Why Estonia and why now?

 

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For the last couple of years, Estonia and especially Tallinn has been an actively discussed topic. Because of the growing businesses and many succeeding startups like Transfer Wise, Skype, and Erply. Even though Estonia is becoming an important country businesswise, it has not been this way for a long time.

Since the Soviet Union era, a lot has happened in the Northernmost Baltic country. The country itself has been through a heap of changes. In just the last couple of years, tailing the changes in markets around the world. Despite its short history as an independent nation, Estonia has a lot of success stories already. And they have shown both skill and a sense of entrepreneurship.

The people of Estonia have worked hard to reach the place where they are in global markets today.  But let’s not forget that they also had a lot of help from other countries and international companies. Foreign investors have been vital for Estonia’s growth. They have succeeded very well in attracting more and more foreign investors and entrepreneurs. With the help of digitalized services, in which Estonia is still a forerunner.

There are several reasons for starting a business in Estonia, you do not necessarily even need to be in the country yourself. Moving your business or opening a branch to Estonia gives you different advantages. Depending on what kind of field you are in. We will give you the main vantage points so that you can just go and do!

From Geography to Employee Rights

One of the many reasons a lot of companies have found the tiny Baltic country interesting business-wise is the location. Estonia’s location is perfect for firms that are reaching for the Nordic, Central-European, and Russian markets. Because of its location by the Baltic Sea and neighboring countries like Finland and Russia. The business environment is multicultural and influenced by many different nationalities.

The cheap workforce has been, and is, a major interest for Nordic countries to relocate some or all of their operations “over the bond” to Estonia. From where it has trickled South to other parts of the Baltic. However, when a country’s economy is growing, so are the costs. In the (near?) future low-costs workforce will probably lose its purpose in pulling in firms from more expensive markets. 

The reasons that were still obvious five years ago for relocating business operations to Estonia are not that relevant anymore. Location is losing its importance. But digitalization makes it possible, and easier, to operate globally from any part of the world. More and more robots are used in all industries and a cheap workforce is less required. But the fact still remains: Estonia is attracting more foreign business all the time while elsewhere things seem to be slowing down.

Covering the Cracks with Modern Technology

Estonia has taken giant-steps forwards business-wise. And is still ahead of the curb in many aspects globally. The country’s main advantage point is that it is a small nation. But it has not yet built up a stable and solid bureaucracy system. Also, the employee rights in Estonia are quite backward when comparing to its other Eastern European equivalents. In fact, the goal seems to be to keep the public sector as small as possible. Still, Estonia has made sure to take part in the most important international coalitions. In order to make itself a notable and trusted actor both on an economic and political level.

If there is something that Estonia is acquainted with on a global scale, it is IT and digitalization. The knowledge and experience in this field can be noticed in different areas of business in Estonia. The companies have adopted different technological solutions as part of their daily routines fast and have taken full advantage of the opportunities that they provide.

But it is not only businesses that are using digitalization to their benefit in Estonia. Modern technologies are also fluently used by the public sector. The Estonian government, for example, is nowadays using a great amount of modern digital technologies in their daily activities, such as the e- cabinet.

Electronic Estonia  

E-cabinet is a tool that the Estonian government uses to streamline its decision-making process. The database can be used by all government ministers in real-time, so they do not miss any of the relevant information even if they cannot make it to the session itself. The results from the sessions can be emailed or even watched live and ministers can reveal their agenda on the platform and give comments during or even beforehand. The result of this all is a great amount of saved time and effort.

The administration has been made easy by modern technology also for Estonian citizens and companies. It is easy to contact the state authorities even if you are not an Estonian citizen or do not live in Estonia. In order to simplify things for businesses that want to access Estonian markets, it is now possible to become an Estonian e-resident.

E-resident 

With the e-resident system, an EU citizen can get different kinds of licenses to start a business in Estonia without ever even visiting the country. As an e-resident, a person has a lot of possibilities that only citizens would have in other countries.

