Comment: Why cryptocurrencies are so popular in Estonia
In 2011, the Baltic nation of Estonia was the poorest country in the Eurozone. The country had just been added to the eurozone, and its people were struggling to spur economic development. Seven years later, Estonia is a booming economy at the forefront of the world for one major reason: cryptocurrencies.
With free wireless Internet on almost every street, a friendly business environment, low taxes and a progressive community, any startup would want to be incorporated in the country. Estonia’s business registration is much less time consuming than in most countries around the world. Their e-residency registration program, which takes less than 30 minutes to complete, ensures a startup is compliant with taxes, banking, and gets incorporated in an effortless manner.
Although the Estonian government didn’t embrace the concept of cryptocurrencies until early 2017, it still didn’t overtax cryptocurrency startups. Bitcoin isn’t subject to VAT tax as well. Digital assets are classified as property for tax reasons, and only cryptocurrency exchanges are regulated. That means the cryptocurrency mining companies cropping up in the country are hardly regulated.
6 unique features of the Estonian business environment
• Incorporation and registration is conducted online in a process that lasts less than an hour
• It costs less than €5,000 to start a limited liability company
• Welcomes investors from any part of the world
• Hardly regulates ICOs and cryptocurrency investments
• No limit on the amount of cryptocurrency investments
• Cheap electricity and low taxes
Estonia’s love for ICOs
ICO, the risk-filled crowdfunding model common with blockchain startups, isn’t regulated so much in the country as well. In fact, the Estonian government announced in late 2017 that it had plans to launch a state-sponsored ICO, becoming only the second nation, after Venezuela, to do so.
Dubbed estcoin, own Estonian token would be developed to help promote the country’s e-residency program. For the sake of clarity, e-residency is a program that allows any investor from any part of the world to start a business in Estonia without even entering the country.
There are lots of cryptocurrency startups that have registered in Estonia and ran an ICO. The popular cloud mining company, Hashflare, is originally from Estonia. Adex, a cryptocurrency exchange platform, Mothership, HashCoins, and Eloplay are other popular startups registered in the country.
Business and legal framework
Estonia’s legal framework is built to attract investors from all around the world. The e-residency program is the most attractive feature for startups and investors. With the ability to launch a business online and get incorporated with less than €5,000 in total costs, small blockchain startups have found a new business home.
However, Estonia is increasingly paying more attention to cryptocurrency startups, especially those with plans to hold an ICO. In November 2017, the country’s government clarified the business clause that helped prevent money laundering to ensure ICOs in the country is regulated.
Cooperation from legal authorities
One of the challenges blockchain startups face is direct opposition from legal operators. Startups love Estonia because the country’s regulators are approachable and cooperate with founders easily. As long as a business follows the country’s rules, Estonian regulators are quick at helping them set up a business in the country.
In most cases, startup owners have few channels for communicating face-to-face with regulators. Most of the regulations that need to be followed can be completed online. Cohesive cooperation from the government of a country is very important to blockchain startups as it helps them start a business with peace of mind.
Estonia has one of the most competitive tax policies in Eastern Europe. Tax policies particularly favor cryptocurrency investment as they are not subjected to VAT tax. If a startup wants to get incorporated in Estonia, all they have to pay is normal business taxes. Even ICOs are not subject to VAT and income taxes, which makes the country one of the best locations to launch an ICO.
The low cost of starting and running a business in Estonia is one of the many reasons blockchain startups are seeking incorporation in the country. Starting a business, as earlier mentioned, costs roughly €4,500. Internet connection is freely available on almost every street. Additionally:
• The average energy cost is 9 centimes per kilowatt
• Low 21% corporate tax with zero taxation on dividend income
• Profits reinvested are not taxed
• Income tax averages 21%
Thanks to the low cost of operating a business in Estonia, many businesses prefer working in the country as compared to other countries with cheap energy but high taxes. China, for example, was the ideal country of choice for many startups. But in the last six months, the Chinese government has been cracking down cryptocurrency mining companies, exchanges and virtually every startup related to ICO.
Countries giving Estonia competition for crypto business:
Switzerland: While Estonia is famous for giving the world Skype and several cryptocurrency startups like Hashflare, Switzerland boasts of producing the world’s biggest blockchain projects. Ethereum, for example, was first registered in Switzerland. ShapeShift, and Tezos then followed. Like Estonia, Switzerland has few regulations regarding blockchain startups.
Gibraltar: Several popular startups have launched ICOs in the British territory of Gibraltar. One such famous ICO was Globitex. The Gibraltar government has often embraced cryptocurrency startups. Recently, the country announced plans to hold a series of summits to discuss the future of ICOs.
Australia: Australia doesn’t have loose cryptocurrency regulations per se, but the country has shown willingness to incorporate blockchain startups in the country. Before 2016, Australia taxed blockchain companies double the average businesses. But that is no longer the case. Nowadays, cryptocurrency startups are seeking incorporation in the country in large numbers.
Other countries that have shown willingness to embrace blockchain startups include:
• Canada- the country offers cheap electricity
• South Korea- the country contributes to global cryptocurrency trading volumes to a large extent
• The US- extremely tight regulations and high energy costs, but still open to ICOs and most blockchain companies
Although many countries around the world are loosening their stances on cryptocurrencies, few of them have achieved Estonia’s openness to incorporate cryptocurrency related companies. The Estonian government often reiterates its willingness to welcome any business ready to follow the country’s rules and regulations, meaning more blockchain companies will continue to seek incorporation in the European country.