havens.
Unfortunately, these rules affect all countries, not just tax havens. So even though Estonia is not a tax haven, but a reputable European country, these rules affect Estonian companies established by British nationals too. In other words, if you open a company in Estonia, but stay in the UK as a tax resident, the British Tax Office will eventually declare that your company needs to pay taxes in the UK.
If that happens, you will lose most benefits of owning a company in Estonia, including the smart tax system and the ability to submit all reports online. You will still be able to manage your company online, but fulfilling your obligations for a Estonian company in the UK will be much more hassle than having a British company.
Then, who is this for? For location independent entrepreneurs, or global startups. If you are a location independent British national, or you want to found an international company with members distributed all around the world, this is the perfect solution for your business.
The two main keywords here are: digital, and location independent.
How To Get Started
So how do you open your company in Estonia? You need to follow these steps:
The most important one is applying for e-Residency. The application has a cost of 100€ paid to the Estonian government. Here I describe the process and the information you may need. Once your application is submitted, there’s a 2-3 weeks period in which the Estonian Police And Border Guard will evaluate your application. That’s to prevent people with criminal records or involved in money laundering activities from harming our digital nation.
Then, you will hopefully receive an email from the Estonian authorities indicating that your application was successfully approved, and your e-Residency pack is being delivered to the location you specified when filling in the application form. This pack contains your e-Resident ID card and a USB reader.
Once you install the software to use the ID card with your computer, you are ready to establish your company! While you can do it yourself, I would recommend you to use a business service provider. It’s probably the simplest and fastest way of having your company up and running in one or two days.
Similarly, while you would be able to do your accountancy and taxes yourself, it’s always advisable to let the business service provider do that for you. It will save you time, and the prices for accountancy and bookkeeping in Estonia are very competitive. Overall, the annual maintenance of a Estonian company is quite low.
They say history is like a pendulum. A cycle of progress, innovation and union is followed by a period of regress, intolerance and populism. I unfortunately thing we are entering one of these latter periods: Trump, the separatist movements in Europe and, of course, the Brexit are clear signs of this.
However, I’m still optimistic. In opposition to these forces trying to bring us apart, there are movements trying to bring us together. Movements that refuse borders, physical limitations, archaic anachronisms, languages, nationalities, and ethnicities.
I see in the e-Residency program of Estonia one of these movements. And it may be the perfect solution to beat Brexit for British entrepreneurs. If you have a business in the UK, I would recommend you to give the e-Residency program a try.
In this article, I discuss the e-Residency program of Estonia as a solution for British entrepreneurs to escape Brexit by launching and running a European company completely online. A business that, while traveling with them, stays in Europe, the single largest market in the world.