SA loses as its entrepreneurs move companies to Estonia

Journalist Lindsey Schutters with Katrin Vaga from Estonia’s e-Residency programme. (Photo: Supplied)

8 Jun 2025

The Baltic country’s e-Residency programme offers access to a highly efficient digital-first business environment with alluring prospects for local tech companies.

Imagine being a very small country (a landmass about the size of Gauteng) with 1.3 million residents and a declining population rate, no significant natural resources except some shale gas, and a previously hostile neighbour in the form of the Soviet Union, which fell in 1991.

That’s Estonia, whose strategy to increase its tax base has involved establishing an e-residency programme to lure foreign businesses in return for exporting its world-leading digital government services. For a growing number of South African tech entrepreneurs, the key to unlocking global markets, EU-based investment and a bureaucracy-free future doesn’t lie in Sandton or Stellenbosch – it’s in Tallinn.

Estonia’s fabled e-Residency programme, once a curiosity for digital nomads and crypto-optimists, has found a surprising following in South Africa’s start-up scene, and 436 of Mzansi’s finest are already enrolled. But although the Baltic republic promises digital freedom and access to European capital, the decision to incorporate one’s company offshore isn’t as simple as clicking “register” for the government’s e-Residency programme.

“E-residency is just an access to our digital ecosystem,” says Katrin Vaga, a former journalist who heads PR for the programme. “It’s not tax residency, it’s not a golden visa; it’s not even about physically moving to Estonia. It simply gives entrepreneurs a secure way to operate in our digital-first business environment.”

This digital infrastructure, built over two decades, allows foreign founders to register and run a European company entirely online – and in English. For software developers, marketing consultants and other knowledge workers, it’s a frictionless gateway to EU business.

“It’s a 15-minute process,” Vaga explains. “From application to launching a company. It’s all remote, all online, all verified with a secure digital ID.”

One standout feature is Estonia’s 0% corporate tax on reinvested profits. “It’s built for start-ups,” she says. “If you’re reinvesting into growth, you don’t pay corporate tax until you distribute dividends.”

Next stop, EU funding

Journalist Lindsey Schutters with Katrin Vaga from Estonia’s e-Residency programme. (Photo: Supplied)

Access to European venture capital is the big draw. “If you want to raise funding from European sources, it derisks the project to be based in the EU,” says Dr Armid Azadeh, founder of the Namibian medtech solution company OnCall. “[Venture capital funders] are more comfortable when the intellectual property is domiciled in a jurisdiction they understand and trust.”

This isn’t just about Estonia. It’s about a broader initiative by African start-ups to move their intellectual property (IP) offshore to investor-friendly territories – from Mauritius to the Netherlands – so that global funders will take them seriously.

Renier Kriel, founder of The Founder Collab and a stalwart of the local start-up scene, says all South African company founders who have to raise venture capital want to take their IP offshore because funders are typically “not comfortable for IP to stay in South Africa”.

The trend is driven less by tax arbitrage and more by South Africa’s cumbersome exchange controls and employment legislation. “Moving money out of South Africa is a major pain,” Kriel says. “You need approval. It slows down everything.”

Add to this labour regulations that, though protective of workers, can be punitive for start-ups. “The cost of ‘mishiring’ is massive,” Kriel adds. “We need specific reform for hi-tech or early-stage businesses. The current laws create less employment because of the cost of hiring.”

The combination of local friction and global opportunity makes Estonia’s promise deeply appealing. “You get to tailor your lifestyle,” says one Estonian e-Resident entrepreneur quoted in Vaga’s documentation. “I pay more taxes than I maybe would have back home, but I have a bigger market and more business opportunity. And I save so much time that actually I still win.”

But Estonian e-residency isn’t a silver bullet. “It doesn’t make sense for everyone,” Vaga cautions. “If you’re bootstrapped, already have reliable banking, or you want a physical shop in Europe, it’s probably not for you.”

How Estonia stacks up

Estonia is now part of an elite club of favoured offshoring destinations, each with distinct strengths and pitfalls. London offers prestige, investor networks and familiarity. But it also comes with high operational costs, post-Brexit trade frictions and looming tax changes for non-domiciled founders.

Delaware is ideal for US expansion and venture capital fundraising, thanks to flexible corporate laws and low state-level taxes. But the complexity of US federal tax and substance rules can trip up founders.

Amsterdam provides full EU access, a deep talent pool and vibrant start-up culture, but it is costlier than Estonia and requires a more involved set-up process.

Mauritius remains a go-to for African-facing businesses with its 3% effective tax rate and strong treaty network – though it requires real substance (offices, local directors) to stay compliant.

Estonia, through its e-residency programme, wins on speed, cost and digital ease. “You can run a company entirely remotely from anywhere,” says Vaga. “And your encrypted digital signature is accepted across the EU.” That said, it’s not perfect. “Banking can still be a hurdle,” she concedes.

South Africa risks losing more than tax revenue when founders go offshore. It loses jobs, IP and long-term innovation.

“If we want to compete with Mauritius or Estonia, we need to reform exchange controls and court major investors – show them we can be a real partner in building wealth,” says Kriel.

“Cut the red tape, combine the SDL [skills development levy], UIF, PAYE and income tax into one simplified system. If we want to compete with the places [venture capital funders] like, we need to make it easier to build here.”

For the right type of business, mostly digital, lean and global in mindset, Estonia offers a near-frictionless way to plug into the EU economy.

The e-Residency programme isn’t for everyone. But for the increasing number of South African entrepreneurs stuck between red tape locally and global opportunity, it might just be the digital lifeline they’ve been waiting for. “It’s not about escaping,” says Vaga. “It’s about enabling.” DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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