While the need to have an ID card stirs protest in many countries, Estonia has used a digital version as the foundation of its strategy to lead the world in digital government.
The people of Estonia, particularly older generations, could be forgiven for fearing an ID card. The oppression during the Soviet occupation from 1944 to 1992 is still recent history, but this has not stopped Estonians embracing digital IDs.
These digital IDs, which are also legal travel documents within the European Union (EU), enable holders to vote in national elections online, pay their taxes online and, if current work comes to fruition, they will soon be automatically contacted by a government digital assistant and offered services they need before they know they need them.
A secure ID is the perfect foundation for any digital service. Certainty about who is making an application removes complexity. In Estonia, tech entrepreneurs are building digital services to make life easy for holders of these cards.
In many ways, the Baltic nation behaves like a small and nimble tech startup. Its tech-savvy population is small (1.2 million), its mission is to make things easy, and its people are not afraid to try things out.
It was also quick, like many a startup, to spot an opportunity when faced with a challenge. None more so than in the aftermath its independence from the former Soviet Union 30 years ago when it set off on a mission to use IT to transform society. This needed to be quick as the Soviet withdrawal left the country without the infrastructure a country needs to function.
Once free, Estonia began creating a market economy and environment where businesses could flourish. But to grow further, it had to attract foreign people and money. And tech was a key ingredient.
Today, the country’s business culture is turning heads across the world. More than 80,000 people from 170 countries, including around 4,000 Brits, have become what are known as e-Residents, establishing businesses in Estonia.
The e-Resident programme is built on a similar digital ID to that used by citizens. It is a means of identification, but it is not a travel document and holders can’t cross borders with it, cannot vote in Estonian elections, and should pay personal tax where they physically reside.
But once one of these digital IDs is acquired by an e-Resident, they can establish a business in the country and benefit from an environment where virtually everything can be done quickly and painlessly online.
It is this ease of doing business that is attracting more overseas entrepreneurs to Estonia and encouraging those overseas businesses already there to expand.
Last year, e-Resident-owned businesses added €51m in tax revenues in Estonia, which, although a small figure, was 60% higher than the previous year.
Digital services are “cool”
Estonia is aware of its tech leadership and is not shy to promote it. Speaking to a group of international journalists at Stenbock House, the official seat of the Estonian government, in capital Tallinn, prime minister Kaja Kallas espoused the virtues of the Estonian way of providing government services, while poking fun at the processes of the likes of Belgium, where she spent time as a member of the European Parliament.
Highlighting the process of doing annual tax returns as a prime example of where Estonia is showing the way, she says the country is “the only place in the world where people compete to do their taxes faster”.
“We are trying to move to proactive services, so when you have a life event, like having a child, the state knows and provides all the experience you need”
Kaja Kallas, Estonia
“I didn’t understand how much we enjoy digital services provided by the Estonian state when I went to Brussels, but then I understood the cool parts of digital services when they were taken away,” says Kallas.
“In Brussels, I got a big pile of paper and an instruction booklet about how to fill in the tax declaration. I only had to find the box to tick that I did not pay tax in Belgium, but I thought, ‘Do people really do this here?’”
The tax system is one of the reasons Estonians have taken to electronic IDs, says Kallas, with over 97% of Estonians now doing their declarations online. They are offered faster rebates if they do their taxes online, using the ID. “For people to take up the ID card, it needs to be worth it,” she says.
But Estonians are not content with that and, in the spirit of experimentation and development, Kallas reveals it is moving digital services to the next level. “Now we are trying to move to proactive services, so when you have a life event, like having a child, the state knows and provides all the experience you need,” she says.
It is this attitude to solving problems through digital services, as well as easy-to-use services such as tax filing, that is attracting entrepreneurs to Estonia. Many businesspeople are not arriving in Estonia physically, but virtually, including many in the tech sector, using the e-Residency route to do so.
How it started
So why have tens of thousands of entrepreneurs from across the world, many Brits among them, become e-Residents of Estonia since the programme began in 2014? In 2017, the number of people applying for e-Residency exceeded the Estonian birth rate.
Former tech startup entrepreneur Lauri Haav, managing director of the Estonian e-Residency programme, took on the role as what he believes is his civic duty after missing compulsory national service due to his university studies.
He is a good fit, with wide experience of the challenges entrepreneurs face when setting up tech companies, having worked for and set them up across 12 different countries. “I have lived through the pain of setting up businesses in different countries and seen the difference in Estonia,” he says.
“I have lived through the pain of setting up businesses in different countries and seen the difference in Estonia”
Lauri Haav, e-Residency
It is the combination of private sector expertise like Haav’s and government that is vital to the e-Residency programme, which Haav describes as a “weird version of a public-private partnership”.
“In 2014, the CIO in Estonia, who came up with the idea, was a startup guy. He was able to find some like-minded people and together they started the programme,” says Haav.
