Why StarWind Software Inc. Chose Estonia?
Artem Berman, COO of StarWind Software Inc.
EMEA region and European market, in particular, are very important for any IT business. Normally we are talking about the market number two in the revenue split for the company with 30-60% of the contribution to the total company’s revenue.
StarWind is not an exception, and about 35% of our revenue is nowadays coming from the EU market. So we were always very determinate about our presence on this market and tried hard to increase the market penetration in the EU. At some point, we did realize that the need for a strong presence in the EU became even more pronounced. And there was more than just pure economic reasons for that.
IT company faces many challenges and up to 75% of startups never fly even in the US where the climate is very supportive of the entrepreneurs and new businesses. Being a global startup with Ukrainian roots, apart from all the challenges young and aggressively growing company is going through, StarWind was exposed to some political and environmental risks specific to Ukraine. Thinking this way, we realized that having European office can further help us address and mitigate these risks.
As soon as we made a strategic decision about the opening European office, we started to look for the options. Even though many countries could potentially serve as a viable solution, we tried to find the best possible outcome from both social and business perspectives. From a social perspective, we were looking for a country with the friendly and relaxed environment. Our business criteria list though was more comprehensive. We were looking for the country:
- With zero corruption level;
- With understandable and straight-forward process of the business opening and running;
- With clear game rules for the business;
- With transparent and motivating taxation system;
- With the ability to run the business remotely;
At that moment the article about e-Residence came to my attention. I really liked the idea. Being able to perform almost any single operation online with only the card-reader and special card was appealing. Further investigation has proven that we were looking in the right direction. Indeed, I could visit the embassy in Kiev and order my e-Residence card, later on, pick it up at the same embassy and get the process going without having even visited the country. And even though later on I found out that it wasn’t quite the case and at least notary and the bank did want my physical presence (at least it was so back then) we decided to give it a try.
Through the partners, I made the connection with the representative of Enterprise Estonia and after several Skype meetings (did you know that Skype was a startup with Estonian roots?) I traveled to Estonia to get the feeling of the country and where it stands now. Like I said the travel was needed anyhow for the notary and bank matters. To be honest, these were first and last two personal appointments related to the business opening that I had. I probably could be better off doing these two remotely as well, but then again I decided to visit the country. After all, networking always creates the opportunities, and I wanted to see this popular European IT hub live in person.
My last visit to Estonia was in the mid-80s so in 2014 I saw the completely different country. The country was well on its track regarding European integration. As a matter of fact, integration did happen. So between tasting the local food and seeing ancient streets of Tallinn I had my notary and bank appointments scheduled. By the end of the trip, I met many local business people, visited several hot startups, have opened the company and bank account. I did all that in three days, so I had a pretty tight schedule for that trip.
After my return to Kiev, I scheduled a meeting in the embassy and applied to receive my e-Residence card. I was informed about the decision and kept informed on progress through the e-mail, and after two months I picked up the card at the embassy. Some personal experience on the matter – being a physically challenged person I could not access the coral of the embassy to leave my fingertips but an official from the embassy came down to the car. So it was a mixed feeling. The personal touch compensated the lack of the accessibility.
So we now had our business in Estonia, and it was the right time to move our EU operations to that office. The pluses for the IT company in having EU entity were obvious and proven themselves quickly. To name a few:
- You have the business in established EU country. It adds credibility to the business and can be a deal breaker sometimes, especially right now when banks and entities are very reluctant in dealing with offshore jurisdictions.
- You have no problems in opening the bank accounts for this entity.
- When selling in EU from EU registered entity you are not paying VAT.
- You can get access to European equity and debt financing facilities.
On top of that Estonia as a country of residence offers you further benefits:
- Overall Estonian tax system is pretty straight-forward. You are not paying taxes for revenue; you are not paying taxes for reinvested liquidity.
- Being one of the biggest IT hubs Estonia can give you a lot of networking and right connections.
- Estonia serves as a natural gateway to other Baltic and Nordic countries.
- All iterations with the authorities and local counterparties are going smoothly with the e-Residence card. Digital signature has the same power as a physical one, and it helps in many cases.
Now after two years of running the European operations through Estonian entity, I am pretty confident it was a right move. Yes, it adds overheads, and you need to maintain another legal entity, pay the taxes, run the books. It, however, for the most part, can be either outsourced to the local bookkeeping company or done remotely personally. You can easily find trustworthy local partners, and these will help you grow the business in the region.
Initially, we were thinking about moving the significant part of the critical people to Estonia physically (the government sponsors this possibility, and it can be done relatively easy). Down the road though we have adjusted our plans. For now, we have a strong virtual presence in the country and fully utilize the benefits of such a presence.
We are hiring in Estonia at the moment (looking for a Salesforce and territory manager for the region) and plan to use our Estonian entity more and more. Having a set of the tools at your disposal increases your competitive strengths. The USA, Estonia, and Ukraine each have their advantages for the company in its later development stages and being able using and mixing these advantages properly gets the company more traction.