An Introduction to E-Residencies

Introduction

E-residency is a concept gaining traction among entrepreneurs, remote workers, and global citizens seeking flexible access to business infrastructure. It promises streamlined company formation, remote access to financial services, and a digital gateway to operate internationally—without physically relocating. But despite its appeal, e-residency is still one of the most misunderstood tools in the world of global structuring. Misusing it can lead to compliance issues, tax mistakes, or false expectations. This guide breaks down what e-residency really is, what it can and cannot do, and how to decide if it’s the right fit for your international plans.

The Rise of E-Residencies

E-residency as a concept began with Estonia in 2014, when the Estonian government launched the world’s first official e-residency program. The goal was simple but forward-thinking: allow non-residents to access Estonia’s advanced digital infrastructure to register and manage EU-based businesses online. It was a bold step in turning governance into a service—positioning Estonia as a digital gateway to Europe.

Live Programs (as of 2025):

Several countries now offer operational e-residency programs, each with different goals and features. Some provide full digital business environments—including company registration and tax filing—while others focus more narrowly on identity verification or fintech access. Key examples include:

• Estonia (2014): Fully digital business management; global gold standard.
• Azerbaijan (2018): Offers both e-residency and SIM-based m-residency.
• Lithuania (2021): 3-year digital ID with digital signature capabilities.
• Palau (2021): Blockchain-based identity, used for KYC and crypto access.
• Ukraine (2023): Flat 5% tax scheme for IT freelancers and entrepreneurs.

Governments offer these programs for a mix of reasons:

• Economic incentive: E-residents often pay registration and renewal fees and bring business to local service providers.
• Soft power: Boosts a country’s global image and digital influence.
• Future-focused policy: Attracts digital entrepreneurs, startups, and remote workers—even without requiring them to physically relocate.

What started as a small digital initiative has now become part of a broader movement toward borderless entrepreneurship, where geography matters less—and digital infrastructure matters more.

What Is E-Residency?

At its core, e-residency is a government-issued digital identity that gives non-residents access to a country’s online business environment. It doesn’t involve physically living in the country—instead, it allows you to interact with digital infrastructure as if you were a local entrepreneur.

The most well-known example is Estonia’s e-residency program, launched in 2014. Through it, individuals from around the world can:

• Register and manage companies remotely
• Sign contracts and documents with a legally recognized eID
• Access local banks or fintech payment solutions
• File taxes or communicate with state services digitally

Each program varies in scope. Some, like Estonia and Ukraine, support full digital company setup and tax registration. Others, such as Palau, currently focus only on identity verification.

Why Do People Get E-Residency?

E-residency isn’t just a tech novelty—it solves real problems for global entrepreneurs and remote-first businesses. It offers a way to legally access and operate in a country’s business ecosystem without relocating or establishing a physical presence.

Some of the most common reasons people choose e-residency include:

• Remote Company Setup: Start and manage a business from anywhere in the world, without setting foot in the country.
• Access to EU or Global Markets: Many programs (like Estonia’s) allow you to register an EU-based company—ideal for selling to European clients or opening merchant accounts.
• Streamlined Administration: Handle invoicing, tax declarations, and compliance entirely online through government portals and digital tools.
• Digital Signature Capabilities: Sign legally binding contracts and documents remotely, with internationally recognized validity.
• Credibility and Structure: For entrepreneurs from countries with weak infrastructure or unstable governments, e-residency provides a more trustworthy and compliant way to do business globally.
• Separation of Personal and Business Location: E-residency enables founders to live in one country while running a business in another—without the usual headaches.

In short, it’s about flexibility, functionality, and freedom: the ability to build and run a professional business without being limited by your physical location or passport.

What E-Residency Doesn’t Do

While e-residency can be a powerful tool, it’s important to understand what it doesn’t offer. Many people mistakenly assume it comes with physical or tax-related benefits—which can lead to costly errors or compliance issues.

• It does not make you a tax resident. E-residency does not affect your personal tax status. You still owe taxes in the country where you're legally tax resident, based on physical presence or economic ties.
• It does not grant citizenship, residency, or a visa. You don’t get the right to live, work, or travel in the country offering e-residency. It’s purely a digital access layer.
• It does not exempt you from taxes in your home country. If you're still tax resident elsewhere, opening a company through e-residency doesn’t shield you from those obligations.
• It does not eliminate your compliance responsibilities. You remain responsible for meeting the legal, reporting, and accounting requirements in both your country of residence and the country where your e-residency business is based.

E-residency is a gateway to business infrastructure—not a shortcut around international law.

Common Misconceptions (And Real Risks)

E-residency is often pitched as a revolutionary shortcut to global entrepreneurship—but many misunderstandings persist. Falling for them can lead to compliance issues, double taxation, or worse. Here are the most common myths:

If I get e-residency in Estonia, I become a tax resident there.”

‍False. E-residency does not make you a tax resident. Unless you physically relocate and meet Estonia’s tax residency criteria, you remain tax liable in your current country of residence.

“I can run my business tax-free through e-residency.”‍

Risky assumption. While Estonia doesn’t tax retained corporate earnings, it applies a 22% corporate tax on distributed profits. Plus, you may still owe taxes in your home country under CFC or personal tax rules.

“It gives me privacy or anonymity.”

‍Incorrect. Estonia’s system is transparent by design. Company ownership and filings are public, and Estonia shares data under CRS and AML frameworks.

‍“I don’t need to worry about substance or permanent establishment rules.”‍

Dangerous. If your company is effectively managed from another country, that country may treat it as taxable there—regardless of where it was incorporated.

Does E-Residency Work for You?

E-residency can be a valuable tool—but only in the right context. It’s not a one-size-fits-all solution, and whether it’s a good fit depends on your goals, your location, and your willingness to stay compliant.

You’re likely a good fit for e-residency if:

• You’re a non-EU entrepreneur in need of an EU business presence
• You want to run a location-independent business remotely, with minimal bureaucracy
• You’re comfortable managing a digital company from abroad using secure, government-backed platforms

E-residency probably isn’t for you if:

• You’re looking for a way to avoid taxes or obscure your financial footprint
• You assume it replaces real residency, citizenship, or provides access to visas
• You want full banking or anonymity from day one

E-residency works best when viewed as a functional access layer—not a loophole. It’s ideal for entrepreneurs who want a legitimate, clean, and scalable way to operate across borders—while staying compliant.

Quick Comparison: E-Residency vs Residency vs Tax Residency

Recent Program Updates (2023–2025)

Estonia:

• 100,000+ e-residents worldwide.
• Application fee: €150 (2025).
• Corporate tax on distributed profits: 22%.
• New mobile-ID solution in development.
• Applications restricted for high-risk nationalities.

Lithuania:

• Requires 2 in-person visits.
• Limited company setup; focus on digital signatures.

Palau:

• $248 fee for blockchain-based ID.
• Used for crypto KYC; company setup not available.

Ukraine:

• Full digital entrepreneur registration.
• 5% flat income tax for e-residents.
• Limited nationalities accepted.

Azerbaijan:

• Mobile ID + 3-year tax holiday.
• Language/banking access still limited.

Need Help Structuring Globally?

E-residency is just one tool. At EntitySmart, we help you build fully compliant, globally optimized business structures—whether that includes Estonia or not.