This month Estonia became the first country in the world to announce plans to enable persons from anywhere in the world to become E- citizens of Estonia.
Estonia has the most advanced E- economy in the world. Before a newborn arrives home, the hospital will have issued a digital birth certificate and the baby’s health insurance will have been started automatically. All residents aged 15 or over have electronic ID cards, which are used for health care, public transport, electronic banking and shopping, to buy and sell property, to sign contracts, to file taxes and to vote.
From 2015 people from outside the country will have an opportunity to apply for an Estonian E- ID card which enables them to use Estonian online services to start a company, open a bank account, sign contracts and generally do business without being physically in Estonia. Applicants are required to apply in person in Estonia but it may eventually be possible to apply at Estonian embassies and consulates abroad too.
This is a major development that has significant legal and commercial implications. The Estonian E- ID creates a government-standard digital identity which can be used by persons outside the jurisdiction. It has the potential to attract business to Estonia and this is the primary objective. The aim is to make Estonia known for E-commerce in much the same way as Switzerland became known for banking.
But there some potential traps.
The E-ID does not automatically provide the legal protection available to an Estonian resident (Peep Beep). The legal position of an E-ID citizen is still effectively that of a foreigner.
The intent is also that businesses registered in and operated from Estonia will pay Estonian tax (Peep Beep).Yet typically even if a company is registered off-shore, it is considered resident for tax purposes in the country where its central management and control is located or where its voting power is controlled by resident shareholders. In the absence of a tax treaty an overseas business incorporated in Estonia and operated using Estonian E- services may discover it is subject to double taxation.
Even more significantly, Estonia uses the cloud for its E-services. The Estonian government acknowledges that there is security vulnerability (Peep Beep) and is establishing what it calls “data embassies” i.e. overseas locations where multiple copies of data will be stored so the system can be restored in the event of system failure . This approach underlines the vulnerability of the system. Creation of multiple off- shore storage sites also increases the opportunity for data to be compromised (Peep Beep).