This article is written by Kashish Khattar, Amity Law School, Delhi [IPU], currently enrolled in the Ace your Internship course at Lawsikho.

Introduction

Estonia – The Startup Hub

After the breaking up of the Soviet Union, Estonia has tried to rebuild itself from scratch. The Baltic nation invested hugely on the internet and it paid off. Their primary focus on the internet and upcoming new tech lead to the nation being called as the ‘Silicon Valley of Europe’. Their development agenda was simple, ‘Let us do everything online.’

Therefore, it is not surprising to know that Estonia in 2000 declared the internet as a basic human right in the country. It was the first country to do so. They were also first in conducting elections online in 2005. You can do everything online in Estonia, ranging from paying taxes, setting up any kind of business, filing complaints, to claiming any kind of returns etc. The nation claims that you can establish a business in 15 minutes and fill the taxes in 3 minutes. Their e-governance initiative rules out corruption. It also makes possible for radical programs such as the e-residency programs to flourish without any intervention by the bureaucracy.

Let’s Startup!

Let us now talk about the suitable environment that Estonia provides for start ups. The following factors make it one of the most suitable and exciting place to be for a startup:

• Ease of doing business and Online services:

Estonia is said to be one of the most digitally advanced nations of our present times. You can run your whole business online without any hassle or interference by the authorities. Signing documents, registering the business, filing various forms – Everything is done with the help of the internet. The latest trend developing thing that the baltic nation has come up with is opening up of a bank account without going to the bank or even being in Estonia! Estonia’s business environment is fantastic, a particular feature about the nation is their most liberal income tax system. They offer zero corporate income tax to the businesses.

• The Community and the Skype Legacy

Estonia maybe a small baltic nation in the EU, but the startup community that they have managed to build is well-knit and welcoming. There is no kind of a language barrier – as most of the nation speaks English very well. The strong legacy of building Skype in Estonia, the startup community has a lot of talent in the sphere. Estonia also launched its own Startup Visa. The visa is particularly for business-minded non-EU nationals to come and work for Estonian startups. It also includes options of relocating their existing startups to Estonia or establishing new ones in Estonia. The visa also made it easier for estonian startups to acquire foreign talent without any intervention from the bureaucracy.

• Living environment

The quality of living is high but also easy on the pocket in Estonia. 51% of the country is covered with forests, the nation is surrounded by the sea from two sides. Air is said to be the cleanest in the world. Estonia ranks above average in all verticals such as education, skills, environmental quality, social connections and work life balance according to the OECD index. The school system boasts as being one of the best in the world, and children are taught how to build bitcoin apps in class.

E-residency Program – A critical analysis

Estonia again has become the world’s first country to offer an e-residency program. It is a government issued digital identity given to entrepreneurs to run businesses. These businesses can be run by their founders from anywhere in the world. All thanks to their e-governance facilities and ability to get everything done online. The list of things that are provided to an e-resident by the program include:

1. Issue a digital identification.
2. Manage accounts and all the records online.
3. Declare any and all of Estonian taxes online.
4. Can issue verified and authenticate signed documents.
5. The residents get digitally signed documents and contracts, which are encrypted.
6. The residents can run the company from anywhere in the world.
7. Remote money transfer is possible.

It is mainly focussed on enabling individuals to run credible, secure and safe businesses online. Since 2014, thirty thousand virtual residents from 143 countries have created around three thousand companies and paid 2.8 million euros in labour taxes. According to a report by Deloitte, the program has brought 14.4 million euros back to Estonia directly or indirectly through financial or socio-economic benefits. It is predicted to rise to 1.84 billion euros by 2025. This represents a fantastic return of 100 euros for every one euro invested in the program. The Managing director of the program has gone ahead and called it “one of the most important governmental experiments of the 21st Century.”

E-Residency Program – Effect on India

Estonia approached and opened the e-residency program for Indian startups. They came up with a slogan to pass on their message to the masses “Make in India and Sell in Europe”. The main benefit that the Indians would have is the access to the entire EU market. The program has its eyes set on to enrol 200 Indian startups in a year through various Industry tie-ups and a series of roadshows.

The main selling point for Indians was the cost-effective setting up of business and run them from anywhere in the world.  With President Trump accelerating his plans of Buy American by each day, US has a wide market but the regulations and Visa under the current presidency are difficult to procure. This is where the Republic of Estonia comes in. The entrepreneurs who have an idea to cater to the EU as a whole, can now incorporate a company there and access the free market which it offers. E-residents basically have an access to the EU business environment and can public e-services provided by the EU through their digital identity. Indian startup owners can not only run their micro business here in India but also expand it to the whole of Europe through this program. Applying for an E-residency costs a 100 euros and registering a company is for 190 euros in Estonia.

