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Estonia to not require local bank account for e-residents starting business

Taavi Kotka, former CIO of the Estonian government, holding cards promoting Estonia's e-Residency program.
Taavi Kotka, former CIO of the Estonian government, holding cards promoting Estonia's e-Residency program. Source: Ints Kalnins/Reuters/Scanpix

Estonia's Ministry of Justice has introduced a bill to amend the Commercial Code to resolve an issue that has in practice inhibited foreign investors from investing in Estonian private limited companies.

Currently, e-residents have either founded or are shareholders in approximately 5,600 businesses registered in Estonia. So few e-residents have registered new businesses thus far due to obstacles in the country's Commercial Code as well as Estonian banks' rules. In order to register a private limited company (OÜ), one must pay in share capital of €2,500 — but only to an Estonian bank account.

Banks operating in Estonia in turn require that an individual open a bank account in person, and even then may turn them down — especially if the client is a citizen of a third country.

In the wake of recent international money laundering scandals, banks in Estonia have begun closing the existing accounts of Estonian e-residents.

Some e-residents have begun taking advantage of a backdoor: Finnish-registered banking service Holvi registers online bank accounts remotely as well, and sometimes these accounts are accepted when registering a company in Estonia.

Given all of the obstacles, however, the situation has reached the point where companies, including startups, are being registered abroad instead.

The Ministry of Justice has finished drawing up the bill for an amendment that will attempt to expedite a solution to this problem, skipping altogether the steps of submitting a legislative intent or concept beforehand.

 "This issue is very acute in society and is seriously affecting the competitiveness of the Estonian business environment," the letter of explanation accompanying the bill said. "Thus the government believes that this problem must be solved immediately."

Law change could affect tens of thousands

Should this amendment to the Commercial Code be approved and voted into law by the Riigikogu, it will simplify the registration of private limited companies and investment into the same by foreign investors, which can be done going forward using a foreign bank or payment institution account.

Considering that the majority of businesses registered by e-residents in European Economic Area (EEA) states are from Finland and Germany, the effects of the change may be felt more by the credit and payment institutions of those countries in particular.

The change, however, will not affect public limited companies (AS), which will continue to require the existence of an Estonian securities account.

Approximately 15 percent of e-residents are currently associated with Estonian businesses, but there is no data regarding how many e-residents have been faced with obstacles in registering or investing in businesses in Estonia due to the lack of a local bank account.

Taking exclusively e-residents into account, the Justice Ministry's amendment may affect up to 10,000 people, while the actual number may be much higher together with other potential foreign investors.

Editor: Aili Vahtla

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