Economy Estonia Telecommunication & IT

E-Estonia rakes in tax revenue, ready for revamp

| 2023-09-04 3 min read

E-Estonia rakes in tax revenue, ready for revamp

Reading Time: 3 minutes

In the first half of 2023, businesses owned by Estonian e-residents contributed EUR 37.7mn in tax revenue, a 57% increase compared to the same period in 2022.

The majority of these tax contributions, accounting for 55% or EUR 20.6mn, originated from labor taxes paid by e-resident companies registered in Estonia.

The remaining 45%, equivalent to EUR 17.1mn, came from special case income tax, primarily from dividends. E-residents also paid EUR 1.4mn in state fees, elevating the programme’s overall economic impact to EUR 39.1mn for the first half.

Estonian Economy and IT Minister Tiit Riisalo said the scheme attracts foreign entrepreneurs looking to do business in the EU with safety, transparency and low administrative costs.

While the maintenance and development of national IT systems entail expenses, the return on investment for the e-Residency program is significantly higher, he said: “for every euro invested by Estonia into e-Residency, the programme generates EUR 7.6.” Riisalo added that e-Residency also benefits local Estonian companies.

Rebrand seeks to target US, UK, Western EU

The Estonian Business and Innovation Agency (EISA) has meanwhile initiated a tender to refresh the branding and messaging strategy for e-Estonia.

“The digital economy has become a crucial and prominent aspect of Estonia’s overall image, evident in international media coverage, social media, expert evaluations, and think tank research,” the EISA wrote.

While the 2017 e-Estonia branding strategy adopted a destination-based approach, EISA’s new stated target markets are now the Nordic countries (Finland, Sweden, Denmark), the UK, Germany, France, the US, the Netherlands and Belgium.

Submissions for the e-Estonia rebrand tender, with an estimated budget of EUR 35,000, are being accepted until September 14.

New director inherits strong H1 results

Liina Vahtras, managing director of the e-Residency programme since June, said the first-half results exceeded even the most optimistic expectations, with the programme already achieving nearly 65% of its EUR 60mn target for 2023.

She emphasised that in the first half of 2023, the majority of tax revenue, amounting to EUR 12.6mn, was generated by e-residents engaged in professional, scientific, and technical activities, followed by information and communication companies, and administrative and support service activities.

As of the end of June, e-resident companies employed 5,027 Estonian residents, an increase of 284 compared to the previous year. Despite a minor decline in major markets, Estonian e-residents established 2,302 new companies in the first half of 2023, signifying a 6% year-on-year rise.

Western Europeans amongst top e-Estonia citizens

The highest number of new companies was founded by citizens of Spain, Ukraine, and Germany, with Turkey exhibiting rapid growth, followed by France and Italy. As of the end of June, Estonia has issued e-resident digital IDs to 5,428 foreign nationals, or approximately 1,000 new e-residents per month, which aligns with the annual average in recent years.

In 2022, the programme generated a total of EUR 51mn in direct economic revenue for Estonia, while its overall costs, including contributions from partner agencies, amounted to EUR 6.68mn.

The same year, the Estonian government endorsed a new growth strategy for e-Residency, envisioning an annual revenue target of EUR 100mn by 2025. As of March 2022, citizens of Russia and Belarus are not eligible for the programme.

Scheme about to enter second decade

Estonia introduced the world’s first e-Residency programme at the close of 2014, aiming to provide foreign nationals with secure access to its public e-services while promoting cross-border entrepreneurship and generating budget revenue.

Estonia is the sole country offering a 100% digital entrepreneurship solution for foreign nationals, equipped with a state-of-the-art toolkit for establishing and operating a location-independent international business. Over the years, it has contributed approximately EUR 183mn in tax revenue and state fees to Estonia.

To date, Estonian e-resident status has been granted to some 105,500 individuals from 176 countries, excluding repeat applications and invalidated identity cards. These e-residents have established more than 27,000 companies in Estonia, and there are currently 61,350 active e-resident digital ID cards in use.