Without private sector input, it might never have happened. “It’s a good thing that people from the private sector work in government because when two different worlds come together, lots of crazy ideas can be spun out,” he says.
These ideas come to the fore when there is a clear need for something – in Estonia’s case, it was people and capital. The e-Residency programme enables the country to benefit from people who don’t live in Estonia. People can become e-Residents from anywhere in the world and don’t ever have to enter Estonia. In fact, their right to enter Estonia is no different to any other citizen in their own country.
They may not be Estonian citizens, but like those who are, the digital ID is at the core of their access to services, in this case businesses.
A total of 84,000 people have applied so far, about 95% of whom have been accepted. Once they become an e-Resident, they can establish companies in Estonia. So far, 18,000 businesses have been set up that way.
One former e-Resident, who has since become a physical resident, is Belgian entrepreneur Jan Lagast. He is the founder of Impact Builders, which is a virtual business advisory firm and a startup support hub that operates in Estonia and Belgium.
“In 2014, I was in Belgium, was fed up and wanted to go abroad, so I went all over Europe, including Ireland, Portugal and Germany, and then I wanted to go to Helsinki, but was recommended by someone to try Tallinn instead,” he says.
Lagast admits that, at the time, he wasn’t sure where Estonia was. “I wondered where it was because it was the first time I had heard of it. But I went to visit in 2017 and I loved it,” he says.
“If you compare the economies of different countries to seasons, I think in [most of] Europe winter is coming, but here in Estonia summer is on its way. It is the country with the lowest bureaucracy I have ever seen as a startup entrepreneur, which is so important”
Jan Lagast, Impact Builders
The business opportunity, ethics, lack of bureaucracy and ‘can do’ attitude of the population were enough to convince Lagast. Such was the lure of Estonia that he didn’t even investigate the tax regime, something unthinkable for most businesspeople. “Doing business here is not about taxation, the culture is about startups,” he says.
Lagast also sees growth ahead. “If you compare the economies of different countries to seasons, I think in [most of] Europe winter is coming, but here in Estonia summer is on its way,” he says. “It is the country with the lowest bureaucracy I have ever seen as a startup entrepreneur, which is so important.”
The people of Estonia also play their part in welcoming and supporting those setting up business in their country. “They never asked me why I am here, and have I got a job, but they are really happy and passionate that I love Estonia.”
Being part of something bigger
After deciding to set up a business in Tallinn, Lagast saw posts on Facebook about the e-Residency scheme, which he thought was “cool” and wanted to join as a gimmick just to show off to his friends.
He says he had misunderstandings about the e-Residency scheme at the time, but he benefited from it when setting up his business, such as all the required tax and other documents being online and the ability to sign documents from anywhere.
The lure of Tallinn did not abate for Lagast. In the summer of 2020 he decided to live permanently in Tallinn, adding to the rich startup ecosystem and now paying personal taxes in the country.
A Brit who has fallen for Estonia’s charm is Vicky Brock, co-founder of Vistalworks, a UK tech startup that provides online security software and boasts the Scottish and EU governments as customers. When the UK decided to leave the EU, to ensure she could continue to serve EU-based customers Brock decided to set up a second company in Estonia, even though it appeared too good to be true.
The lack of bureaucracy was such that she couldn’t believe it was a genuine offer. “I had never been to Estonia until I first came here and had to open a bank account. I was initially slightly worried that I was being conned because it was so easy to work with the systems in place here,” she says.
Tech hotspot
For tech startups such as Vistalworks there is the bonus of operating from one of the world’s tech hotspots. The country offers a supportive ecosystem, underpinned by some of the most successful tech startups in the world. It has the most unicorns – tech startups now worth over $1bn – per capita anywhere in the world.
Skype, which originated in Estonia, is the best known, but the country also boasts the likes of ride-hailing app Bolt and fintech Wise, which was founded by Estonians and has its largest presence in Tallinn.
Kaidi Ruusalepp, founder of tech startup Funderbeam, is an IT lawyer who was CEO of the Nasdaq Stock Exchange in Estonia from 2005 to 2007. In 2013, she became the first female tech startup founder in Estonia to raise money.
She is part of the Estonian Founders Society which was set up in 2009 to support startups through direct relationships with founders across the sector. It was initially seen as a gathering for the first Estonian founders and grew to having over 150 members. It now has lofty ambitions.
“We want to create a growth engine and the mission is to have 30% of Estonian GDP derived from tech by 2030”
Kaidi Ruusalepp, Funderbeam
In 2020, Estonia had 1,000 startups – many of which were established by e-Residents – that created 6,500 jobs. “We want to create a growth engine and the mission is to have 30% of Estonian GDP derived from tech by 2030,” says Ruusalepp.
She points out that the unicorns of Estonia have established the know-how that will fuel further growth. “The successful unicorns have created a new generation of top leaders and executives,” she says. “We can get what we need from our own community.”
By 2030, Estonia’s tech sector wants to employ 50,000 people and generate €9.3bn in revenues.
