Freelancers from all over the world continue to register daily to enjoy the many advantages that e-Residency in Estonia offers for forming businesses of many different kinds. But both the largest number of e-residents, and the largest number of those who have gone on to form a company, come from one geographically close neighbor of Estonia: Ukraine.
Since Russia’s war in their country started in early 2022, the incentives for Ukrainians to create businesses outside their home country have obviously transformed beyond anything previously imagined. However, it’s important to understand that Estonian e-Residency already had lots to offer Ukrainians, even while most of their country enjoyed peaceful and productive sovereignty.
Why did Ukrainians incorporate Estonian e-Resident companies before the war?
Ukraine has always had a highly skilled and educated workforce, including leading IT and software developers, and other countries and large corporate businesses had come to rely on outsourcing their work there. The combination of high technical expertise and reliability in delivery, combined with a degree of financial geoarbitrage, made a lot of sense for enterprises operating in the eurozone and beyond.
For Ukrainian freelancers and entrepreneurs though, infrastructure hurdles have always existed, and the country has been poorly served by a range of online tools and services.
There are a number of reasons for this, including the fact that despite its size, the country has a relatively small market for technology services compared to other countries in Europe and North America —which means that many international companies have not seen it as a priority to expand their services there. The country has always had a relatively low rate of internet penetration, particularly in rural areas, which has limited the potential customer base for online platforms. Despite the large geographical spread of the country, much of it has always been agricultural, a fact which more countries have come to understand since the war started and harvests have been consequently impacted.
Additionally, Ukraine has a complex political and economic history, to say the least —which has led to a lack of investment in the country's infrastructure and technology.
These factors have contributed to a lack of competition among online platforms in Ukraine, and a lack of choice for consumers —which is bad news for digital entrepreneurs. All the creative business talent and enthusiasm in the world can’t overcome obstacles like a payment provider refusing to open an account for you, or a company refusing to ship to your address.
Obstacles like this don’t just hold Ukrainians back from building new businesses, launching freelance careers or finding remote work. A consequence is to deprive an entire country’s economy of additional income that could be generated from the global market.
Estonian e-Residency opened up access to both the EU market, and Estonia’s advanced digital infrastructure, to Ukrainian entrepreneurs —offering them the same freedoms and access the rest of the world experienced, while, at least until recently, they could easily operate their businesses from their home in Ukraine.
Benefits of Estonian e-Residency for Ukrainian freelancers and solopreneurs since 2022
As we know, everything changed for the people of Ukraine in February 2022.
And things changed fast, leading to the greatest migration of people since World War II.
In less than one year, the United Nations High Commission on Refugees has recorded 7,977,980 people displaced from Ukraine across Europe as of 17 January 2023., an estimated 19% of the country’s population.
Behind these mind-boggling numbers are many who can never go back to homes which are occupied and/or destroyed, entire families wiped out overnight, and businesses that were dependent on infrastructure which no longer exists.
The eventual work to be done to rebuild all that has been lost will be extensive, but until peace is restored, millions of Ukrainians of working age are displaced. And even when the fighting ends, it will take years for everyone to make their way back if indeed they choose to do so.
Right now, they’re distributed across Europe and the world, frequently in places also suffering indirect effects of the illegal war —by way of high costs of living, and depressed economies. Plenty have also ended up in countries where they do not speak the local first language, and many are women on their own looking after young children. Thousands have no long-term accommodation security, having been taken in by volunteers or under temporary schemes.
All these factors combine to create multiple obstacles to traditional employment opportunities, and the ability to support themselves in a new location. While countries may have welcomed Ukrainian refugees with permits and access to seek work, in practice that depends on the availability of suitable jobs in the first place, for which there is often high competition from more obviously acceptable candidates.
Self-employment and entrepreneurship has therefore never been more important for Ukrainians, and Estonian e-Residency is a great option for these people to consider.
What are the benefits of Estonian e-Residency for Ukrainian people?
- Access to the Estonian digital infrastructure via secure digital ID
- The ability to apply remotely and collect the Estonian ID pack from a range of locations where refugees are currently residing, if they are not able to access the collection point in Kyiv which has now reopened
- A location-independent business, which can operate from anywhere in the world without the expense and friction of opening local trading entities
- The flexibility of solopreneurship for single parents and those in insecure housing
- A personally owned business which can be repatriated to Ukraine in a future time of peace, to channel earnings from all over the world to help rebuild a nation ready to rise again from the rubble
- Special offers from Xolo and the e-Residency department itself, to support Ukrainian people to get up and running as quickly and affordably as possible with their Estonian business (see below)
Estonian e-Residency for Freelancers established in Ukraine
In addition to those who might explore new entrepreneurial options as a direct solution to changes forced upon them by the military action, there are of course many people who have already been freelancing in Ukraine for the long term - nearly 16% of earners in 2020, according to the World Bank, including members of producers' cooperatives, and contributing family workers.
