The UK’s decision to leave the EU has created a profound level of uncertainty — and small businesses in particular will be worried about how the post-Brexit environment will impact their dealings with EU customers when Britain eventually leaves.
This article will:
The European Single Market is the world’s largest economy. Companies inside it have unrestricted access to 500 million consumers, making them far more attractive to foreign investors.
The Single Market is based on the “four freedoms” — free movement of people, goods, services and money as easily across the continent as inside any one member country.
At the time of writing, the UK is currently a member of the European Single Market. Yet when Article 50 was triggered on 29th March 2017 advising the EU that Britain wished to leave, it became when rather than if the UK will leave. Of course we don’t know when this will happen, as complex legal, financial and regulatory issues continue to be discussed, but now’s the time to prepare if you have EU customers.
Yet, 42% of SMEs still have no idea what to do, mainly due to lack of information.
EU leaders have repeatedly stressed that access to the single market is conditional on the free movement of labour. As immigration became such a hotly contested issue during the EU referendum, this free movement of labour appears to be off the table. So the UK is leaning towards a hard Brexit.
If you’re planning to set up, or already have a business within the EU, then a hard Brexit will damage your opportunities to sell freely to over 500 million Europeans.
One way to Brexit-proof your business is to open a foreign legal entity in an EU country. We’ve already seen major European cities like Paris and Berlin target FinTech companies looking to move their headquarters from London to avoid such a scenario. Dublin has also been mooted as another option.
However, depending on the type of business you run, or its current structure, will determine how much of an impact Brexit will have.
For example if you’re a business owner that only sells to locals, or within the UK, then having an EU legal entity doesn’t make much sense for you. The same for a corporate FTSE100 company who already has legal entities across several global cities, not just in Europe.
However, if you’re a location-independent business owner, a freelancer, or simply someone who offers digital services to EU customers then there’s only one country you should consider for your foreign entity — Estonia.
Estonia is a full member of the European Union and has an advanced digital infrastructure, meaning you can manage your business without setting foot in the country. And through its e-Residency programme, Estonia enables you to continue to freely sell your products and services to other Europeans living within EU borders.
Simply put, by becoming an e-resident and starting an Estonian business you’ll always have full access to the European Single Market.
OK, on to the serious question: how can I Brexit-proof my business to keep my EU customers? There are 4 steps to do this, if you want to take advantage of Estonia’s digital e-Residency programme.
The small northern European nation of Estonia became the first country in the world to offer digital residency in 2014. Meaning anyone can base their finances and businesses there, no matter which countries they actually live and work in.
To become an e-Resident you’ll need the following:
More information can be found on the e-Residency website here.
Once your application has been approved you can collect your Estonian
e-resident ID card from your nominated pickup location.
2. Sign-up with a virtual office service provider
Congratulations! You’re now an Estonian e-resident, meaning you can open an Estonian company based within the EU!
This doesn’t make you an EU resident — it simply allows you access to utilise an EU state’s digital infrastructure, the same as local Estonians.
Although not required, it’s recommended by the e-Residency team to use a virtual office provider like Xolo. Xolo offers the simplest way to run a location independent one-person business online; offering assistance with incorporation, accounting, taxes and compliance. So you can focus on all of your EU customers with peace of mind that your company is in good hands.
Like other virtual office service providers, using Xolo to register your company can also speed up the process. This is because we know what’s required for you to get started, remaining up to date with local laws and regulations.
In fact you can even sign up with Xolo for free before becoming an
e-resident — they’ll provide you guidance on how to become one, streamlining the process between becoming an e-resident and an Estonian (EU) business owner.
You can then use Xolo’s platform to register your company. One major bonus with using Xolo to register your company is that they’ll provide you with an Estonian address, which you’ll need both for registration and opening a business bank account.
So you’re now an Estonian e-Resident, have an Estonian address and company, and are now legally within the EU. The last thing to do is to open a business bank account. And you have two ideal options to do this — LHV or Wise, formerly TransferWise.
With Wise you can create your account online, and set up your business account remotely. They’re also integrated with Xolo, so once your account is set up, you can enable automatic statement uploads so you’ll never need to do any manual work for Xolo to be in sync with your company finances.
LHV are Xolo’s partner bank, and are also an excellent choice for setting up your Estonian business’ bank account. They also offer full integration, and have a few advantages as a traditional bank which Wise can’t yet offer. However to set up an account with them, you’ll need to make a short trip to Tallinn.
Banks have sole discretion to offer or deny someone a bank account, not the
e-Residency programme. They must fulfil certain anti-money laundering criteria, and at present require a face to face interview to determine whether applications for an account are approved or rejected.
Using Xolo does make this process a little less daunting — they have an excellent relationship with LHV, and will be able to determine a likely successful application before you need to get on a plane. Banks favour companies that have clear business objectives and implement trustworthy (and accountable) practices.
There are a few ways to fly to Estonia from the UK, with a flight time under 3 hours. Tallinn airport is only a 10 minute drive from the city centre where the LHV are located, so you don’t even need an overnight stay to open your bank account.
And Xolo will help organise the bank appointment for you so you don’t need to wait around. Once you’ve set up your LHV account you’ll never need to return to Estonia if you don’t want to. You can manage your business online — all you need is an internet connection.
As an Estonian (EU) business owner you can now do what you originally set out to — sell your products and services freely within the European Union whilst maintaining your company at a fraction of the cost you’d pay if you had a UK accountant.
Like all companies you’ll need to ensure you meet your legal, regulatory and financial requirements, for example paying your company taxes.
Corporation tax in Estonia is fair, simple and designed to encourage business transparency. You pay a flat rate of 20% on distributed profits, but absolutely nothing on profits you decide to invest in your company.
E-residents still need to pay personal income tax in the country where they work. Because of Estonia’s digital records the UK government can determine how much tax they’re owed.
With Xolo, you can manage your company’s legal, regulatory and financial requirements as part of their monthly package, so you can get on with growing your EU-based business and remove any future hassle.
If your UK business has EU customers (or you’re looking to target the EU in the future) then one option to avoid missing out on lucrative sales and revenue is ensuring your business remains within the EU.
Estonian e-Residency is one way to ensure your UK business can reap the rewards of an EU-based business without having to actually emigrate to one of the union member states. This is one simple option to Brexit-proof your UK business should you have EU customers. You can read why other British entrepreneurs are beating Brexit by utilising Estonia’s digital infrastructure here.
Get the best business tips from Xolo and our community of freelancers straight to your inbox