President of Estonia Kersti Kaljulaid and the representatives of the e-Residency programme presented the e-Residency White Paper today in Kadriorg Art Museum. The White Paper contains 49 recommendation on how to make the e-Residency programme more beneficial, convenient and secure.
The director of Estonian Creditors Association, Marie Rosin, also participated in the event. She states that already now, Estonia has an unreasonable number of companies that create no value for the state and contribute nothing to the state budget. The companies set up by e-residents, however, may contribute to the amount of such companies idling away. Therefore, in her opinion, Estonia as the initiator of the e-Residency programme should reserve the right to set a price, a guaranteed annual fee, to be paid by each e-resident company.
It could be entrepreneurship tax, solidarity levy, enterprise insurance tax etc. It is vital that every company pay the state a fixed levy, but it should be small enough not to cause difficulties, not to mention outflow of investments. With large numbers of companies, the state can keep the fee or levy low.
Entrepreneurship tax or solidarity levy would be fair to the state of Estonia, enabling e-governance, e-residents, e-solutions and setting up companies in minutes; but none of us has any clue as to how much it all costs to keep up (server farms, software developments, amendments, updates, administration, human capital etc etc).
“Entrepreneurship tax or solidarity levy for all companies would be fair to every company active in our economic environment. We all know stories about one-man-companies. We know stories about companies that never paid a single cent in taxes to the state. We know entrepreneurs active in dozens of companies and yet not declaring a single euro of turnover. And we know entrepreneurs who pay their taxes fair and square, being consistently responsible – and yet the state is not satisfied. Political promises threaten honest tax-payers with additional taxes or higher tax rates. With a solidarity levy, we would end unequal treatment of entrepreneurs and all 280,000 entrepreneurs would contribute to taxes jointly,’ Rosin said.
Set the Business Register Straight
Rosin highlights that a surreal number of companies have been registered in Estonia today – 280,000 – but only 20 per cent of these pay reasonable labour taxes. In essence, 20 per cent of companies support the remaining 80 per cent, a whole 250,000 companies. The number of enterprises is increasing year after year and ‘spring cleans’ of the Business Register see piles and piles of companies go into compulsory liquidation.
Entrepreneur Account Instead of a Bank Account
E-residents can very easily set up companies and use the benefits of our e-governance, but cannot open bank accounts because banks that operate in Estonia apply severely strict rules to them as they are required by law to follow the principle Know Your Customer to prevent money laundering. So it follows that more than 70 per cent of e-residents use foreign banks’ services instead of Estonian ones, and around 90 per cent of companies belonging to e-residents set up since 2015 do not pay any national taxes to Estonia.
This is why, according to Rosin, the strict control mechanism of Estonian banks should be updated and the obligation to implement control should be extended to the Estonian state, for example the Tax and Customs Board. For that purpose, e-residents (and residents not liable to pay VAT) could use an entrepreneur account with extended limits – 20 per cent of the income would be reserved.