For many of these freelancers in the knowledge work sector, it will be easy to take work along with them, even if having to relocate at short notice. These people will be registered in Ukraine as private entrepreneurs (known as"FOP", which translates as "physical-person-entrepreneur.") With so many Ukrainian entrepreneurs speaking good English as well having high technical literacy, it’s great to see this enterprising behaviour emerging in the global diaspora, and many international enterprises will continue to contract with their known Ukrainian suppliers from wherever they are operating.
It will probably be possible for such people to continue trading in this way as a displaced person, depending on issues of personal tax residency (see below), but the sad reality is that some people will find themselves moving more than once, perhaps even from one country to another. At times this could also lead to long or short stays outside of the EU and/or the eurozone. This may cause conflict with the Ukrainian FOP compliance requirement to receive payments directly to a bank within Ukraine.
For reasons of business continuity and stability therefore, Ukrainian private entrepreneurs may find it advantageous to establish an Estonian e-residency business entity, which can stay in one (digital) place throughout - giving them the freedom to move around where life takes them, without the expense and friction of registering as a freelancer in each new location.
In some places it can be easier to secure accommodation and similar contracts, even lines of credit, to be operating as a business owner rather than a freelancer as well.
Those working with international clients in particular may find it provides reassurance to those further afield, that business services are not dependent on Ukrainian communications and technology infrastructure which may be vulnerable, and be operating at capacity even after the entrepreneur has been able to physically return to Ukraine.
Ukrainian vs Estonian e-Residency: which to choose to start your EU business of one?
While Estonian e-Residency has been available for over 7 years, the world gets more digitally integrated all the time, present geopolitics notwithstanding. And in October 2022, Ukraine introduced its own e-Residency programme.
Just like the present explosion of digital nomad visas, however, it should be understood that e-Residency programmes vary greatly in their execution and intent.
One thing both schemes have in common is that they specifically for non-citizens of the country concerned, i.e. Ukrainians cannot apply for e-Residency in Ukraine, even if they are displaced.
It is designed for foreigners who want to open a Ukrainian business entity, and pay their taxes in Ukraine —at a low fixed rate. Essentially, a new law introduces a special status for foreign individuals who are not Ukrainian tax residents, allowing them to carry on business activities without the need to be physically present in Ukraine.
For these purposes, the e-resident of Ukraine will be able to open a bank account, obtain an electronic digital signature, and register as a private entrepreneur remotely. Access to the programme looks similar to Estonia’s: it requires applicants to have a clean criminal record and also not be citizens of sanctioned countries, including The FATF (The Financial Action Task Force) "black list" of states that are considered inadequate in money laundering and counter-financing of terrorism regimes.
The Ministry of Digital Transformation told Visit Ukraine that by adopting this law, Ukraine would “show itself as a country with a powerful IT brand, raise investments in the state budget and boost the economy.”
Currently, the user experience remains unknown, but definitely the idea has potential, and Estonian has proven the success of such a use case of digital identity.
It should bring new income into Ukraine when the scheme launches fully in April 2023, and may play a vital part in the rebuilding of the nation in its longer-term future —enabling foreign entrepreneurs to invest in and support Ukraine in new ways.
How do Ukrainians apply for Estonian e-Residency?
For Ukrainians who want to get started with a business while displaced, or simply want the security and portability of an e-Resident business of their own, Estonia provides a warm welcome.
The Estonian e-Residency department itself is continuing to provide reimbursement of 100% of the state fee for application, to all citizens of Ukraine. And when you apply through Xolo, the company registration fee will also be reimbursed, to a total value of €410.
Eligibility terms for the reimbursement are as follows:
- Applicants must be a citizen of Ukraine
- Applicants must have been granted e-Residency status on or after February 24, 2022
- Applicants must have been accepted as a client by an eligible business service provider like Xolo
- Applicants must have registered a new company in Estonia as an Estonian e-resident before December 31, 2023
- Applicants must not already own a company registered in Estonia or have control over (including being a member of a company’s Board or a shareholder) any other Estonian registered company or companies before February 24, 2022
Just as for anybody else, the steps for Ukrainians to become Estonian e-Residents are straightforward and simple:
- Check and confirm eligibility according to the list of terms above, in order to be sure in advance of qualification for reimbursement of the associated costs.
