Effectiveness of the e-Residency program

National Audit Office of Estonia report anno domini 2020

Do the revenues of the e-Residency program exceed the expenses, and are the participants in the program law-abiding?

Copyright of the picture belongs probably to EAS aka Enterprise of Estonia

What did we audit?

In the audit, the National Audit Office assessed whether the e-Residency program encourages the e-Resident companies to bring income to Estonia:

  • control systems ensure that the participants in the e-Residency program are law-abiding;

Why is this important to taxpayers?

During the first five years of the e-Residency program (2014–2019), Estonia has granted e-Residency digital ID cards to more than 63,000 foreigners from 174 countries. Digital ID allows e-Residents to use the public e-services of both Estonia and other EU countries and create an Estonian company. It is important that the e-Residents using the e-services and pursuing commercial activities be law-abiding and that they bring income to Estonia. It is also essential that the risks involved in the implementation of the program are mitigated.

In the first five years, 15.7 million euros have been spent on the e- Residency program.

What did we find and conclude from the results of the audit?

According to the National Audit Office, the revenues of the e- Residency program have started to exceed the expenses by the end of the first five years of operation. However, control systems are deficient because foreigners with a valid criminal penalty and business ban can participate in the program.

  • The revenues of the e-Residency program exceed the expenses by almost 10 million euros, but 95% of the revenue is paid by 6% of the companies. Thus, the income of the program depends on a small number of companies. E-Residency program has introduced new entrepreneurs to the Estonian business landscape, and the taxes paid by their companies have helped to bring the program into profit. However, neither Enterprise Estonia, the governing body of the program, nor any state agency, have a consistent and uniform overview of the total revenue and expenses of the program, which makes it difficult to manage.

What did we recommend as a result of the audit?

The main recommendations by the National Audit Office:

  • consider the use of reverse burden of proof for e-Residency applicants and e-Residents more often. Therefore, it would be possible to request evidence of valid criminal records and absence of business bans during the application or, where appropriate, during follow-up inspection;

Responses of the Auditees:

The Minister of the Interior and the Minister of Justice agreed to the need to provide the PBGB with the required IT solutions that would allow making mass queries to the necessary registers. The Director General of the PBGB noted that the making of mass queries is also aggravated by the restrictions arising from administrative proceedings. Also, as stated by the Director General, it is particularly difficult to obtain information on third-country nationals. One of the solutions as seen by the Director General of the PBGB is a political decision according to which, e- Residency would only be offered in countries doing judicial and security cooperation with Estonia.

The Minister of the Interior explained that he does not find it necessary to establish a condition for e-Residency applicants to contribute to Estonia and verify the contribution at the renewal of the digital ID.

The Director General of the PBGB agreed that the requirement to provide evidence on the absence of any punishments and business ban contributes to the management of risks but added that it is difficult to verify the correctness of such evidence.

The Minister of Foreign Trade and Information Technology agreed that in the interests of better management decisions, it is important to keep a consistent and uniform overview of the revenues and expenses of the e-Residency program. The Minister also agreed that it is important to adequately explain the conditions for opening a bank account in Estonia to those applying for e-Residency and take these into account in marketing the program.

Copyright of the story: Riigikontroll aka The National Audit Office of Estonia

The National Audit Office is an independent institution acting in the interests of the Estonian taxpayers. Its function is to investigate and report how the government has spent the taxpayer’s money.

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