One in five e-residents register a business in Estonia

Blog
Posted on 3. November 2020 15:09, Senior Analyst Eve Telpt

Since 2014, 73,400 foreign citizens have become e-residents of Estonia. 20% of these e-residents have participated in founding a business and over 14,200 businesses have been registered in Estonia with their participation. We looked into where e-residents come from and what are the activities of their Estonian enterprises.

The e-residency programme was launched in Estonia on 1 December 2014. It allows foreign citizens to become Estonian e-residents and use Estonian e-services. In the five years and ten months since its launch, 73,400 persons have been granted e-residency. Is this a small or a large number?

Considering the Estonian population, it is a very large number: more than the combined population of Pärnu, Viljandi and Rakvere towns (a total of 71,800 inhabitants) or the number of children born in Estonia in the last five years (approximately 70,200 in 2015–2019).

The record year for e-residency was 2018 when more than 20,500 people became e-residents, or around 1,700 persons per month on average. In 2019, the number of new e-residents was around three fourths of that: 1,300 persons per month on average. In most months of 2020, the number of new e-residents has been lower than last year (on average over 1,000 per month). This could be related to movement restrictions due to COVID-19: in order to obtain the digital ID card, an e-resident must go in person to an Estonian embassy and submit fingerprints in order to confirm identity.

The first enterprises of e-residents were registered at the beginning of 2015. As at the end of September 2020, more than 14,200 businesses have been registered in Estonia with the participation of e-residents. Until 2018, the number multiplied each year: over 300 new businesses were registered in 2015; 1,000 in 2016; 2,000 in 2017, and as many as 4,000 in 2018. The record year is 2019 when nearly 4,300 businesses entered into the commercial register were connected with e-residents. It is highly unlikely that this record would be broken this year, because by the end of September, the number of businesses registered was 15% smaller than at the same time last year. In April, May and August, the number of new enterprises was significantly lower than last year.

Where do e-resident entrepreneurs come from?

Estonian e-residents include citizens of 173 countries. The most are citizens of Finland, Russia, Ukraine and Germany, but the top ten also includes China, the United Kingdom, India, the United States, Japan and France. The origins of new e-residents have significantly changed over the years. During the first years of the programme, Finnish citizens represented a large majority, but their share has decreased gradually. In 2015, Finnish citizens accounted for 21% of new e-residents, but by 2019, their share had fallen to 3%. In 2018, Asian countries stood out: the largest number of new e‑residents came from Japan and China.

Can a label of origin be attached to a business as well? Not directly, as citizens of many countries may be involved in starting one enterprise. However, if persons associated with enterprises (founders, shareholders, board members, etc.) were observed, conclusions about enterprises’ origins could be drawn on the basis of citizenships of the persons involved. As at the end of September of this year, one in five e-residents was associated with the registration of at least one enterprise. This varies by country, though. Among the citizens of countries with at least a thousand Estonian e‑residents, citizens of Spain and Turkey are the most active in business (3031% of them have registered an enterprise), followed by citizens of Ukraine and Germany (2627%). In contrast, only 7% of e-residents who are citizens of China and the Republic of Korea are associated with an enterprise. However, these numbers are not final, because statistics show that oftentimes people do not establish their first business immediately after becoming an e-resident but months or even years later.

What are the activities of e-residents’ enterprises?

The businesses of e-residents operate mainly in three economic activities. At the time of registration, 39% were active in the field of information and communication, 24% in professional, scientific and technical activities and 17% in wholesale and retail trade. The top three economic activities have remained the same over the years, and their shares have continuously increased. Whereas in 2015, 70% of all new businesses were registered in these three economic activities, this year they make up 82% of new businesses. Nearly two thirds of enterprises registered in information and communication offer computer programming, consultancy and related activities.

Statistics Estonia collects and analyses data of very diverse areas. The list is not exhaustive but is changed and extended based on need. One of the latest additions are the data of e-residents’ businesses, which are analysed for Enterprise Estonia. In cooperation with Enterprise Estonia, the experimental statistics team of Statistics Estonia has developed a methodology for producing the relevant statistics and compiles monthly overviews of e-residents’ businesses and their tax data. Statistics Estonia will also soon start publishing the data of e-residents’ businesses in the statistical database to make the data available to everyone.

For producing statistics on the businesses of e-residents, data of the Estonian Police and Boarder Guard Board and commercial register have been used.

E-resident is a foreign citizen whose application for e-residency has been approved by the Estonian Police and Boarder Guard Board, i.e. a decision has been made to grant the person an e-resident’s digital identity card. An e-resident does not lose his or her status with the expiration of the digital ID card.

Enterprise of an e-resident is a legal entity registered in the commercial register with the participation of at least one e-resident. In order to be considered an e-resident’s enterprise, three conditions must be fulfilled:

1) the enterprise was registered after the person became an e-resident;

2) the person’s role in the enterprise was established after the person became an e-resident;

3) the person’s role in the enterprise was established within 90 days of the registration of the enterprise.

For identifying the connection between an enterprise and a person, the following roles registered in the commercial register are taken into account: founder, founder (without contribution), shareholder, partner, limited partner with the right or representation, limited partner, general partner, undertaking, sole proprietor, sole member of the management board, chairman of the management board, member of the management board (manager), member of the management board, director of branch.

Photo: Brand Estonia