Tech helps e-Estonia Replace Delaware as Corporate Capital

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Set your business up in Delaware is what you’ll hear from an attorney if you decide to set up a US corporation. Why? Look at all these benefits:

  • Delaware’s business law is one of the most flexible in the country.
  • The Delaware Court of Chancery focuses solely on business law and uses judges instead of juries.
  • For corporations, there is no state corporate income tax for companies that are formed in Delaware but do not transact business there (but there is a franchise tax).
  • Taxation requirements are often favorable to companies with complex capitalization structures and/or a large number of authorized shares of stock.
  • There is no personal income tax for non-residents.
  • Shareholders, directors and officers of a corporation or members or managers of an LLC don’t need to be Delaware residents.
  • Stock shares owned by persons outside Delaware are not subject to Delaware taxes

Is it such a surprise that if you have low taxes and simple regulations you’ll grow your business base? Apparently, as most states aren’t very competitive with these offerings.

Delaware though has competition from the EU where regulations and taxes are typically so high that some businesses are fleeing or closing up shop.

Estonia is one of the more tech-savvy EU countries and they did something very smart a few years back. As my colleague Erik Linask wrote in 2014 that e-Estonia allows you the a global citizen but do business in Estonia and the EU.

He went on to say:

E-residency will not offer voting rights – at least not yet – though there has been discussion of it as potential future option. The idea is that, as more people and businesses become tax-paying e-citizens, they perhaps should have some say in regulation defining taxation and digital infrastructure. Indeed, this is more the slightly tricky, as there is reason to question whether e-residents are likely to take into consideration physical residents’ needs and issues when it comes to policymaking.

When the Brexit happened, many people said the world would end. Forget the fact these people claimed this list would end the world as well:

  • Y2K
  • Anthrax
  • West Nile
  • Bird Flu

I dissented, thinking tech would help save the day and keep people connected just as if the UK was still in the EU. Fintech was one of the areas of growth I saw being fueled by Brexit.

I didn’t consider e-Estonia but now the little country is starting to shine. MIT Technology Review just wrote a great piece on how well it’s doing. Here is an excerpt:

Cost was also a factor for Vojkan Tasic, chairman of a high-end car service company called Limos4, in his decision to pick Estonia as a new home for the company. Started in his home country of Serbia six years ago, Limos4 has been paying credit-card processing fees of 7 percent. Limos4 operates in 20 large European cities as well as Dubai and Istanbul, and counts Saudi Arabian and Swedish royalty and U.S. and European celebrities among its clients.

After considering Delaware and Ireland, Tasic chose Estonia, where he can settle his credit-card transactions through PayPal subsidiary Braintree for 2.9 percent and where there is no tax on corporate profits so long as they remain invested in the business. Since getting his e-residency and moving the company to Estonia, profits are up 20 percent, Tasic says. Annual revenue is around $2 million.

It’s interesting that virtually everyone who believes in typical liberal policies such as gun control and higher minimum wage are against Brexit. Conservatives are typically pro-Brexit. In other words there seems to be an even split on globalization versus nationalism.

That’s the beauty of E-Estonia, it seems to be the perfect solution for both groups. You can become a connected citizen if you like, or not. It’s your choice. The government hopes to have 10 million e-residents by 2025. The number seems ambitious but since it really bridges a political divide, they may just get there.

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