This is my second Estonia Digest for e-residents around the world who want to stay informed about the country they are investing in.
The original idea for these articles was simple. We know e-residents can already read plenty of praise for Estonia in the international media so we instead wanted to explore the difficult issues behind the glowing headlines and offer some straight talking analysis.
Well, the first part is no longer the case. Estonia has been getting some pretty bad media coverage lately and we’ve unexpectedly found ourselves trying to offer some balance in the opposite direction. Either way, the point is to help e-residents connect more deeply with their digital nation, make more informed business decisions, and find useful things to do when they are visiting. With that in mind, we’d love your feedback in the comments about how we can improve these.
Here’s what I’m covering this week:
- Estonian tax services are back online
- Not all that glitters is (sellable) gold
- Crypto clampdown
- The battle for Estonia’s reputation
And these are the regular features:
- Recommending viewing
- Upcoming events
This Estonia Digest is published by Rangi maja, a digital home in Estonia that will soon begin offering new services to e-resident entrepreneurs. We’ll tell you more about that another time.
Estonian tax services are back online
A quick public service announcement…
The Estonian Tax and Customs Board (EMTA using the Estonian acronym) turned off their e-services last week for a scheduled interruption of five days. It’s now all back online, just in time for tomorrow’s deadline (10 May) for filing the monthly income and social tax return in Estonia.
According to ERR News, EMTA were advising companies to ensure they’ve at least paid the taxes in time then present the declaration afterwards if needed.
EMTA is currently developing a new e-Tax and Customs Board portal will be fully complete by the end of 2020, but elements of it are already being gradually phased in. They say this interruption will bring new improvements to their service, including increased automation.
The tax department was one of the first Estonian e-services to be digitalised, but they are now moving into the second stage of digitisation which means not just offering offline services online, but redesigning them from a ‘digital first’ perspective. This means putting the needs of users above those of officials, improving self-service and making more data available to the public.
Not all that glitters is (sellable) gold
‘This European State Has Exactly One Gold Bar Left In Its Vault,’ wrote Russia’s Sputnik in a headline this week. I’ll save you a click. It’s Estonia.
Estonians are known for being a bit reserved, although not when it comes to gold. Estonia has one of the world’s lowest gold reserves with just 256.6 kg of the shiny metal. That’s low, even by Baltic states standards. And out of that, just one gold bar is stored in Estonia while the rest is in the US and other allied countries.
That lonely gold bar in Estonia is reported to be worth about half a million euros, although its purity is so low that it can’t actually be sold on international markets.
The Sputnik headline makes it sound like Estonia went on a reckless golden spending spree, but that small amount of gold can explain a suprisingly large amount about Estonia’s past and its plans for the future.
States hold onto gold reserves as one of many ways to store value that can underpin the stability of the country’s economy and financial system, especially in times of crisis. Gold is a location-dependent asset though. It’s expensive to store and can’t be easily moved. Yet the kind of national crisis deep rooted into the mind of Estonians involves losing control of their territory, at which point any gold stored there isn’t useful anyway. It can be stored with allies, but under the circumstances described, even that has its complications when geopolitics comes into play.
None of this is purely hypothetical. It’s based on real experiences in living memory of Estonian policymakers today.
The Baltic states moved their gold abroad prior to World War 2, but the Soviet Union repeatedly made attempts to claim ownership of it while occupying the territory (as it falsely claimed that these states signed up willingly and the gold was now under their collective control). Most allies initially froze the assets and resisted Soviet attempts to seize it, although it did play a role in some negotiations and compromises. Sweden complied with the Soviet request to hand it over, while a Labour government in the UK used it to negotiate a deal in which the Soviets renounced their claim to the gold while also not having to compensate British business interests that were nationalised under their control. In the end though, the allies returned control of all the gold or (made appropriate compensation in the case of Sweden) to the Baltic states when their independence was resumed.
The key to retaining control of the gold, as well as hope of independence being restored, was the concept of ‘state continuity’. The Baltic states always maintained that they were under illegal occupation and found (largely symbolic) ways to ensure their Republics could function independently throughout this period. This was thanks to the work of diplomats who remained in their posts abroad, continued showing up for work and resisted attempts by the Soviets to take ownership of their buildings too. These exiled diplomats were an irritation to the Soviets and a funny historical annomaly to many others, but they outlasted the Soviet Union and completed their mission against all the odds to maintain state continuation until the Republics re-established control of their territories.
