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eResidency 101 >
Pros and Cons of eResidency Programs Compared – What You Should Know
- FDN Life
- July 24, 2022
- 6:14 pm
- ISSUE NO: 11 > JULY-DEC '22
- eRESIDENCY 101
The eResidency program entails an online identity through which you can reach a worldwide audience. eResidency is a program that helps you to start a business, run it and connect with people all around the world, from the comfort of your own home. eResidency does not constitute citizenship, nor is it a way to evade taxes. However, if you apply for a Georgian or a Liberland’s eResidency, it might help you in the citizenship application process. An eResidency also does not give you the same benefits as a physical ID from your home country. The eResidency program was created to open the business borders between countries, and provide people with vast opportunities that they would not otherwise be privy to. There are many benefits to the eResidency program, such as the ease of the application process. All you need to do is fill in an online form provided on the official website of the country you wish to gain eResidency from, and pay the required fee. The processing time is usually between three and eight weeks. Once accepted, you can pick up your eResidency package from your chosen location. Sounds good? It is. Although, as with all good things, there will be some bad as well. Let’s, therefore, take a look at some of the PROs and CONs one should consider before choose an eResidency country or applying for an eResidency card:
FDN WORK & BUSINESS >
The eResidency program entails an online identity through which you can reach a worldwide audience. eResidency is a program that helps you to start a business, run it and connect with people all around the world, from the comfort of your own home.
eResidency does not constitute citizenship, nor is it a way to evade taxes. However, if you apply for a Georgian or a Liberland’s eResidency, it might help you in the citizenship application process.
An eResidency also does not give you the same benefits as a physical ID from your home country. The eResidency program was created to open the business borders between countries, and provide people with vast opportunities that they would not otherwise be privy to.
There are many benefits to the eResidency program, such as the ease of the application process. All you need to do is fill in an online form provided on the official website of the country you wish to gain eResidency from, and pay the required fee.
The processing time is usually between three and eight weeks. Once accepted, you can pick up your eResidency package from your chosen location.
Sounds good? It is.
Although, as with all good things, there will be some bad as well. Let’s, therefore, take a look at some of the PROs and CONs one should consider before choose an eResidency country or applying for an eResidency card:
The Pros and Cons of Estonian eResidency
As it was the first eResidency Program to be established, in 2014, a more comprehensive analysis can be made of the program’s pros and cons.
| Pros | Cons | |
|---|---|---|
| Costs |
What is called a State Fee must be paid to become an eResident. This State fee is a sum of between 100 and 120 Euros. The cost of opening a business with an eResidency is less than the price of the eResidency itself. Usually around 90 Euros. |
Though any business can be formed through eResidency, a limited company has a minimum capital that has to be paid before you can draw any money from the business account.
This can have a large impact on a small startup’s profits. |
| Tax |
No Tax On Reinvested Profit Profits that are reinvested into the company are tax free. The only tax you pay is on the money you take out of the company. On the money taken out, Estonia has a capped rate of 20% tax for profit distribution. Filling can now also be done online, with e-Tax. |
Need A Tax Representative e-Residents require a tax representative for occurring duties in Estonia. This representative also requires an activity licence from the Tax and Customs Board, to authorise them to complete these duties. |
| Banking |
Safe Online Banking The Estonian government promises safe and secure banking when using your eResidency. Most of the country's banking is done online, and banks encourage the use of e-ID cards. |
Difficult To Open A Bank Account Some who have opened a bank account have found it difficult to open. This is not because of the unwillingness of Estonian banks, but because of global banking laws that have increased drastically. Most of these laws have to do with the prevention of money laundering as well as countering finance for terrorism groups. |
| Digital World |
Online World Everything is done online, opening doors to greater opportunities. This broadens business horizons to different countries, without having to move there. |
Online Fraud Fraud is an overall concern in the business world, and the criminal world is already aware of this. In 2020, the Financial Intelligence Unit of Estonia found that there were companies using the program to create exit scams, initial coin offering (ICO) scam, and other cases. |
The Pros and Cons of Georgian eResidency
Launched in October of 2018, the Georgian eResidency Program is still fairly new, and as such the known pros and cons are mostly unknown. Georgia’s government has at the time of writing not yet given much information on the program.
| Pros | Cons | |
|---|---|---|
| Costs | The cost of applying for eResidency has yet to be announced. | We hope costs will be affordable, but at the time of writing, we do not know for sure yet. |
| Joining EU |
Georgia applied for EU Membership in March 2022, and was accepted in June of 2022.
