Digital citizens: an interview with Estonia’s e-Residency chief, Ott Vatter
When Estonia launched its e-Residency scheme five years ago, it was a leap in the dark. But as its managing director Ott Vatter tells Matt Ross, nowadays the programme is boosting economic growth, tax revenues, and the country’s profile by connecting with an emerging generation of global, highly-mobile entrepreneurs
“We’re the pathfinders in this journey,” says Ott Vatter. “It’s super-challenging: every morning, I wake up with a new problem. But it’s great to work on something unique: I can’t think of any project in the world that’s similar.”
Vatter is discussing Estonia’s e-Residency programme, under which people from any country can create an Estonian digital identity – enabling them to access some public services, and to establish and operate businesses registered in the EU member state.
He first joined the programme with the task of setting up an international identity verification process, eliminating the need for applicants to visit Estonia before receiving their ID card: wannabe e-Residents can now have their identities confirmed at Estonian embassies worldwide. Four years on, Vatter was appointed managing director of the ground-breaking scheme. “I came here for two months at the beginning of 2015, and never quite left,” he says with a grin.
No wonder: it’s been an interesting place to be. Ever since its 2014 launch, the e-Residency project has attracted huge attention: at its outset “our last president tweeted about it, and it went viral. Within 48 hours, we had 4000 potential subscribers,” he recalls. “I come from the private sector, and when you have 4000 potential paying customers in two days you know you’re onto something.”
A leap of faith
What exactly the country was onto, however, was less clear – and Estonia’s digital leaders were comfortable with that ambiguity. For Estonia has a 25-year track record of building digital systems without a defined end goal, only to find its investments paying off handsomely. The country’s ID card system was, its former state secretary Heiki Loot told Global Government Forum last year, established in the 1990s without a clear use case. “But it created the infrastructure for the development of e-services,” Loot said. “We were lucky that the government, 20 years ago, made those courageous decisions.”
Nowadays, Estonia’s ID card is a cornerstone of its status as a digital government world leader. And those behind e-Residency were willing to take a similar punt – opening up the ID system to foreign citizens. “The initial idea was to make the platform available to international businesspeople and investors who were already doing business in Estonia, so they could register a business, log into a bank or pay taxes online,” Vatter explains.
But when the launch attracted such interest, “we realised that were solving a much bigger problem,” he recalls. The team saw opportunities reaching well beyond economic growth, into the issues around global development and the relationship between people and states. “Digital services are meant to break down barriers: to give people opportunities not to be citizenship-based or location-based, but global citizens,” he comments. “We started out wanting to save time and money for existing businesspeople, and we discovered that – holy shit! – we could offer financial inclusion for third world citizens through Estonia.”
Changing course
Vatter and his colleagues told the then-prime minister that “we didn’t know where it would lead or where it would go at that point,” he explains, and the PM – in-keeping with Estonia’s entrepreneurial approach to digital investments – approved 18 months’ development funding. “We already had the infrastructure: if it didn’t take off, we wouldn’t have spent too much money,” he comments.
Quite soon, though, alarm bells began to ring over the risks of money-laundering or other illegal activity, while the country’s banks proved reluctant to allow e-Residents to set up accounts. “By 2016, we knew that we couldn’t save the world with e-Residency; we couldn’t offer financial inclusion for everyone,” says Vatter. So the programme’s focus moved on from recruiting e-Residents – first to encouraging applications from people who intended to set up e-Businesses, and more recently to maximising economic impact. The new strategy, he adds, is to focus on “quality over quantity”.
The programme still receives a fair number of applications from “people who want to be part of this e-story of a digital nation, and to see where it leads,” says Vatter – and this global cohort is valuable in raising the profile of a small country that was, until 1989, occupied by its vast neighbour Russia. But nowadays, he explains, Estonia’s main focus is on attracting “remote entrepreneurs. Software developers, journalists, photographers, academics: people who are travelling constantly, but want a company with a solid location, and good services so they don’t have to spend too much time on administration.”
The target audience
Having secured e-Residency status and a digital ID, these freelancers and small businesspeople can set up a company, sign and transfer documents digitally, open a bank account in any EU nation, and access payment services. And because their business is registered in an EU member state, they can trade freely throughout the Single Market – selling to consumers and businesses across the bloc, and enjoying the protection of EU and Estonian law.
Some of these people are constantly on the move, “twenty-something backpackers with a laptop – but they’re always on a train or in a hostel, and the value of what they’re producing isn’t high.” So Estonia is focusing on attracting a more stable group: people who might “spend their winters in Thailand and their summers in Germany,” working for clients around the world – and rarely spending more than 180 days per year in any one country.
Many in this group are not currently registered for tax at all, but are keen to put their business on a formal footing: “At the moment there is no country, to my knowledge, that serves these people,” Vatter explains. His target audience is those who “move around a lot, sell work overseas, can choose where to be legally resident for tax purposes, and want a straightforward, simple way to manage a business.”
Benefits and risks
For this cohort, Estonia offers a highly streamlined, digital system for establishing and managing a business, with secure global access. “Most EU countries don’t even have an online system, so to register a business you have to fill out a stack of paperwork and wait at least five weeks,” he points out, adding that some nations also require small businesses to hold large sums of cash. And Estonia’s semi-automated tax system – which uses APIs linking its tax authority, its company records office, and registered companies’ bank accounts to generate tax returns in minutes – minimises the need for financial administration. “You don’t have to spend time figuring out which tax return document to fill in and where to send it by post, signed and stamped and notarised,” he says. “So you can focus on your business.”