- Apply for the Estonian ID. Ukrainians have a range of options for picking up their Estonian digital ID kit from around Europe and further afield, and travel costs of doing so may be offset against future business activities as out-of-pocket payments.
- Choose an Estonian Service provider to offer the necessary legal address and contact person services required to register a company. Only selected service providers are eligible for the state fee reimbursement offer, but Xolo Leap is definitely on the list.
- Establish and register your new Estonian business, through your chosen approved service provider
- Receive your reimbursement of your state application fee and your company formation fee, directly through your service provider.
With the changes in share capital coming with the new Business Registration Act in February 2023, it really could be easier to get up and running with a brand new private limited Estonian company.
Ukrainian e-Residents of Estonia - tax residency questions
One question for Ukrainians and indeed other people who may be working in a place away from where they habitually reside, is that of tax residency.
This is one area where Xolo cannot provide individual advice, and recommend that specific qualified assistance is sought, particularly by any Ukrainians who find themselves displaced within the EU or anywhere else, for a period greater than 183 days.
This deadline is often sufficient to trigger tax residency in a new country, while if the person still has a fixed address and citizenship in Ukraine, it may not be enough to renounce tax residency there.
However, Ukraine does have double taxation treaties in place with 73 separate countries . Treaties with the Russian Federation and Belarus were revoked in 2022, but the list still includes most of Europe, so you can avoid paying tax on the same income twice.
An official confirmation, issued by the relevant foreign tax authority and legalised/stamped with Apostille, is compulsory for claiming a foreign tax credit in Ukraine. The amount of foreign tax credit is limited to the amount of Ukrainian tax that would arise from the same income in Ukraine (i.e. 18%). Credit against military tax is not allowed.
Tax residency is in any case generally determined by where you live, and in almost all cases no personal tax residency question is likely to arise in Estonia - it is your business which ‘lives’ there, not you, and you will be taxed where you reside.
If you are not relocating to Estonia, you will not be tax resident there, and if you are paying social security elsewhere in the EU there is no Estonian liability for that either. Dividend payments are subject to tax in Estonia, but salaries for non-residents are not. In fact, most Estonian e-Residents do not pay any tax in Estonia, only in the countries where they live.
However, even with the various treaties in place, we still recommend getting individual advice, because refugee status and other special treatments vary from one country to another, and every situation is unique.
Xolo Leap and Ukrainian e-Residents of Estonia
Xolo Leap has been selected as a partner for this state-supported initiative, due to its track record in supporting new entrepreneurs, and helping tens of thousands of freelancers from all over the world to take that crucial step: of establishing an independent trading entity which supports their lifestyle, and offers a stable home for their business, wherever they go.
Xolo is proud to be providing this vital service for Ukrainian people right now, who are demonstrating the most incredible courage and resilience in the face of unimaginable stress and ——loss. We know from the statistics with which we opened this piece that Ukrainians have always been resourceful, enterprising, and creative when it comes to business, and just as countries have opened their physical borders to a wave of those urgently seeking refuge, Estonia is opening its digital borders too, to show our support.
The more Ukrainians we can help establish successful location-independent businesses, the more displaced families we can support with sustainable income, and the means to settle in new locations, without being financially dependent on host countries.
And in due course we hope to continue to collaborate with them and support them as a service provider, when it is finally safe to return to Ukraine and rebuild their homes and cities if they choose to do so. Alongside Ukrainian e-Residency investors, local Estonian e-Residents will surely help to provide a source of overseas income which will be vital to the restoration, of a peaceful and thriving Ukraine, in a future we hope is not too far off to imagine.
For now we stand with all Ukrainians, both those battling on the home front, and those seeking refuge far from home.
To find out how we can help you get up and running with Xolo Leap as quickly as possible.
About Maya
Maya Middlemiss is a freelance journalist and author, excited about the future of work, business, money, and technology. She operates her e-resident business through Xolo Leap, so that she can work frictionlessly with brands and publications all over the world, and she is the host of the Future is Freelance podcast. Exploring the social impact of technology on our changing world, and bringing those stories to life in an accessible and inclusive way, is her passion — because all of this is far too exciting to leave to the geeks. Maya is a 'digital slowmad', originally from London, presently living with her family in Eastern Spain.