We suggest that you apply for e-Residency and then look through this guide while you are waiting to pick up your digi-ID.
5. Apply For An EU IBAN Account For Your Company
You will need a business account with an IBAN (International Business Account Number) so your company can easily receive, hold and send money (as well as pay in share capital and pay out to yourself).
Your company’s business account should be based in the EU so that it is compliant with SEPA (the Single Euro Payments Area) for greater ease of accessing services like payment providers. Ideally, the account should also come with a company payment card.
It is often thought that a bank account in Estonia is essential for e-residents, but there are actually three main types of IBAN account providers currently used by e-residents for their Estonian companies – Banks in Estonia, fintech firms globally, and banks outside of Estonia.
The e-Residency programme cannot compel any private company to provide services to e-residents, including banking, but we do work closely with the private sector to help them to do so. At present, the banks in Estonia have more restrictive criteria for who they can open accounts with and tend to prefer companies that have a connection to Estonia and provide clear visibility of their business activities. Many e-residents do successfully open bank accounts in Estonia by satisfying these criteria, but an Estonian bank account may not always be needed, wanted or available to e-residents.
Please note that if you are a resident of a jurisdiction categorised as ‘high risk and non-cooperative’ by the Financial Action Task Force (FATF) then you will face enormous difficulty obtaining international banking services so we do not recommend e-Residency. At present, this affects residents of North Korea, Syria, Iran, Iraq, Bosnia and Herzegovina, Ethiopia, Uganda, Vanuatu, and Yemen. Note that this is based on residency, not nationality, so people from these countries living abroad have still successfully benefited from e-Residency.
In support of e-Residency, Estonia’s law was changed to enable banks to open accounts remotely for people outside Estonia. The fact that this is legally possible does not mean that the banks themselves are ready to offer this service though as they are still currently testing how remote account opening can work through video calls.
There is also an outside chance that banks in Estonia could allow their branches in other countries to have a role in opening Estonian accounts. It’s too early to say if this is possible.
At the start of 2017 though, we shared our prediction with e-residents that there would be enormous disruption taking place in the banking industry this year. That’s because financial technology (fintech) firms are racing to offer their own business accounts online, while providing a more globally inclusive service for entrepreneurs.
That disruption is now well underway. Holvi has launched the first IBAN account specifically to meet the needs of e-resident company owners and the e-Residency programme is speaking with a range of companies that are interested in improving access to financial services for e-residents — from very small startups to large global names.
In 2018, we expect this market for fintech banking services to widen further, which will lead to increase choice of accounts and lower prices.
Crucially, these companies do not require you to visit Estonia (although you are still welcome to!)
Our discussions with IBAN account providers range from technical integration to compliance with Estonian business rules. We also encourage these companies to be as inclusive as possible towards the e-resident community by treating e-residents as equal members of one digital nation and not restricting services based on national boundaries.
One of the considerations, for example, is to ensure that banking service providers help their e-residents customers register share capital in Estonia by providing them with a digitally signed certificate in Estonian for the Estonian Business Registry. E-residents can defer paying share capital when they establish a company, but must complete this process before dividends can be paid out. The law is currently unclear about whether an Estonian bank account is required to register share capital because it was written long before these alternatives existed. Most attempts to do so have been accepted, although some have been recently been rejected. As a result, there is draft legislation under consideration that would confirm that fintech accounts can be used. If adopted in the near future, this would radically improve the choice available to e-residents. In the meantime, e-residents can continue to trade using fintech banking services.
The rise of fintech is revolutionising the delivery of financial services globally — and it’s also making some of our business language a bit confusing in the process. Companies no longer have to be a ‘bank’ to offer ‘banking’ and that’s why not all IBAN accounts are ‘bank accounts’ anymore.
Fintech companies are regulated financial institutions and are not licensed as banks, but their IBAN accounts have many of the same services and functions as those offered by ‘traditional’ banks, including with payment cards.
In practical terms, the key difference is that you won’t be able to get loans or overdrafts through these accounts and your money won’t be guaranteed in the same way that you would receive compensation if your bank is unable to return your money.
The good news is that fintech firms are required to hold onto your money and segregate it so they can not touch it until you want to do something with it, unlike the banks which are regulated in a way that allows them to manage the risk of lending your money out to others.
This is part of the reason for why these companies can be more inclusive in who they offer accounts to so the fintech industry has the potential to help end financial exclusion around the world and give more people the opportunity to succeed as an entrepreneur. That’s exactly what e-Residency aims to achieve too.
E-residents have begun using a range of fintech service providers, although there is also an enormous variation in the suitability of these services for e-residents and the proportion of the e-Residency community that these services are available for.
Some are currently only offered in specific countries, while others do not yet meet the needs of company owners.
Bear in mind too that we are only discussing business banking for limited companies and not personal accounts. To add to confusion, some of the new online accounts from the fintech industry are marketed for business purposes, but are actually personal accounts. They would be suitable for sole proprietors, but not limited companies.
Just like the business service providers, not all banking options are available for all types of companies so you may need to look at different options depending on your area of business.