Most notably, Ernst Jaakson was posted to New York just before the occupation began and remained in his post long enough to be promoted to Ambassador fifty years later. When visiting Tallinn, look out for the tram with his name on it.
This is why Estonians, Latvians and Lithuainians get irritated when they hear their country so often being inaccurately called an “ex-Soviet state” that “became independent in 1991”. As it happens, my own family fled Estonia and Latvia during Soviet times and I only discovered later in life that the concept of state continuity also meant that I’m an Estonian citizen.
State continuity has now gone digital as the Republic of Estonia can function almost entirely online and careful plans are in place to ensure it can continue operating even in the (now extremely unlikely) event of losing control of its territory again. As remarkable as it sounds, our digital nation is already “backed up” in our Embassies around the world each night but that is now being taken to the next level with the introduction of ‘data embassies’. Estonia will be the first country to have sovereign servers in allied countries abroad (in secret locations) to ensure the country can function continously under even the most unlikely circumstances. Geopolitics is heavily influenced by norms and perceptions so if those few diplomats were an irritation then imagine how difficult it would be to occupy a country that the world can see functioning normally online.
So Estonians didn’t just build a digital nation because it is cool or, as often suggested, because they were too poor to do it any other way. It’s been opportunistic, but it is also the continuation of a much longer term strategy to build a prosperous and more secure nation.
Quite sensibly then, Estonia has also diversified its assets away from a location-dependent shiny metal and towards a wider range of assets, including bonds and shares that can not only be controlled from anywhere but also hopefully bring better returns.
On that note, the outgoing Governor of the Bank of Estonia, Ardo Hansson, has just presented their latest annual report to the Estonian Parliament on Tuesday. Their net profits rose from €4.3 million in 2017 to €13.9 million last year. A quarter of that will now be transferred to the state budget.
Hansson is now one of the favourites to succeed Mario Draghi as President of the European Central Bank. The new Governor of the Bank of Estonia will be the current deputy, Madis Müller.
Crypto clampdown
Estonia’s new government is planning to increase supervision of financial activity licences, primarily to combat new risks related to companies trading crypto.
It’s going to get more difficult for businesses to use Estonia’s business environment for activities related to trading crypto tokens (or ‘cryptocurrency’). This might be welcomed by many Estonian company owners though, including some of those directly affected.
Estonian and non-Estonian companies can apply for an activity licence for the provision of financial services from Estonia if they exchange fiat (conventional government-backed) currency for virtual currency or fascilitate the exchange of virtual currencies. That covers companies issuing their own crypto tokens, such as through a so-called ‘ICO’, and also companies that offer wallets or exchanges for trading any crypto tokens. Doing these things through Estonia’s business environment without the licence is a criminal offence.
Obtaining the licence is relatively straight forward though, at least for now. It costs €345 and takes up to 30 days to be processed by Estonia’s Financial Intelligence Unit (FIU), an independent unit within the Estonian Police and Border Guard Board. Companies applying must first prepare an overview of their management procedures for dealing with risks related to money laundering, terrorist financing and other criminal activities, and demonstrate how they can responsibly balance that with their goals as an organisation. This is what gets assessed within the 30 day processing period, along with the suitability of the management board members themselves.
As a side note, you might sometimes see people trying to buy or sell Estonian companies online with the licences included. This is a pretty bad idea, especially if the buyers are more interested in taking over the company (the legal structure) rather than the business (how it operates and what it offers). A mere change in ownership is enough to jeapodise the conditions on which the licence was granted and therefore have it revoked.
That application process now needs to be strengthened, according to Estonia’s new government. They’ve identified companies trading in crypto as currently being the weakest link in Estonia’s financial supervision.
More specifically, it is the nationalist EKRE party in the new governing coalition pushing for the change and they currently hold the post of Minister of Finance through Martin Helme who is introducing the bills.