Vatter emphasises that Estonia is not a tax haven. Certainly, its business tax structure is generous: profits extracted from registered companies are taxed at a flat 20%, while those reinvested in the business are tax-exempt. But he says that Estonia is not seeking to attract tax revenues from those legally resident in another country: even if such people run a company and pay business taxes in Estonia, he points out, they must also pay income tax in their country of residence – “then you have two tax authorities that you have to provide information to, and it would make your life more complicated than it is at the moment.”
And how does Estonia ensure that the scheme isn’t used for money-laundering or other criminal activities? The international identity verification process – established by Vatter in his first months at the programme – provides one safeguard, ensuring that every e-Resident’s government-issued ID is inspected by Estonian officials. Police then carry out “international background checks” and scrutinise social media accounts, he says, while e-Residents’ financial transactions are monitored by the government and banks.
“For money-laundering or tax evasion, you’d probably use something that doesn’t leave a digital footprint,” he adds. “Criminals will always try to find a way, but e-Residency is very transparent and it doesn’t create any new risks.”
Overseas entrepreneurs, domestic business
Whether or not the criminals are profiting, the Estonian government is certainly in the black: over the last year, once the scheme’s running costs have been deducted, the 55,000 e-Residents and 7000 e-Businesses have generated about €10m (US$11m) of ‘profit’ in terms of economic growth. For e-Residents’ companies need support from Estonian business services firms, which provide help such as book-keeping, translation, payments and legal services. “That sector is booming, and developing rapidly,” notes Vatter.
Over the coming months, he explains, Estonia will concentrate on boosting the scheme’s value to the country’s business services sector. “We have a lot of e-Residents, a lot of companies; now we have to produce quality out of those companies,” he says. “So we’d like to create a company profile page, where e-Residents can showcase their companies, find partners and do business with each other and with Estonian companies – giving them the tools to grow their businesses.” The government is also considering developing what Vatter calls a “digital nomad visa”, permitting long-standing e-Residents to spend a year or so living in the country.
The future of Estonia’s e-Residency programme, though, remains unpredictable: “There’s a lot of unknown,” Vatter notes. For its development has been an iterative process of experimentation, rather than the consequence of a strategic game plan; a product of the country’s entrepreneurial willingness to explore new opportunities. “Our risk tolerance is higher; we’re a very small country, and we have to stand out in some way,” he comments.
A public digital disruptor
More than two decades ago ago, that risk tolerance allowed Estonia to lay the foundations of a remarkable public sector digital architecture. And the country is now making full use of its technological legacy – attracting new taxpayers among the world’s mobile entrepreneurs; using its streamlined, accessible public services to attract business registrations; and fostering the growth of its domestic business services sector. It is, in essence, competing with other nations to attract citizens on the basis of service quality, offering entirely new business models that challenge governments’ traditional approaches to service provision.
Since Estonia built its ID card system, the appearance of digital enterprises deploying new business models has disrupted economic sectors from retail to taxis, media to navigation. Now, Estonia appears to be becoming the world’s first digital disruptor nation state. And its success is rooted not in the use of cutting-edge technology, but in its leaders’ readiness to take risks and explore ideas: to invest in something new, and see what happens.
“Our ID card technology is 20 years old. Anyone could do this, but we did it at the right time,” concludes Vatter. “We’re not the most technologically innovative nation, but we get there at the beginning. And it works for us.”
For more on Estonia’s digital services, read our interviews with former state secretary Heiki Loot and national digital adviser Marten Kaevats.
Global Government Forum: five thoughts for better government
Ott Vatter on learning from overseas
To help our readers get the best out of Global Government Forum, we ask interviewees five standard questions – four seeking practical advice and opinions, and one to reveal something a little more personal. This is an edited version of Vatter’s answers.
Can you name one lesson or idea from abroad that’s helped you or your colleagues?
“Steve Jobs of Apple had a policy of not outsourcing their stores, because for the end customer it would still be Apple’s fault if something went wrong. And that’s a rule that we’ve been trying to follow. Our counterparts who issue e-Residencies are in very different parts of the Estonian public sector – in the police and foreign ministry – and this is about the experience that the e-Resident gets. So we have to manage them; to train them well to speak English, to be polite and all of the little bits and pieces. So Steve Jobs’ Apple Store policy has definitely helped.”
Are there any projects or innovations from Estonia that might be valuable to your peers overseas?
“My first recommendation is the digital identity programme. If you can identify your citizens, you can offer them services online and don’t have to waste their time physically standing in queues. It makes everyone’s life easier.”
How can we improve the ways in which senior public officials work with and learn from their colleagues overseas?
“My idea here has been the public officials exchange that sends someone from one office to another for one year – less than one year, I don’t think, is enough – to learn, and then come back and try and implement these experiences. We also exchange private sector and public sector people, and give [people from business] ways to be motivated to come through the public sector.”
What are the biggest global challenges in digital services over the next few years?
“National borders are popping up, and that’s not something that I like to see, personally. It’s a challenge that we have to face, working with governments and public organisations: to offer digital identity to everyone, regardless of their citizenship and the place where they were born.”
And finally, what’s your favourite book?
“The book that excited me the most is Jules Verne’s ‘20,000 Leagues Under the Sea’. I’ve read it time and time again.”
About Matt Ross
Matt is Global Government Forum's Contributing Editor, providing direction and support on topics, products and audience interests across GGF’s editorial, events and research operations. He has been a journalist and editor since 1995, beginning in motoring and travel journalism – and combining the two in a 30-month, 30-country 4x4 expedition funded by magazine photo-journalism. Between 2002 and 2008 he was Features Editor of Haymarket news magazine Regeneration & Renewal, covering urban regeneration, economic growth and community development; and from 2008 to 2014 he was the Editor of UK magazine and website Civil Service World, then Editorial Director for Public Sector – both at political publishing house Dods. He has also worked as Director of Communications at think tank the Institute for Government.
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