'E-stonia' Attempts to Become the Uber of Economies by Introducing Virtual Residency

A view from Toompea hill, illustrating Tallinn's mix of ancient and contemporary architecture. Poco a poco

Imagine if you could simply live somewhere else, digitally. Imagine if it didn't involve Second Life-style role play. It's about to happen. Later this year, Estonia will become the world's first country to offer foreigners e-residency. Some 6,000 people filed ­early-bird applications within the first 24 hours.

"We look at this as a government start-up", explains Taavi Kotka, the country's deputy ­secretary-general for communications and state information systems and the architect of the e-residency law, which was passed by parliament last month. His fellow citizens, Kotka explains, consider Estonia a hassle-free country where it's easy to interact with the government. Now this small country with a population of 1.3 million wants to extend this hassle-free service to non-residents, who, starting later this year, can gain e-residency for the modest government fee of €50 simply by presenting themselves at a police station. They'll receive an ID card equipped with a chip and security certificates, with which they can sign documents, launch and manage companies and conduct banking transactions.

An act of altruism by a country famed for its digital infrastructure? Hardly. "Estonia has around 30,000 active companies, and we'd like to grow that figure by at least 10,000," says Kotka, himself a former entrepreneur. "While Ireland and Switzerland focus on large companies, we'd like to attract startups and other small to medium enterprises."

But, until recently, Estonia wasn't sure how to stand out as an investment destination. "Estonia has had no specific foreign investment strategy," says Oliver Väärtnõu, CEO of the Estonian software firm Cybernetica. "We didn't know what kind of companies we wanted to attract. Thanks to the IT industry and startups, and basically by chance, technology has become our foreign investment niche."

Indeed, when Kotka joined the government three years ago, he spent a lot of time thinking about Estonia's potential assets. "It's small, it's cold," he says. "Nobody wants to come here." But the country's digital infrastructure is so advanced that residents have long used e-IDs for both banking and online shopping. They pay taxes and vote by smartphone; children learn computer programming in primary school. President Tomas Hendrik Ilves likes to refer to his country as 'E-stonia'.

Until now, only physical residents have been eligible for e-IDs, but the new law changes that. Even though the first IDs won't be given out until later this year, more than 6,000 people applied within the first 24 hours of early-bird registration. And fun though it might be for private use, the e-residency is primarily intended to benefit companies as individuals can sign documents from anywhere in the world. "Instead of constantly filing paperwork, you can focus on your customers," says Kotka. "If you can save €30,000 on an accountant you free up a lot of money you can spend on growing your company."

Estonia, the Ireland of startups? Skype co-founder Jaan Tallinn is not so sure. "I'd be surprised if the e-residency attracted a lot of startups, because the usual startup bottlenecks are finding good co-founders and getting ­investment, neither of which the e-residency influences much," he says. "That said, this is a new and bold experiment, so it's likely that we'll see some interesting use cases, some of which will be useful for startups."

Daniel Ha, Comment platform Disqus's co-founder and CEO, calls the e-residency "quite amazing". "Residency and place of business are now absolutely different things," he says, from the company's headquarters in San Francisco. "An e-residency allows smaller companies like ours to consider substantial work in areas that we otherwise couldn't reach. That's very cool. I'm not sure that means I'll be looking at Estonia any time soon, but I'm glad that this is a real initiative happening right now." Ha touches on the e-residency's obvious ­challenge: Estonian e-residents will be able to conduct business ­– even launch companies – far from Estonian soil, foregoing a physical presence. Still, business student and startup entrepreneur Kristo Petersen is certain that the e-residency will benefit local companies, saying that he'll offer the e-resident firms digital infrastructure consulting services.

And whether or not foreign investment turns it into a Baltic Tiger, Estonia has already made a splash by introducing the e-residency. Journalists are reporting on it; entrepreneurs are taking note of the innovative country. By contrast, almost no one is talking about setting up shop in Macedonia, with a population of 2 million. "Obviously it's very difficult for a small country to be globally noticed, and e-solutions are certainly one way of making yourself big," says Mait Palts, director-general of the Estonian Chamber of Commerce and Industry, adding: "Hopefully e-residency will not only engage new e-residents but also physically attract new entrepreneurs and talent to Estonia."

Estonia's digital IDs also touch on a ­critical issue: information security in a globalised world. Signed documents are the cornerstone of business operations worldwide, but the process of signing and verifying is a cumbersome, time-consuming and often unreliable one.

Tiit Elenurm, head of the Estonian Business School's entrepreneurship department, calls e-IDs a peek into the future. "The law opens a new frontier for digital operations," he says. "This is something Estonia can do because ­people trust our government. That's not the case in many countries." When sending written material, Elenurm always uses digital stamps connected to his e-ID; that way, everybody will know that he's the author – and nobody can claim the work as their own. Indeed, Elenurm is alarmed at the careless way in which credit cards without PIN codes are used in some countries, calling his own credit card the least secure item in his wallet. In 2013, 13.1 million people were victims of identity fraud.

The e-residency has political overtones as well. During Soviet rule, which ended 23 years ago, the many Estonians who took refuge abroad – including President Ilves's family, who lived in Sweden and America – made sure to maintain their Estonian identity.

"We Estonians have shown that we can survive in the cloud," explains Kotka. "You don't have to live in Estonia to be part of our country." Every virtual Estonian makes the country a bit stronger vis-a-vis its former occupier.