In an interview with our Managing Director, Ivar Veskioja, we look back to the ten years of e-Residency and discuss what could be ahead for the next years. This dialogue includes a look back at the achievements of the e-residency program in 2014-2024 and sets the private sector’s expectations for the next decade.
Interview with Ivar Veskioja, Managing Director of Unicount
Can you remember the moment you first heard of e-Residency?
It was probably June 2014 when the Estonian Development Fund announced that the winner of the idea contest for Estonian moonshots was e-Residency. I knew the fund managers quite well; some friends worked there. The fund was a breeze of fresh air in the stagnation we experienced after the 2009 great financial crisis, with more people sceptical about growth and investment. Austerity measures, GDP decline following the fall into poverty for a part of society, and substantial capital losses suffered have made many people risk-averse. The government-funded venture fund that the Development Fund was to manage seemed like a waste of public money for critics.
Many people had the idea of issuing ID cards to foreigners prior to those years. I remember a meeting with the minister of interior in 2010, where I asked twice about possibly issuing cards to foreigners. He did not understand the question and only repeated that the law does not permit that.
What did you work with professionally in 2014?
I was preparing to open a 1Office branch office in London, so having an e-Residency pop-up in Estonia kept my eyes on Tallinn. 1Office was an accounting firm that had expanded to nearby major capitals, Stockholm and Helsinki, because of the ambition we, as inexperienced and risk-taking founders, had. 2011 was the first year we saw momentum for growth after the economy had been frozen in 2009. Suddenly, foreign clients were contacting us and looking to set up their entities in Estonia, so we started levitating towards the less competitive and more lucrative non-resident segment of the small Estonian market. I remember being in London, researching the e-Residency project, and writing my first articles on it, explaining how it could help the Estonian service industry if we had access to a global pool of founders choosing Estonia as their preferred destination when picking jurisdiction.
What made you start contributing to the e-Residency ecosystem in Estonia?
I built a good relationship with the first programme director, Kaspar Korjus, and it seemed like he needed help convincing the politicians, civil servants and the public that it is a low-hanging fruit we ought to pick with a coordinated effort instead of finding small reasons why it should not work. Looking back, we had very awkward opposition from some government ministers who, independently or by following controversial advice, claimed that foreigners could not be allowed to make up the board of an Estonian company. This was part of the dispute over updating the redundant paragraph of the Civil Code, which stated that the legal person management board needs to be in Estonia. The dispute itself was embarrassing as before e-Residency came to town, we already had 17 000 companies with non-resident board members registered via notaries. Claiming that we cannot allow this to be legal made me ask if we should demand Microsoft executives move to Estonia.
What are the most substantial changes for e-residents and Estonia looking back to these ten years of e-Residency?
The most significant changes have happened domestically and gradually as the e-Residency offer has remained constant. Estonian authorities had to cope with the idea of non-residents getting Estonian government-issued eIDs and then using them in our public services in their best interest. Some had to start looking into how their services work, redefine UX and translate the missing parts of online services that were unavailable in English. Constant nudging from the e-Residency team has also contributed to better public e-services UX for Estonian residents.
What has gone wrong in those ten years?
It is hard to say if huge mistakes have stopped the programme from scaling to the original idea of getting 10 million e-residents. The idealism of the early years started was under fire from increasing domestic pressure from authorities concerned about non-residents having remote companies in Estonia. Unlike the UK, where roughly a million companies are registered each year, Estonia had about a hundred thousand companies in total before e-Residency, and the Ministry of Justice was struggling to keep order even with this number of actors on the market. Many companies did not even bother to file annual accounts, and there was no administrative capacity or political will to do anything about it.
Not having a global distribution network with some worldwide e-commerce and payment acquisition giants promoting Estonia, such as Stripe with its Atlas, could easily be the number one enables of growth we have not yet achieved. We also need to understand the limitations of our coverage in the world’s regions outside of Europe. The number of embassies is very small, and some continents have no coverage.
After I finish my research into taxes paid by e-resident companies, I can have a better opinion about whether having a distribution network outside of OECD countries even matters. For example, taxes paid to Estonia are paid mainly by the EU founders who built profitable businesses in Estonia. The idea of being an entry door for Asians to conduct business in Europe is yet to be materialised.
Most of the work around finetuning the application process and renewals seems cosmetic, considering the big idea of collecting the missing tax money to pay for our citizen’s healthcare and security from e-resident founders. The reported 2023 tax revenue of 70 million euros is just a mere start if we think about the ageing population, the burden of inflation on the state budget and the necessary defence investments for coping with our criminal neighbour Russia.
How do you see the current KPIs of e-Residency?
For some time, the no. 1 KPI has been tax revenue, followed by the number of companies as a predecessor to more tax revenue from more companies. Concentrating on tax revenue is correct from the perspective of persuading the public to support the programme. In a way, citizens are the investors in the state budget through their taxes and deserve to profit from the risk taken with public money.
As we look at any new e-resident applicant through the lens of whether this person will contribute to the Estonian tax system, we may end up rejecting some founders who are not obvious success stories. This will be coupled with the idea that can soon be turned into law that applications from citizens of countries with unsatisfactory judicial and law enforcement cooperation with Estonia can be rejected for risk mitigation. In the early days of e-Residency, there was naiveté around the idea of e-commerce for everyone. Estonia was to liberate the entrepreneurial potential of millions living in failed countries with limited access to the global Internet economy. E-Residency team learned in 2-3 years that restricted access to financial services for the companies they would register in Estonia would keep these people away from the global markets even if the Estonian authorities approved them for the e-resident card. So, we had to accept that e-residency is not a miracle tool that allows everyone to build their dream company in Estonia regardless of their passport or residency status.
What are you looking forward to in the next ten years?
Going cardless, or contactless, to be more precise, is the number one thing to wish for, considering the 8-week card delivery bottleneck. For the experience to be 10 x bigger we need to find a way to convert EU eIDAS or Digital Wallet identities into a cardless digital identity that would have all the functionality of the current e-resident card. This will probably meet even stronger resistance from conservative civil servants than the current model of approved applicants collecting their cards from embassies.
This could mean you authenticate yourself online with your existing foreign digital identity and create a new digital identity with an Estonian personal identity code to reduce the IT investment needed in Estonian e-services. Theoretically, your Estonian digital identity could also not be approved before a similar background check is performed, as the police do now. I am unsure if this delay and the background check before accessing Estonian e-services are in the spirit of the EU eIDAS directives. Still, as I see zero interest in the public sector in allowing eIDAS users to register companies with their current national digital identities, it may be a step forward to a borderless digital single market in Europe. We must accept that countries, through the persons in control, have different risk appetites for cross-border founders entering their turf online.
Anything you would like to add?
To the private sector, it may feel like there have been six lost years working on all possible risk mitigation while the growth has been flat. I look forward to the growth-minded approach coming back next year with limitations on acceptable passports and residencies, for not having service providers to be the ones to deliver bad news to fresh e-residents looking to sign up for services. I would like to see the programme taking on and validating new markets to be ready for a potential hockey stick growth once the cardless e-Residency product is available in 2027.
If we want more money for healthcare, education, and defence without building factories and importing labour, the Estonian public sector needs to prepare for a situation where non-residents register the majority of companies. This sets a different tone for designing UX for our international clients with different language and cultural backgrounds. The private sector is ready to fully leverage the potential that e-Residency can come to. For this, we need to reconsider the public funding of the programme and set new ambitions for deliverables.
Thanks for reading
We hope you enjoyed this interview with our Managing Director. I am looking forward to continuing this interview format next year.