This might come as a surprise to outside observers who have followed the rise of nationalist or populist movements elsewhere, which tend to be more enthusiastic about the rise of crypto for a range of ideological and practical reasons. It’s a mistake to treat this phenomenon as following the same pattern everywhere though. Another, more obvious difference with Estonia’s nationalists is their hardline stance towards Russia.
EKRE used concern about money laundering risks to Estonia as a key part of its election campaign and has little enthusiasm for digital solutions.
Estonia does already have a well supervised business environment (with the second lowest risk of money laundering in the world according to the latest Basel AML Index), but Estonia is also still dealing with the fallout from an older money laundering scandal centred on the Estonian branch of a foreign bank. That didn’t involve e-residents and seems to have barely involved Estonian companies, but rather non-Estonian ‘shell’ companies registered elsewhere but given accounts at the bank. Estonia’s high level of transparency makes the concept of a shell company meaningless here anyway.
However, the rise of crypto does bring new and constantly evolving risks to Estonia’s business environment and the government’s first responsibilty is to preserve trust in that environment. Even within a well functioning business environment, the reputational damage alone from the money laundering scandal could have real costs for ordinary Estonians through reduced access to loans.
As a result, the government is first planning to introduce and ammend legislation that will make it more difficult for companies to apply for the financial activity licence. The cost would rise nearly tenfold to €3300 and take up to three months to process instead.
This is relatively a lot more hassle to how it is currently, but not exactly a dealbreaker for entrepreneurs who believe they can build lucrative companies related to crypto. Some e-residents have already expressed their annoyance online, but others are less phased — or even mildly optimistic that enhanced supervision is neccersary to make their Estonian licences more trusted and therefore more valuable.
Most significantly though, the proposed legislation would also require companies to be phsically present in Estonia. That is expected to mean that the company has a registered address in Estonia, a management board residing in Estonia and company activity taking place offline in Estonia (and not just by hiring an Estonian accountant and virtual office).
The changes would apply both to companies applying for the license, as well as those that have already obtained it, although they would have until the end of this year to bring their activities into line with the new rules and demonstrate this to the Financial Intelligence Unit.
That doesn’t mean e-Residency isn’t useful to crypto entrepreneurs in various ways (including for integration into ‘Know Your Customer’ procedures) or that Estonia isn’t a good option for starting a crypto company. But the era of people being able to run a financial services provider while backpacking on the other side of the world seems to be coming to an end. Well, if it ever got started.
Offering any financial services, whether crypto or not, already involves such complex challenges (most notably around banking ironically) that the most successful crypto companies seem to have already settled in Estonia or another jurisdiction anyway. Location-independence has always worked very well for some types of companies (like freelancers and people selling services online) and not so well for others so this really just seems to confirm which category crypto companies already fall into.
More broadly though, the changes are good for anyone doing business in Estonia unrelated to crypto, which is almost everyone. The advantage of Estonia’s business environment is not just that companies can be easily established and managed online anywhere. It’s the fact that those companies can easily conduct business globally due to a wide range of measures designed to protect and promote trust in Estonia’s business environment. Those measures range from the use of secure digital identities to the incredible high levels of company data that is transparent to the public. Supervision also plays a key role.
It should be noted however that raising the barriers to entrepreneurship does not automatically improve supervision or produce a more trusted business environment. The countries that impose the highest costs and hassle on entrepreneurs include Somalia and Venezuala, which obviously don’t have very trusted business environments. Estonia will need to demonstrate how that extra time and money equates to improved supervision, and also continue working in support of entrepreneurs who operate within the enhanced rules.
Martin Helme himself has said that his aim is not to stop crypto trading, but to ensure the supervision is suitable for the new risks that it brings. These first changes seem unlikely to be sufficient though and Helme has reffered to them as merely “the first, fast-track action” with hints of more tightening of rules to follow.
The battle for Estonia’s reputation
Not all publicity is good publicity, but no publicity at all is still a problem too.
“It takes 20 years to build a reputation and five minutes to ruin it,” according to Warren Buffet. The American investor also once explained to employees that he would be forgiving if they lost the firm money, but ruthless if they lost the firm reputation.
This sentiment is apparently not shared by Estonian Prime Minister Jüri Ratas.