Though, before candidacy status can be approved Georgia must finish a list of improvements. |
Before Georgia completes the list of improvements, access to the EU economy is not yet granted. Companies joining the Georgian eResidency program will have to wait some time before they are able to do business with the EU. |
| Tax |
At the time of writing, Georgia’s eResidency will use the current tax system which applies as follows: Corporate Tax: 15% Value Added Tax: 18% Personal Income tax on local income: 20% |
This could be changed, possibly for the better, but the uncertainty thereof is a factor when deciding where to join an eResidency program |
The Pros and Cons of Azerbaijan eResidency
Also launched in 2018, the Azerbaijan eResidency Program was the second to be launched. Along with it Azerbaijan launched the first mResidency program, which is the same concept but done with a mobile SIM card known as Asam İmza, translated to mobile identification.
Not much is known about the programs offered as few have applied. The main reason for this is the language barrier.
Azerbaijan is not an English speaking country, therefore you need a basic understanding of one of their many languages to be able to communicate.
| Pros | Cons | |
|---|---|---|
| Costs | The cost of applying for an m- or eResidency in Azerbaijan is 85 AZN, which is around 50 dollars or 45 euro. |
Unknown Costs With m-Residency When application for an m-Residency is approved you are provided with an Asam İmza, a SIM card. Because few have applied for the program it is unclear whether the card will work in other countries, or whether you will require a different phone. |
| Tax |
Tax For Startup Businesses Azerbaijan offers 3 years of tax exemption to startup companies, if they can provide proof with a startup certificate. After the three years these businesses must pay a 5% profit tax. Which is much lower than the standard 20% corporate tax. |
Tax For Other Businesses It is unclear what amount of tax you would have to pay if you cannot provide the startup certificate. |
| Azerbaijan and the EU | Azerbaijan has a good relationship with the EU. However it is not a member. | Azerbaijan eResidency does not have the capabilities of joining the EU economy as the country is not a member. |
| Digital World |
Online World From the application process to starting your business, all is done online. Baking, payments, as well as government services can be done remotely. |
Possibility of Online Fraud Though no cases have been reported, as with Estonia, the possibility is still there when everything is done online. |
The Pros and Cons of Lithuanian eResidency
The Lithuanian eResidency program was launched in 2021. As one of the most recent eResidency programs launched, there is still very little information about the program available.
| Pros | Cons | |
|---|---|---|
| Costs | The cost of applying for a Lithuanian eResidency is 90 euros. |
Limited Services Available
Though the cost is quite low, when compared to Estonian eResidency, Lithuanian eResidency does not have all the same benefits.
As it is still a very new program, many features you will find with other eResidency programs, are not yet available. |
| Language & Administrative Tasks |
Lithuania does not have a language barrier, as some other countries do, as English is widely spoken, along with Lithuanian, Russian and Polish. This helps when you are handling your administrative tasks. |
The most important part of gaining your eResidency in Lithuania, is the application process. At the time of writing, you must still travel to Lithuania for the application of eResidency, as well as the pickup of your card after approval. The application process is not online like the other eResidency programs, and no pickup location outside Lithuania is available. |
| Tax |
The basic tax rate for personal income in Lithuania is 20% and 32% is the higher rate.
Corporate income is taxed at a rate of 15%, while 5% is the rate for small businesses, and startups have a tax exemption for their first year. |
It is unclear whether the tax rates listed to the left will be applicable for the eResidency program.
There might be an increased taxation on businesses formed with the program, it is unclear. |
The Pros and Cons of Ukrainian eResidency
The Ukrainian eResidency program is mainly aimed towards entrepreneurs in the IT sector. Launched mid-year in 2020, the eResidency program of Ukraine has already seen many successful businesses grow.
A notable difference to the Ukrainian eResidency that stands out above the others is that at the time of writing this article application to the eResidency program is FREE. Though you must pass a knowledge test to be accepted.
Some things to note is that if you have a different profession than IT, your application might take longer than normal or be rejected altogether. The program is also still fairly new, thus information is limited.
| Pros | Cons | |
|---|---|---|
| Tax |
Ukraine offers a flat rate tax of 5% to businesses opened through an eResidency. There are also no extra costs or running costs, and your taxation reports are pre-filled, using various governmental tools. |
Ukraine is a lower to middle income economy. The country does not have a very rich economy, and paired with the recent Russian-invasion, this could be seen as a negative point. |
| EU Economy | Ukraine’s candidacy has been approved, and the country is closer than ever to becoming a member. | There is no set date as to when membership will be attained, and without membership, eResidents cannot yet benefit from the EU market. |
The Pros and Cons of Portugal eResidency
Announced in 2020 as the “ eResidency 2.0 Program” , the Portugal eResidency program is similar to the Estonian one. This is no surprise as the Portugal program was mirrored after the original eResidency program.
The program is unfortunately still in very early stages, thus very little is known about the program and how one can benefit from it.
