In this article I will meticulously consider all the advantages and disadvantages of registering ICO projects in Estonia. I will also also highlight the new trends in the Estonian blockchain industry.
Estonia and business registration.
Over the past decades Estonia has become one of the most successful and popular European countries in the business sector. Estonia scores first in the International Tax Competitiveness Index Rankings, and second in the European Index of Economic Freedom.This is primarily due to its government’s progressive policy in the field of digital technologies.
Thus the optimized use of information technologies in Estonia allowed to create a unique program of digital (virtual) residency, named “e-Residence”. This program allows citizens of other states to conduct financial and economic activities on the territory of Estonia, while not being physically in this country. Once you have passed the identification process and submitted your biometric data, you receive an analogue of the Estonian ID card with an electronic chip. This card allows you to put an electronic signature, which is recognized by Estonian state authorities and other entities. At the same time you receive a lot of opportunities for your business.
These features include:
- Electronic banking.
- Declaration of taxes.
- Unhindered conclusion of contracts, and applications being sent to the competent authorities along with the letters certified by your digital signature.
- REGISTRATION OF THE COMPANY IN ESTONIA ONLINE WITHIN 15 MINUTES AND THE ABILITY TO CONTROL IT FROM ANY POINT ON EARTH (there is no need for a manager in Estonia).
- Possibility of getting finances through ICO.
You have probably already imagined a difficult, complex procedure required for obtaining an e-Resident digital ID card. Well, here is the best part. You will only need 100 euros and 30 minutes.
On top of that the list of provided benefits significantly exceeds the points that have already been listed. Company registration in Estonia also includes:
- An ability to pay taxes within just 3 minutes.
- 0% income tax on retained and reinvested earnings plus 95% of tax returns being filed online. Surprisingly, if you do not pay dividends to yourself, then there is no obligation to pay taxes in Estonia. If you do not distribute dividends to the founders, Estonian law gives you the right to avoid contributing real authorized capital. You then simply declare this amount to be “black & white” upon registration. This negates the necessity to pay 2500 euros (and for joint-stock companies it is 25,000 euros) to the account of the company.
- The rate of VAT is 20%. If you provide any IT services to B2B (for example, software development, as our company, HyperQuant, does), then there is no obligation to pay VAT for intra-union sales on Estonian territory. So the invoices arrive without any VAT (it will work as a reverse charge mechanism), and in selling operations on the territory of the EU, Estonian VAT is not provided at all.
- The opportunity for foreign investors to conduct business in Estonia on the same terms as local investors (agreements on avoiding the double taxation with 53 countries, including the USA, Norway, etc.).
- The total budget for company registration and account opening is 2500 Euro. And the law does not determine the timing of this payment.
- There is no currency control in Estonia (there are no restrictions on the dimension of transactions or withdrawals from the funds).
- Based on the establishment of the company in Estonia, a member of its management board may obtain a residence permit in Estonia for a period of 2 years with the right of renewal.
The main determined disadvantage of establishing a company in Estonia — is that the register of company founders is available in the public domain. This creates inconvenience if one does not want to advertise his/her participation in a particular activity. However, there is a number of nominal services to solve this problem. For example, you can negotiate a preliminary partnership in registering a company with a Latvian citizen, who will “substitute” the real shareholder (you) in the register. A following concern is that this citizen may be unreliable. In this case it is pivotal to be attentive and mindful regarding who you choose.
Estonia and ICOs.
Next let’s consider the features of ICO projects in Estonia. At the level of the European Union — as Estonia is a member of the EU — ICO is not prohibited. The Estonian Financial Supervisory Authority (EFSA) shares the opinion of regulators in the United States, Canada and Singapore on ICO projects. Tokens that grant rights to investors in relation to the issuer, or tokens, the value of which is tied to the future profit or activity of the company, are most likely to be recognized as financial instruments (in the US — securities) and are thus regulated by laws regulating securities (Securities Market Act, Law of Obligations Act). In other cases, the activities of the companies organizing ICOs, as well as those of people selling tokens in the secondary market — can be recognized as a provision of investment services. The implementation of such activities requires appropriate licenses and permits.
Of the recent trends — two large Estonian ICO projects can be noted: Estcoin and TokenEST.
The initiative of the first project belongs to the director of the Estonian E-residency program, Kaspar Korjus, and is based on the intention to create a state crypto currency — Estcoin. Finance experts believe that there are three possible ways to develop the application of Estcoin. The first way is for Estcoin to be a social token and consequently be used as a stimulant for the formation of a “digital nation”. The second path involves the use of Estcoin only as a token for smart contracts that will form the basis of a secure government identification system. The last option involves using an Estcoin as a Euro. As a token — it will combine the advantages of decentralized virtual currencies and the stability of paper money.
TokenEST presents a completely opposite idea.The head of this project, Aaron Levi Yahalom, claims that TokenEST is not going to be a crypto currency and will never replace the Euro. In this case such token is simply a tool. This digital tool can, for instance, be used to manage liquidity or to structure various internal processes. This turns TokenEST into a utility token that indicates the transfer of information from one entity to another. According to the head of the project — their tokens do not overlap with the traditional financial system at all. Since a blockchain is an instrument of trust, a token can be a type of verification mark that conditionally confirms the status of some startup or confirms the trust of system participants in this startup.
As we can see from the description — Estcoin and TokenEST are fundamentally different, but can perfectly complement each other upon implementation.
Estonia and the future.
To sum up the discussion up, Estonia can be identified as one of the most promising business development countries — in terms of ICO projects. This small European country is ready to introduce new technologies with rapid speed and can already boldly call itself the “digital state”. Undoubtedly, by registering a company in Estonia, you can get a convenient multi-purpose business tool with relatively cheap investment and no profit tax. And now you know why we have registered our company in this country.
This article was written by HyperQuant international lawyer Olga Bystrova.
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