Twenty years is about the same period of time that Estonians have been building their reputation as a digitally advanced nation. But in response to rows (like below) that led to even more negative media coverage for Estonia around the world over the past week, Ratas explained that it would simply take time for members of the government to get used to their new roles.
One of the most scathing assessments of the situation came from Politico, which suggested that Estonia may become a textbook example of how a country can throw away its reputation.
Ratas maintains that Estonia is remaining on the same path though, including when it comes to foreign and security policy, so his job is to maintain friendliness and keep people calm.
It wasn’t all bad news for Estonia in the past week. The Boston Globe chose to put Estonia on the front cover of its weekend magazine, along with a story inside about why readers should visit “the land of saunas, forests and startups”.
While it is fairly easy for politicians to generate negative headlines with a quick remark, the positive articles like this take considerable time and effort on the part of many Estonians, most notably at Enterprise Estonia (EAS) and our Embassies around the world working in co-operation with the private sector.
Glowing articles aren’t just nice to have. As President Kaljulaid explained in her most recent Independence Day speech, telling the story of Estonia to as many people as we can and in as many ways as we can is fundamental to Estonia’s prosperity and security as a nation.
The strength of our national reputation also has a significant effect on our ability to build our businesses globally. The marketing manager of one prominent Estonian company mentioned to me once that they used to keep their Estonian address in small text and emphasise their global nature as much as possible. In recent years though, significantly more people around the world have learnt about Estonia and its startup culture and so their Estonian identity has played a much bigger role in their brand for the first time.
Good marketing and PR won’t get us very far without real substance behind it though. We really do have great saunas, forests and startups even though it takes a lot of work to get the message out there.
In this case, Visit Estonia (the tourism branch of EAS) helped co-ordinate the trip (as they do for countless other influential visitors every day) and I happened to have a few free hours in which to take the journalist to Kalma saun in Tallinn, one of our oldest public saunas, and chat about e-Residency and life in Estonia.
To be honest, I didn’t think much would come from it. The journalist was really nice to talk to and had shown genuine interest in so many different aspects of Estonia, but there are a vast number of freelance journalists passing through the country so this is a process that we repeat countless times. It sometimes results in little if any media coverage.
This time though, the journalist wrote a beautiful article capturing so much of what makes Estonia great. The Boston Globe magazine then selected it as their lead story and put a picture on their cover of an Estonian girl called Lovise pictured at an Estonian smoke sauna.
No one was more surprised that Lovise’s mother who took the photo.
This is just one of many photos that are freely available to anyone (with certain conditions attached) through Toolbox Estonia, a national multimedia library for people communicating about Estonia. The photo that the Boston Globe happened to pick was taken by Lovise’s mother while she herself was being photographed with her family by the New York Times. A now iconic picture of them enjoying a family sauna holiday the Estonian way was already used on the front cover of that magazine. This means Mariann Liimal has now both photographed and been photographed for the front covers of America‘s most prestigious news magazines. You can follow Mariann’s photography page on Facebook here.
The battle is not just between positive and negative media coverage of Estonia though, but also just having coverage in the first place.
I know of a recent meeting between Estonian officials and a top Silicon Valley entrepreneur that turned out to be a sobering reminder of this point. He was the kind of person who we’d expect to be interested in Estonia because of his work in digital disruption and the democratisation of entrepreneurship. Yet after listening to an overview of Estonia’s latest digital development, the entrepreneur leaned in to ask:
“Why don’t you market all this? You should tell people around the world about how digitally advanced Estonia is.”
You may think Estonia does that a lot already, but that might just mean that you live inside our information bubble. The entrepreneur reminded us that the vast majority of people around the world still know very little about Estonia.
It’s in the interests of everyone who belongs to this beautiful nation of forests, saunas and startups to fix those perceptions. We’ve made a lot of progress, but we have no time for complacency.
Recommended viewing
Here are some of the most interesting articles and videos about Estonia and e-Residency in English.
- Estonia has been an EU member state for 15 years now so Estonian World has published an overview of the victories and challenges along the way, as well as future developments. It’s written by Reelika Virunurm, a name that might be familiar to e-residents as she works at the programme in addition to writing about the country in her spare time.