Velmenni

One of the first companies to shift from India to Estonia was Velmenni, which develops high-speed LiFi technology. The company was established in the national capital in 2012 and moved to Estonia in 2014. Deepank Solanki, founder and CEO, stated that he had signed up more clients in Germany due to his Estonian link. He did move back to India in 2015 due to lack of talent. But as he had established a client base and interacted with a lot of European Investors. He opted to not close the Estonian entity. He says that he got his first opportunity there, Estonia is where they could commercialize their first proof of concept.

Solanki has stated that investors were much more comfortable working with an Estonian entity in comparison to an Indian one. Furthermore, he says that e-residency played an exceptionally important role. Because of the ease of managing the whole business sitting anywhere in India.

Another startup founder Avijit Sarkar of CapOne Research has only praises for the program. He talks about the difficulty in getting a US Visa and the high taxes of the nation. This is where Estonia who granted him a with a virtual address within weeks, had his VAT number in 15 minutes. He underlines the importance of Ease of doing business in the baltic nation. Talent acquisition is simpler because of his incorporation in Estonia. His startup has already applied to EU for funding and has bagged the in-principle approval.

Estcoin

Estonia has always made sure in the past to bet big on the next thing. That is what they have done with the Initial Coin Offering, a USD 4 Billion market in 2017. Estonia, which has been successful in establishing the e-residency program and an entire paperless bureaucracy system based on digital ID is now moving ahead with the introduction of its own crypto token – the estcoin. Estcoin is not a mere replacement to the euro, which is the official currency of the EU. It is said to be a digital token which would not fluctuate in value. Estcoin is proposed to function as a crypto token for the country’s residency Program. After a strong statement from the president of the European Central Bank, Estonia has decided to roll back its plan of making Estcoin the official cryptocurrency of the nation. According to reports, Estcoin will be now used just as an incentive to e-residents. It would be available in 3 different formats:

1. Community Estcoin – Kind of like a reward for promoting or improving the residency program. Can be given to residents who hold regulated ICOs within the e-residency system.
2. Identity Estcoin – A kind of digital signature used to sign smart contracts or access to online services. This will be connected to a person’s identity and will not be exchangeable.
3. Euro Estcoin – This is to be used as a digital token for daily, instant transactions through the Blockchain Technology.

Estcoin is just one piece of the puzzle to establish Estonia as a global haven for ICOs. ICOs with the use of the e-residency program as an entirely new method for conducting ICOs within Estonia. ICOs run through this program will be subjected to the best regulations, guidelines. Giving the investors, more confidence and transparency in the system. Estonia may not be successful in its quest for a state-regulated ICO with their own cryptocurrency. But in my opinion, Estonia will find a way to make their state-backed ICOs a reality.

Conclusion

The Republic of Estonia has roughly about 350 startups. One for every 3700 citizens. The country does not lack the entrepreneurial spirit. Estonia basically runs like a tech startup. Apart from everything being online and the technology is highly advanced. The Republic of Estonia is also said to be the least corrupt and transparent in the Central Eastern Europe region. Estonia’s economic freedom is said to be one of the highest in the whole world and number one in the whole of the central eastern Europe region.

Estonia has become the European silicon valley and the preferred startup hub. It is also said to be a hotbed for companies which are raising in a couple of million every year. Estonia has come a long way from an old deserted cold country of the Soviet Union to be the Silicon Valley of Europe. With the next decade to bring in more highly advanced technology to masses, it will be interesting to see how much of that tech comes from the Estonian region.

References

1. Borpuzari, P., 2018. Economic Times. [Online] Available at https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/estonia-pitches-indian-startups-with-make-in-india-sell-in-europe-proposition/articleshow/63243776.cms [Accessed 3 June 2018]
2. Witismann, R., 2018. Medium. [Online] Available at:https://medium.com/@Incorporate_ee/estonia-to-become-a-global-ico-hub-6a4a53863719 [Accessed 3 June 2018]
3. Ayyar, R., & Anand, J., 2017. Times of India. [Online] Available at: https://timesofindia.indiatimes.com/trend-tracking/women-outnumber-men-in-opting-for-digital-courses/articleshow/59442526.cms [Accessed 3 June 2018]
4. Nair, D., 2018. YourStory. [Online] Available at: https://yourstory.com/2018/03/estonia-e-residency-india-startups/ [Accessed 3 June 2018]