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?

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;
• sufficient platforms for business and services have been created for e-Residents, and
• whether the major risks involved in the implementation of the e- Residency program have been mitigated.

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.

Key findings include:

1. Revenues vs. Expenses:
   By the end of its first five years (2014–2019), the program’s revenues exceeded expenses by nearly €10 million. However, 95% of revenue came from just 6% of participating companies.
2. Control Systems:
   Current checks are inadequate. Digital IDs have been issued to individuals with criminal records or business bans abroad, and follow-up controls lack the necessary IT tools to ensure compliance.
3. Banking Challenges:
   Many e-Residents struggle to open bank accounts in Estonia due to insufficient business ties with the country, limiting their ability to operate effectively.
4. Contributions to Estonia:
   Digital ID issuance does not require contributions to Estonia’s economy, education, or culture, as intended by law. Most e-Residents have minimal connections to Estonia, raising questions about the program’s broader benefits.
5. Reputational Risks:
   Loopholes in legislation and oversight have allowed misuse of Estonian companies for high-risk activities, such as money laundering, damaging the country’s reputation.

Recommendations:

• Implement stricter controls for e-Residency applicants, including proof of no criminal record or business bans.
• Require e-Residents to contribute to Estonia and verify compliance during ID renewal.
• Improve IT systems for efficient checks.
• Maintain clear data on program revenues and expenses for better decision-making.
• Clearly communicate the requirements for opening bank accounts and starting businesses in Estonia to potential e-Residents.

Responses:

The Ministry of the Interior and PBGB acknowledged the need for better IT solutions but highlighted challenges in international cooperation and verifying foreign records. The Ministry of Foreign Trade agreed on improving financial oversight and transparency while emphasizing the need to manage expectations for bank account access.

The report underscores the need for stricter controls and clearer objectives to ensure the program’s sustainability and alignment with Estonia’s interests.