- It’s election season yet again in Estonia as Europe is electing its new Parliament later this month. This includes six or seven Estonian seats. Brexit would provide us with our 7th seat, although it’s still unclear about whether that will happen by the time that the new Parliament convenes. All the main Estonian political parties (except EKRE) took part in an English election debate in Tallinn on Monday organised by Estonishing Evenings, a regular series of events from Estonian World. You can watch the candidates explain what they stand for here and also watch the entire debate on their Facebook page if you scroll down here. Notice that no one is wearing shoes. Estonians don’t wear shoes inside homes and this policy sometimes extends further, such as to startup offices and even the club where this event took place.
- The Guardian has written about a trip around the almost uninhabited Pakri islands close to Tallinn. All they needed were kayaks and a tent sauna.
- After Fyre Festival, you might be a little sceptical about a promo video for an island festival. The first ever ‘Station Narva’ took place last year as a cool new music and cultural festival on an island alongside the Russian border featuring artists from both sides and beyond. They’ve just announced that they are returning for a second year so you can check out what you missed last year here then consider making the trip on 19 to 21 September this year.
- Estonia’s Ministry of Finance has started off a consultation process online about Estonia’s development goals for the next fifteen years. “Estonian enthusiasts” as well as Estonians are invited to fill out a questionaire, which is in English here, as well as in Estonian and Russian. You can read more on Estonian World here.
- This is the latest viral video about ‘why Estonia is the country of the future’. It has a slight cult vibe to it though and contains quite a few mistakes. For example, the Estonian digital ID doesn’t store data itself and e-Residency (which is not ‘digital citizenship’) doesn’t take just a few minutes to acquire. Estonia is proud to show off how citizens, residents and e-residents can easily conduct business online, but is also happen to explain why there is a thorough process for becoming an e-resident, which includes police background checks that can take up to a month.
- I’m totally biased, but the Boston Globe article has best captured what makes Estonia great:
Upcoming events
Here’s a selection of events for people visiting Estonia. All events are in English and relevant to e-residents who want to learn more about location-independent business or understand Estonia more deeply.
- Tallinn Technopol, a science park and startup incubator that is home to Skype, is today hosting ‘How to find and hire the best international employees’. The guests will include representatives of the International House of Estonia (a government-funded help centre for new arrivals), LeapIN (a business services provider for e-residents and one of Estonia’s fastest growing startups), and Jobbatical (another Estonian startup that connects employers with international job seekers).
- ‘How to sauna the Estonian way’ takes place again this Saturday in Tallinn. It’s an opportunity to learn about Estonian sauna history and traditions, while enjoying a sauna. As you might already know, this is a totally shameless plug because these events are hosted by me and Anni. Learn more at estoniansaunas.com.
- Latitude59, Estonia’s flaship technology festival, is just one week away and features an incredible line up of speakers, which you can check out here. The full event schedule is here and side events are listed here, which includes a sauna event that Anni and I are hosting on the Saturday. I’m also going to be one of the MCs for Latitude59 thoughout the two day festival so come say hello if you get a chance.
- The launch party (and e-resident networking session) for the independent e-resident group EERICA is taking place the night before Latitude59 on Wednesday 15 May at Restaurant PULL in Tallinn. Here are the details.
- On the same day, Lift99 is hosting a discussion with LeapIN CEO Allan Martinson. Martinson was previously the COO of Starship Technologies so it should be very interesting. You can get tickets here.
- The following day, LeapIN is hosting ‘Soloentrepreneurs Anonymous’ at the Palo Alto Club in Tallinn from 1730 to 2000 on Thursday 16 May. You can get tickets from EventBrite here, but if you also want to share your soloentrepreneur story in 3 minutes with the attendees then you need to apply here.
- The next ‘Getting started with e-Residency’ webinar offered by the e-Residency programme takes place on 4 June at 11am GMT (which is 2pm in Estonia). It’s a great opportunity to learn the basics and ask your questions directly to members of the programme. Sign up here.
Since your here…
Thanks for reading. Let us know what you think of this Estonia Digest (and what we could do better next time) in the comments. Also, if you found this useful then please do follow Rangi maja on Facebook, Instragram and Twitter.