Basically what this means is that it is possible to establish a company online from anywhere in the world. The e-resident can also access banking services and online payment service providers (for example Paypal). Even if an EU citizen has never visited Estonia he or she is still a full owner of the company and there is no need for a local director, so it is possible for you to manage your business remotely. An e-resident can sign and authenticate documents online, encrypt, and send documents securely without scanning or posting.

An e-resident will get access to a network of financial services, accountants, marketing specialists, payment providers, and other useful business services. As mentioned earlier the e-residents also get access to the government’s digital service. Getting insights into the activities of the public sector makes it easier to understand how to work and how to get the permissions you need when establishing a business.

As a foreign person wanting to do business in Estonia, it is relatively easy to get access and insight into the things you need. Also, the tax system is quite easy to understand and everything you need to know about it, you can access your e-residency. And as every citizen in Estonia, the e-residents can make the tax declaration and pay their taxes online without sending paper versions of the declaration.

Taxation that encourages investments

Corporate taxation is quite easy to figure out for starting businesses. It is simple and for some companies there can be financial perks if you know what you are doing.

Comparing to other EU countries, especially the Nordic countries, the corporate tax is relatively low. But still, it is often cheaper and more profitable to do business in Estonia for tax reasons. The Estonians, however, do not want to see it as a low tax system but as an easy and simple system with a wide range of taxes.

Estonia has had flat-rate taxes since 1994. The biggest reason for the flat rate taxation is to keep the system simple and transparent. The purpose of this was to be able to control inflation. It was also meant to save a lot of resources and money in regards to administration.

The corporate income tax also has a flat rate, which is 20 % since 2000.  For the first years, the percentage was 26 but right now it is as low as 20 %. Even if the percentage is low it is not the only reason why the corporate income tax is worth considering. The big difference is the time of the tax payment.

Estonian taxation

In Estonia, the income tax is always 20 %, no matter how big the income is or what kind of income is in question. The biggest difference is still the corporate tax. In Estonia, companies do not pay tax as soon as they get profit. As long as there is no distribution of that profit there is no need to pay tax. The tax needs to be paid when it is distributed as profit. As long as the company does not give out any of its profits to its owners that profit is tax-free and the company can reinvest the money without losing any of it.

This gives companies that are based in Estonia a big advantage. As an example, a new startup does not need to pay much tax if they just want to reinvest their profit for the first years without taking out any of it. This helps businesses to grow faster and gives them a chance to use all their assets for expansion. In the long term, the tax that companies pay will be bigger since they got a chance to invest and therefore grow.

Conclusion 

The earlier reasons are enough for some. But surely there are a lot more things that the Estonian business environment can offer. The bottom line is that doing business in Estonia is relatively easy and profitable for the aforementioned reasons and because you are surrounded by people who know how to make your business modern by digitalizing it.

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Estonia – Europe’s most entrepreneurial economy?

Is Estonia Europe’s most entrepreneurial economy? Estonia ranks first in the number of startups per capita from 2011 to 2015. This country of 1.3 million people maintains consistent growth in many ways. Since its independence in 1991, with one exception in 2009 after the financial crisis. The secret to success might lie in the country’s approach to enterprise. In Estonia, it takes about 15 minutes to set up a company. In Finland, it could take months. This is just one of the moves Estonia took to motivate high rates. 

At the national level, Estonian schools adopt entrepreneurship education at all earlier levels by introducing a program called “I am an Entrepreneur”. This program was launched by the energy company, Eesti Energia with the Estonian Chamber of Commerce. It targets 13–19-year-olds and aims to connect entrepreneurship education in the formal education system and in the non-formal system. There are more than 200 companies and more than 70 mentors involved in the program. In January 2017 Estonia launched a startup visa program to get more startups and employers to this growing startup hub. In the first month of the program over 50 applications came. This program’s success lies in part with Estonia’s reputation for innovation. Not only in technology development. But also in innovation on how the government passes rules and regulations to allow businesses to succeed.   