In addition to FATF’s so called ‘black list’, the only other notable difficulty is for US citizens who face complexities with international finance as a result of the Foreign Account Tax Compliance Act (FATCA), which can create added work for either them or their financial services provider. As a result, not all international financial providers are able to serve US citizens yet.
We don’t like to use too much jargon so providers of IBAN accounts that are recommended for e-resident entrepreneurs — both from ‘traditional’ banks or fintech firms — are listed on the e-Residency website under ‘banking’.
Below is an overview of these main types of IBAN providers.
The ‘traditional’ banks
There have been two main banks in Estonia providing business accounts to e-residents — LHV and Swedbank.
LHV is an Estonian banking and financial services company headquartered in Tallinn, while Swedbank is a Nordic-Baltic banking group based in Stockholm, Sweden with a significant presence in Estonia.
E-residents can log in with their digital ID card and manage their accounts from anywhere in the world, the interfaces are easy to navigate and all communication is in English (and various other languages).
There is one key drawback to them for e-residents at present, mentioned earlier. You currently need to travel to Estonia to open an account in person at a branch of either bank. This obviously limits the number of people around the world who can access business banking from them, although many e-residents have indeed traveled here to open an account and considered the trip to be a valuable investment (not to mention enjoying the opportunity to visit Estonia).
Both banks have their own criteria for which companies are likely to have their applications approved or rejected. These criteria are not published publicly because every decision is made on a case by case basis.
However, both banks say that they generally favour companies that have a connection to Estonia, clear business goals and are perceived as trustworthy, particularly by demonstrating their commitment to compliance and accountancy. This should be demonstrated in a business plan that you can show to the bank. We have also discovered that the banks highly favour companies with a visible online presence, which actually favours many e-residents and digital nomads.
They are less likely to open business accounts for non-residents of Estonia (including e-residents) if their companies are large, involved in manufacturing or wholesaling, acting as an intermediary to sell the services of others, only doing business in their home country or outside of the EU, and can not explain clear business goals.
Please note – there has been increased pressure recently on banks across Europe to reduce the proportion of non-resident accounts and this has led to Swedbank and other smaller banks in Estonia to close accounts for companies who can no longer demonstrate their connection to Estonia.
If you can demonstrate a connection to Estonia through existing sales or relationships with partners, employees or suppliers (including business service providers to the e-Residency programme) then it’s very useful to highlight that in the business plan.
Regardless of whether it helps your application though, many e-residents have found that conducting business with Estonians and making their products or services available to Estonians is a great idea. In 2018, the e-Residency programme is also launching its community platform, which will make it even easier for you to connect with entrepreneurs who physically reside in Estonia so that both communities can benefit from each other even more.
However, the most important advice that the e-Residency programme gives to people who wish to open an Estonian bank account is to please speak with a business services provider to the e-Residency programme before booking any travel for the purposes of opening a bank account.
Neither the e-Residency programme nor anyone else can speak on behalf of private banks about which companies they will open accounts for. However, business service providers to the e-Residency programme do work very closely with the Estonian banks to help open accounts for their clients and can find out the pre-decision before e-residents travel to Estonia.
We also often get asked by e-residents: ‘What is stopping me from opening a business bank account in my own country?’ The answer is actually only the banks themselves.
Location-independent entrepreneurship is a relatively new concept so the desire to establish a company in one country and open a business bank account for it in another hasn’t been common until now. That means that banks outside of Estonia will still be reluctant to allow this. We are aware of a few e-residents that have succeeded, however, and if that includes you then you can tell the e-Residency programme about it as that information could help other e-residents benefit too. If you do use a bank outside of Estonia, please bare in mind that it will still need to comply with Estonia’s business environment, such as by providing a digitally signed certificate in Estonian when registering share capital. As a result, it is highly advised again to use an established e-Residency business services provider that can assist your bank with these matters.
The fintech firms
In May 2017, the Finnish fintech firm Holvi became the first company to launch a business account for e-residents. The company already has a great reputation where it provides services in Finland, Germany and Austria and they have effectively chosen ‘e-Estonia’ as their next national market.
Holvi offers e-residents a fully digital business account combined with a Holvi Business Mastercard and useful tools to grow a business.
Holvi Payment Services Ltd is part of the banking group BBVA and is regulated by the Financial Supervisory Authority of Finland as an Authorised Payment Institution. Their account has an EU IBAN that complies with Estonian business regulations and is specially tailored to the needs of Estonian companies run by e-residents.
Crucially, you can apply entirely online, which means the launch of the account enabled the entire process of creating an EU company with an EU IBAN through e-Residency to be achieved from anywhere on Earth for the first time.
The e-Residency programme is now speaking with several additional companies about launching IBAN accounts specifically for e-residents. In the meantime, many e-residents have managed to open accounts with a range of providers. At the time of writing, the most notable alternatives are TransferWise Borderless, Paysera and Revolut. E-residents are very welcome to provide their feedback about these services to help the programme develop and ensure others can benefit too.
Bare in mind that everyone involved in e-Residency — whether as an e-resident, service provider, or working for the programme — are all entering new (location-independent) territory together. If you discover an IBAN account provider who you think could benefit other e-residents (including if you work there yourself) then please get in touch with the e-Residency programme or share your thoughts with other e-residents in the Estonian e-residents Facebook group.