An addition not seen in other eResidency programs, is the availability of healthcare services.
| Pros | Cons | |
|---|---|---|
| Costs |
There is a variation in the application costs. The lower end of the cost variation is 90 euro, which is the same as the Lithuanian eResidency. |
The cost of application can go as high as 299 euros, which is by far the highest of all the eResidency programs. |
| Banking | The Portuguese eResidency gives you access to both personal and business banking. | With the program still in the early stages, it is unclear how taxation will work |
| Azerbaijan and the EU | Azerbaijan has a good relationship with the EU. However it is not a member. | Azerbaijan eResidency does not have the capabilities of joining the EU economy as the country is not a member. |
| Digital World | Again, as with many of the eResidencies, everything is done in the online world. |
Possibility of Online Fraud As is with the Azerbaijan eResidency, and many others, there is not yet a case of fraud reported, but the possibility remains. |
A Note on Liberland eResidency
At the time of writing, Liberland is an unrecognised micronation with a population of 0, founded in 2015 by 3 individuals. However, since then 500,000 applications have been accepted into the country’s citizenship platform.
Liberland’s eResidency is a way of identifying yourself, as well as signing documents online. With your eResidency you can also start a business and manage it, just as with the other eResidencies.
Another benefit is the ability to join the Apatin’s free trading zone, and costs are minimal. However as it is a micronation, there are some issues.
Liberland currently has no infrastructure, no legal recognition, no diplomatic recognition, and no way of estimating the economy’s current state. eResidency in Liberland consists mostly of trade and the cryptocurrency market.
The eResidency program was meant to open borders and bring people a little closer to each other. So if you like to roam, not staying in the same place for too long, the eResidency program offers you a safe and secure way of running your business from wherever you are.
RESOURCES
- Brown, H. “Business Banking Options for e-Residents”, Republic of Estonia, June 9, 2022. https://www.e-resident.gov.ee/blog/posts/business-banking-options-for-e-residents
- Drake, Ed. “Estonia e-Residency Scheme linked to growing digital currency fraud: report”, CoinGeek, October 2, 2020. https://coingeek.com/estonia-e-residency-scheme-linked-to-growing-digital-currency-fraud-report/
- Nadiezhdina, O. “E-residency introduced in Georgia”, Eurofast, n/a. https://eurofast.eu/2018/11/14/e-residency-introduced-in-georgia/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=LinkedIn-integration
- Running, T.K. “The Ultimate Guide to Estonian e-Residency, Banking, and Taxes”, NomadGate, Updated February 11, 2021. https://nomadgate.com/estonian-e-residency-guide/
- Unknown. “Become an e-resident”, Republic of Estonia, n/a. https://www.e-resident.gov.ee/become-an-e-resident/
- Unknown. “Become an e- or m-resident”, Digital Trade Hub of Azerbaijan. n/a. https://dth.az/become-resident
- Unknown. “Comparing Estonian and Lithuanian e-residency”, Republic of Estonia. September 16, 2017. https://www.e-resident.gov.ee/blog/posts/comparing-estonian-and-lithuanian-e-residency
- Unknown. “Ease of doing business”, e-Estonia, n/a. https://e-estonia.com/solutions/ease_of_doing_business/e-banking/
- Unknown. “Ease of doing business”, e-Estonia, n/a. https://e-estonia.com/solutions/ease_of_doing_business/e-tax
- Unknown. “Estonian e-Residency: Pros and Cons”, Redwerk. June 14, 2019. https://redwerk.com/blog/estonian-e-residency-pros-and-cons/
- Unknown. “Getting an Estonian e-Residency; The Pros and Cons”, Financially Mint, February 7, 2019. https://financiallymint.com/getting-an-estonian-e-residency-the-pros-and-cons/
- Unknown. “Taxation in Georgia (country)”, Wikipedia, n/a. https://en.wikipedia.org/Taxation_in_Georgia_(country)
- Unknown. “Your access to borderless business”, e-Residency. n/a. https://e-resident.diia.gov.ua/
- Xolo. “Ultimate list of e-Residency countries in 2022”, Xolo, July 2022. https://blog.xolo.io/ultimate-list-of-e-residency-countries
eresidency eresident estonia eresidency georgia eresident georgie digital nomad estonia
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CONTENT
- Editor's Notes >
- eResidency 101 > PART 1 - A History
- eResidency 101 > PART 2 - PROs & CONs of Top eResidency Programs Compared
- Vegan vs. Vegetarian > What's the difference?
- LIESBET & MARK > A Life Well Travelled
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DIGITAL NOMAD FAMILIES >
Top 5 Winter Destinations for Digital Nomad Families Travelling Together - ERESIDENCY 101 > PART 3 - ESTONIA - eResidency in Estonia for Location Independent Businesses + Visa Requirements
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