TrasnferWise 

One success story is TransferWise. In 2010 two Estonian friends, Kristo Käärmann and Taavet Hinrikus lived in the UK. From time to time they had to make cross-border money transfers. Kristo transferred money from Estonia to the UK and Hinrikus transferred money from the UK to Estonia while paying huge transfer costs. The potential for cheaper service in the money swap industry was found when the two friends started to pay each other’s costs. And that is how TransferWise was born. Today this money swap service firm is worth more than one billion dollars. That is a huge deal for any tech startup company. The company got investments from Sir Richard Branson. With this, he gave TransferWise even more credibility as a company.   

Achievements of TransferWise

TransferWise tries to bring clarity to forex transfers around the world. And say that they take “a machete to the hefty fees that banks levy to send money across borders”.According to the TransferWise Future of Finance Report, the financial markets will look very different within a few years. Just in the past five years, the financial technology start-up companies have been innovating the finance sector. Cutting the traditional bank’s service fees and giving better service. This shook the banking sector. The future looks good for financial technology. The Guardian called TransferWise the “Robin Hood” of money trade. Not many firms that emerged from an old Soviet country have questioned the hundred years old banking sector.     

But TransferWise is not the first multimillion-dollar firms that started in Estonia. The instant message and video call service provider Skype was developed in Estonia and the now Microsoft-owned. The company’s back-end development office is still situated in the capital of Estonia. Skype’s story isn’t that different from that of TransferWise. There was a clear demand for phone calls over IP and Skype answered that demand.  

Success

The success of innovative technological solutions in Estonia might lie in its history. Until 1991, Estonia was part of the Soviet Union where resources were little or gone. One of the investors in Skype, Steve Jurvetson, wondered how such a small group of people could build something so fast. It would take Microsoft much longer to develop products. Jurvetson said “I had the impression that maybe coming out of a time of Soviet occupation when computers were underpowered, you had to know how to really program, effectively, parsimoniously, being very elegant in sculpting the programming code to be tight, effective, and fast. [That’s] not like Microsoft, which has a very lazy programming environment, where programs are created that have memory leaks and all sorts of problems, that crash all the time and no one really cares – because it’s Microsoft!”.

growth

Even Europe’s Hidden Entrepreneurs report says that “Aside from structural economic factors, the country has other drivers. First, Estonia has a long-standing history and culture of self-reliance and persistence. Stemming from living in the shadow of large, sometimes even hostile neighbors. As a result, Estonians pride themselves on the ability to be persistent and inventive, whatever the conditions. Second, in the last decade, Estonia has seen a number of success stories. These elevated views in the public eye. […] Third, Estonia is a very small country. This means that people with big goals are forced to think internationally from the start.”

 

Estonian technology reputation is noticed. But more and more startups come from Estonia. But there is an issue that Estonian firms face, lower salaries. In Estonia, this does not attract skilled ICT developers to meet their needs. But the Nordic countries give more salaries to skilled programmers. To overcome the challenge of getting talent from outside of the borders. The government set in motion the Estonian Entrepreneurship Growth Strategy. A plan to fix the lack of these skills by giving education in targeted fields. 

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Reference:

Startup Estonia     Hidden Entrepreneurs      Growth Strategy    TransferWise     Skype 

Why is it smart to do business in Tallinn?

How do you see yourself and your business company next year at this very same time? Wise decisions are valuable and important for your company. Ever had any thoughts that business functions don’t go smoothly enough? The digital environment is old and the progress seems to move at snail’s pace? But the future is now, so all that must be frustrating.

We should know since we (the authors) are located in Tallinn. This is one of the most or even the most digitally developed country in the world.

Estonia: a digitally developed country

What is it then that makes Estonia so advanced, tech-savvy and business-friendly?

