Tag Archives: estonia

Estonia: The ‘Smart’ Country

Estonia: The ‘Smart’ Country

We had an opportunity to visitTallin, the capital city of Estonia and what a rich experience it was, as we went from exploring the Enterprise Estonia showroom and the e-Residency opportunities to having interesting discussions with legal partners and witnessing the high energy, high technology ambience of Tallinn Science Park, Tehnopol.We have been connected to the Estonian innovation eco-system earlier but witnessing that in person and at close quarters was indeed a great experience

Enterprise Estonia

Enterprise Estonia showroom, where Media Team Member FredericoPlantera took us through the pulse of Enterprise Estonia – a short presentation (enter e-Estonia) on how with just a population of about 1.3 million the country is managing to be in the top tiers of theWorld Bank, OECD and other similar ratings. With 99% of services being online (excluding a few like divorce, marriage and buying and selling real estate), the country boasts of having recognised Internet as a social right, providing smart ID cards to all its residents (not citizens) and having 7% of its GDP coming from the Information, Communication and Technology (ICT) sector. Innovation is digital-by-default and incorporation of a company is a matter of 18 minutes in this country; add to that the facilities of e-taxation and e-residency (see our post on e-residency here); and there is a high potential of having a magical combination.

We also got a glimpse into how X-Road, the ‘highway of e-Estonia’, works. X-Road is basically the infrastructure and backbone of e-Estonia that connects various databases, ERPs, tax boards, state portals, banks, telecom companies, population registers, et al. across the country, thereby facilitating over millions of transactions per year. We are told that the technology of X-Road is largely similar to and a predecessor of today’s block-chain technology (having been in existence since 2001). It is also being exported and there are talks of exporting this technology to other EU countries like Finland, Netherlands, with the creation of a digitised EU market being the ultimate goal.

Amongst other things, Enterprise Estonia also provides ‘Start-up grant’ of up to €15,000, subject to certain terms and conditions. It is also the focal point for receiving various other grants and funding, made available through the Ministry of Economic Affairs under the Organisation of Research and Development Act, which is an enabling legislation for baseline funding, research grants.

Legal framework and taxation: We had the opportunity of meeting some of the top law firms in Tallin with detailed discussions on legal structure and taxation. You’ll be glad that there isno corporate income tax in Estonia on retained and reinvested profits; 20% corporate income tax on distributed profits (actual and deemed); dividends paid to non-residents being not subject to any withholding tax; DTAA between India and Estonia; 20% value added tax rate; no mandatory auditing for private limited companies below certain thresholds; easy foreign direct investment in Estonia; minimum share capital requirement (for private limited) of €2500, but the company can be established so that the share capital is paid later on; etc.

Incubation space: We also had the opportunity of visiting the incubation space of Tallinn Science Park, Tehnopol, which has supported companies such as Skype, GuardTime (the block-chain service provider to the Estonian government).Tehnopol is one of the biggest tech hubs in the Baltic region and works extensively with companies in the green technology, ICT and health technology sector, often times providing supports to companies, even at prototyping phases. The average incubation period is up to 2 years and till a company raises capital/generates the first sale. It invests up to € 10 000worth of expertise to start-up companies to find the first seed investment or reach export markets, providing access to 30+ business coaches working hands-on with start-ups, 70+ trainings, investor panels, sales, pitching and networking events annually, co-working center, and last but not the least, access to € 300,000prototyping fund PROTOTRON (prototron.ee). (For more details, see here).

So there, if you as an Indian enterprise wish to expand to EU, perhaps Estonia can be your landing place.

E-RESIDENCY. Estonia- Country as a Service

The biggest disruption in this world is that the concept of physical boundaries is constantly challenged by internet and more pronounced through rapidly changing technologies.

Globalization has not only made companies to do things in new ways but has also forced governments and sovereign nations to think differently to attract businesses around the world (and therefore attract income from taxes).

Mr John Perry Barlow in his letter ‘A Declaration of the Independence of Cyberspace’ addressing sovereign governments has stated that “cyberspace does not lie within your border” and that “you have no sovereignty where we gather”. His intentions were to strictly warn the sovereign governments, who in 1996 were thinking of governing and regulating cyberspace; however, under this article attention has been restricted only to the literal meaning of the two statements quoted above.

Estonia with only 1.3 million inhabitants has proved the statements of John Perry Barlow true by becoming the first country in the world to introduce e-residency. E-residency is a mechanism to enhance the prospects of digital trade, by providing remote access to its own digital infrastructure, economy and trade. E-residency has proved to blur the interstate borders which have long existed on the world map.

‘Vasudhaiva Kutumbakam’ is a Sanskrit phrase found in Hindu texts, such as the Maha Upanishad, which means “the world is one family”. Is this possible?

Physical boundaries of nations have its many reasons namely formation of governments, constitution, citizenship, currency, legislative and judicial powers, taxation and many others following from these.  We are living in exciting times where the operative word is “disruption” – cryptocurrency to traditional currency, internet to physical borders and Estonia is now creating a new kind of disruption to residency/ citizenship.