The tiny North European country has learned hard lessons from its neighbours. The economy has not suffered from Brexit. The important indicators, such as GDP and unemployment rate, among many others are rather good compared to most of Europe. Brexit has so far meant great success for Estonia’s interests and business world. This because citizenship applications from Britain to Estonia have increased tenfold compared to the previous year. This is the result of the unique system. This system where anyone can apply for a digital e-citizenship of Estonia.  Even if you have never been anywhere near the country.

With e-residency, people all over the world are able to use Estonia’s digital services. Which in turn you’ll get cover for example bank services. Most of Europe is feeling the heat about the recent Brexit vote and wondering, waiting what will happen next.

Estonia keeps being one step ahead in the digitalization race.

 

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Trendiest word ever: digital. This has been repeated as the most essential development in the future. For example, in Finland, the reactions have been far from the theories. Estonia, on the other hand, has been taking big steps and going forward much faster than any of its neighbours. This makes sense in a way. Tallinn has been the heart for business and start-ups, for hundreds of years. The banal Soviet decades are long gone but not forgotten.

Here is the thing:

There really is no magic behind the Estonian success. That is why it is time to make a shortlist of the key points. Why is business great in Estonia and what to expect when trying to make a living in the Pearl of Baltics?

1) Strength in innovation

One can be surprised to see how well new things are being put in place Estonia. It is as if there is no middle man slowing things down like in many other Western countries.

Yes, Estonia is an Ex-Soviet satellite state but exceeding that fact they have been able to balance themselves without mental devastation. While thriving with adaptability and resilience. These abilities are in high demand everywhere nowadays. Comparing present-day Estonia to the 90’s version. This can help you to realise that change is always possible, and also going to happen. It is all about how we change to it and take our chances.

There are those who stick to the old and don’t want to believe that the world is changing. Well, it never stopped changing but the nature of things is now faster than ever. Global market and the total youth of the concept of work might be a nightmare. Only to those who fear regeneration and future itself. In Estonia, the future has been seen as it should be: full of opportunities waiting to be seized.

For example, digitalization innovations, such as e-residency. These do not get any faster and easier for you for doing real business in Estonia! There are already over ten thousand e-residents and a lot of them have never even touched the Estonian soil. The system is globally unique. You see, this is the innovativeness. Estonian companies get more customers and grow faster than ever because of this and all the other amazing digital applications. The next level of internationalization has already seen daylight in the most advanced digital society in the world. Others might want to take a leaf out of their book and follow.

2) Cost-effectiveness

Seriously though, where else do you get to see things running so smoothly as in Estonia? They started from the bottom 25 years ago. When entering the world of independent and free nations. Celebrating its 25th year of complete freedom it is a must to raise a toast for Estonia at this point!

Since 1991 the economy has been steadily growing with praise from the economic world. A liberal economy policy is one key to growth. Not to mention the low-tax system. The 1/3 labour costs that companies face here compared to those of, for example, Finland or Sweden. This has not been unrecognised by the world’s biggest trading and banking organisations.  Such as the World Bank and the World Economic Forum. That praise Estonia is an absolutely great place for business. The small country has made its mark and showed to the giants that the nation in white, black and blue is the one to look up to.

3) Digitalization

Want to open a bank account in Estonia without actually being there physically? Possible! And so it is visiting Estonian library to read today’s paper among many other benefits when you get yourself an e-residency. Voting is also possible online and this e-Voting. This concept has been estimated to be 16 times cheaper compared to the traditional way of voting.

While most of the nations are still considering the possibilities and the fears of digital. In Estonia, it is a whole different story. You can never become successful if your way of surviving is all about imitating the ones you look up to. By the time you get to their level, they will already have moved on to bigger things. Hard work, research, and can-do-attitude will eventually play out fine for you.

A point has been reached where Estonia is the precursor in the digitalization. Identity, health, education, social services, you name it. What will you be a pioneer in?

This digital aspect is also the key point when considering a country to do business in. Things actually work with digital solutions and less paperwork. This means more action and time to concentrate on whatever you consider relevant. Fast, reliable, digital, paperless and less bureaucracy. Is this not the way you have always wanted to see the world go round since the first days of the internet?

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