IMG_8858 (1)

In Estonia as an e-resident, one will be able to:

  • establish and run a company online, from anywhere in the world;
  • conduct banking online (e.g. open a bank account, make electronic bank transfers);
  • have access to international payment service providers;
  • digitally sign documents (e.g. annual reports, contracts) within the company as well as with external partners;
  • verify the authenticity of signed documents;
  • encrypt and transmit documents securely; and
  • declare taxes online.

E-Residency thus offers the opportunity to establish and run a location-independent international business in Estonia. Estonia has been ranked highly for its transparent and competitive business environment and was placed sixth among the European Union economies by the World Bank for the ease of doing business (World Bank, 2016).

How do they do it?

It is very simple. All one has to do, is fill out an online application form. Then the Estonian Police and Border Guard will do a background check. Upon this background verification, the person will receive a digital card, which is nothing but a digital access to Estonian economy and trade.

Currently, one can choose any one of the Estonian consulate or embassies out of the 38 across the world to physically pick up this e-resident card, one being in Delhi. Applicants for e-residency undergo a background check, submit biometrics, and meet face-to-face with an Estonian official before obtaining the e-Residency digital ID. The program claims strong privacy protection, reinforcing trust in the internet as a place to do business and manage personal data.

The European ‘Digital Single Market’

The European Union has created a Digital Single Market. To support this, the regulation on electronic identification and trust services for electronic transactions in the internal market (eIDAS Regulation) adopted in 2014 aims to enable secure and seamless electronic interactions between businesses, citizens and public authorities. In this regard, the eIDAS Regulation ensures that: (a) people and businesses can use their own national electronic identification schemes (eIDs) to access public services in other EU countries; and (b) creates an European internal market for eTS – namely electronic signatures, electronic seals, time stamp, electronic delivery service and website authentication – by ensuring that they will work across borders and have the same legal status as traditional paper-based processes (European Commission, 2015).


E-residency does not have any direct influence on the tax residency. Being an Estonian e-resident does not mean that one becomes the Estonian tax resident.

An individual is a tax resident in Estonia if

  • his or her place of residence is in Estonia or
  • he or she stays in Estonia for at least 183 days over the course of a period of 12 consecutive calendar months

If an e-resident has established the Estonian company, then such company is regarded as Estonian resident. The profit of the Estonian resident company derived from all countries is taxable in Estonia, which is subject to the tax regime in Estonia and the Double Tax Treaties entered with Estonia and the country of the incorporator.

The Tax and Customs Board of Estonia, mentions that the profit is taxable at the moment of payment out, for example as dividends. It is really nice to know that double taxation is avoided, which means, if the actual activity of the Estonian resident company is only in foreign countries, the profit paid out as dividends in Estonia from profit taxable abroad, may be exempted in Estonia.

Estonia is experimenting with a concept called “data embassies”, where friendly countries would host servers housing Estonia’s critical data and applications and, in the event of an attack, the Estonian government could switch over to those external databases to keep the country running and keep the data safe.[1]

Food for Thought

Can Aadhar provide for being such a game changer? (i.e., assuming after Aadhar addresses all the teething trouble that it currently has, in terms of security, privacy, confidentiality, robustness, authenticity, etc.). Would such a program enable e-residency to foreign directors to set up companies in India and conduct trade?

Can Aadhar provide a digital gateway for interested companies to virtually enter the Indian economy and market?

There is a lot of flak Aadhar is facing and below is an “only if” scenario:

Aadhar provides a very strong foundation to build upon for doing business with accountability, without any hassle and to cut short the bureaucracy. Aadhar uses bio-metric information of an individual to identify and verify their authenticity which provides an additional layer of cybersecurity while trading or doing business digitally.

For a country this large as India, with 1.2 billion population, it is a daunting task to recreate something like what Estonia has achieved.But, wouldn’t virtual businesses, who become tax-residents in India, be another income possibility for the country?

With ‘Digital ho Raha hai India’ can we create a virtual economy, with KYC, with security, with legislative backing, with ease, with new India Shining?  Can we use programs/disruptions such as these to jump-start and skip the moves, to becoming a highly developed nation?

It might also be a way to not get caught in the digital-divide that the world is moving towards.

Author: Manas Ingle is an Associate with NovoJuris Legal.

[1] https://www.emta.ee/eng/tax-residency

For further reading:


InnoHealth 2017

Innovation in healthcare, medical technology, bio technology, pharmaceuticals, diagnostics, hospital management and many other sectors in health care are seeing tremendous innovations across the world.

India is drawing attention from such innovators who are viewing India as a large market, co-creation, collaborations, joint ventures etc.

In our humble way, we are enabling some of those entrepreneurial ambitions.

NovoJuris Legal along with InnovatioCuris is organizing InnoHealth 2017 at Bangalore. Many interesting companies from Finland, Sweden, Estonia, Latvia and other European countries are gathering to understand the healthcare industry landscape, how distribution works in India, the investment scene, regulatory framework for doing business in healthcare and many others.

Our amazing supporters are Honorary Consul of The Republic of Estonia, Bengaluru Chamber of Industry and Commerce, Karnataka Drugs and Pharmaceuticals Manufacturer’s Association.

This is on 21 September 2017. It is an exclusive, closed door discussion. If you are in distribution of healthcare products and wish to be part of this august gathering, do ping us – relationships@novojuris.com

You can read more here http://innohealth.in/innohealth-2017-bengaluru-session/