Okay, huge disclaimer upfront as I seem to be the first person on the internet to report this: All of this is based on only a few data points, I may be wrong and I’ve reached out to the e-Residency team for clarification and will post their response.
Update: The e-Residency team has responded to my email. Scroll down for their response.
Full credit for this post goes to my friend Martin Zoeller, a German expat in Bangkok, who made me aware of this situation as he recently tried to found an Estonian company.
With that out of the way, here’s the situation: Starting in August 2025, “digital nomad” companies founded through Estonia’s e-Residency program seem to no longer receive a EU VAT ID from the Estonian financial authorities. This is a huge problem because it essentially means that Estonian companies (and, by extension, the whole e-Residency program) have become non-viable for digital nomads, at least those digital nomads which plan to invoice at least one customer in the EU. That’s because you need a EU VAT ID for invoicing EU customers.
And this doesn’t seem to be limited to digital nomads, as the new guidance seems to apply to any sort of company without substance (= physical office) in Estonia. So this likely also applies to all remote software companies.
And that’s not even all – apparently, the Estonian financial authorities are planning to review already-founded companies whether they fulfill the (new) criteria, and possibly revoke their EU VAT ID if they e.g. don’t have a physical office.
Interesting times ahead, chuckle..
The TLDR here might be that Estonia’s e-Residency and founding an Estonian company (OÜ) might no longer be a smart idea if you’re living outside of Estonia.
So, um, did Estonia just single-handedly kill its entire e-Residency program? Including all companies in its ecosystem, like Xolo?
We’ll see. Anyway, here are the details.
What Is The Estonian e-Residency?
Alright, ten steps back – skip this section if you know about the e-Residency already.
Estonia’s e-Residency allows you to sign up for what is essentially a (physical) chip card with which you can interact with Estonia’s government services online. The most common use case of this is to found a company in Estonia, because it has the benefit that it can be managed entirely online and can be owned 100% by you.
Note that the naming of e-Residency is confusing, because it grants you neither physical residency, nor tax residency. It literally has nothing to do with residency. It’s more like “access to government services”.
Roughly speaking, the audience of e-Residency signups can be segmented into two groups:
- People living in developed countries (like me, in Germany) who signed up and thought it would be cool to have an Estonian company, only to realize that you get the tax complications from hell due to your Estonian company now having a “permanent establishment” in your home country (Germany) which requires it to do bookkeeping and pay taxes in both places (simplified) as I’ve written here;
- People living in developing countries or living nowhere at all (digital nomads) who need some sort of company to invoice their clients who are typically in the EU or US. For these people, this was (yeah, was) a pretty great solution because developing countries don’t seem to pursue the permanent establishment situation or even have specific rules excluding foreign companies from taxes.
When people hear “digital nomads” and “foreign company” in one sentence, they tend to think of tax evasion, but that’s not the case here, on the contrary: Estonian companies of digital nomads are taxed just like any other Estonian company, i.e. at 24% corporate tax rate but only when profits are paid out as dividends. So this is actually a very cool and innovative taxation model which allows you to reinvest all your retained earnings (if you keep them in the company), which is amazing. Additionally an Estonian company can be managed entirely online and can be 100% owned by a foreigner.
This makes founding an Estonian company a very favorable choice for digital nomads. Contrast this with other countries like:
- Thailand, where foreigners can only own up to 49% of a company unless they go through some bureaucratic certifications;
- Singapore, where you need to appoint a local Singaporean managing director and the overall setup is more expensive;
- The US, where you need to go through a registered agent to open up an LLC.
- Many other countries which might be superficially interesting, but in reality require either more money, more bureaucracy, more shadiness, or a combination of those (Malta, Cyprus, Dubai).
So yeah, the Estonian e-Residency program looks pretty cool for digital nomads. And indeed it has been quite successful! I’ve met many digital nomads conducting business through their Estonian companies.
But that might be over. All of that seems to have changed now, in August 2025.
No More EU VAT IDs?
My friend Martin recently tried opening an Estonian company through Xolo, one of the leading e-Residency providers. He succeeded in opening the company, but then things became weird.
Martin didn’t get a EU VAT ID.
The Xolo customer agent told Martin that there are certain requirements for getting a EU VAT ID, e.g. having substance in Estonia (physical office), clients in Estonia, etc.. In the “digital nomad scenario”, these criteria are not fulfilled.
All of this might be understandable if it would be a general policy which has been in effect for a long time already. But that’s not the case. This seems to have changed very recently. How recently?
Just a few days prior, Martin’s girlfriend also founded an Estonian company through Xolo (with the same customer agent!) and she did receive a EU VAT ID. And indeed, all digital nomads who I’ve talked to in the past received their EU VAT ID automatically after founding their company.
So something has changed.
Upon further research, it seems that Estonia just recently updated its VAT registration guidelines on August 7th, 2025. The guidelines lists many criteria which a business must fulfill to get a VAT ID, e.g.:
- A company needs “proof of business activity in Estonia” which can be:
- Goods or services sold to Estonian customers;
- Suppliers located in Estonia;
- Being physically in Estonia (office etc.);
- Business activities in Estonia (management decisions are made there etc.);
- Taxes are planned to be paid in Estonia (??).
The long story short is that it seems likely that companies without any physical presence in Estonia will no longer receive a VAT ID.
So let’s pause here for a moment and summarize, because the implications of this are crazy:
Estonian companies are no longer viable for digital nomads or remote companies.
This includes:
- Digital nomads working outside of Estonia;
- Remote companies without a physical office in Estonia;
- Any sort of business which plans to invoice at least one customer in the EU;
- Any sort of business planning to sign up for Stripe / Paddle as those usually require a EU VAT ID.
The craziest part for per personally was that the was no public announcement while the guidance document was updated quietly. Nothing on the e-Residency subreddit, either.
Again, all the disclaimers apply (I may be wrong etc.), but if true, the Estonian e-Residency might have just become non-viable for digital nomads and remote companies.
Update: Here’s the response from the e-Residency customer support team:
There has been no change in when to register for VAT in Estonia. The only recent change has been a change of the VAT rate from 22% to 24% from July 1st, 2025. To receive a VAT identification in Estonia, the company applying for it must be liable to pay VAT in Estonia. This is monitored and administered by the Estonian Tax and Customs Board. The criteria to determine this include having substance and economic activity connected to Estonia, e.g. clients, suppliers, partnerships or other aspects, such as having employees in Estonia or a physical office. There is no requirement for Estonian companies, e-resident or otherwise, to have a physical presence in Estonia; it is simply one of the aspects used to determine a company’s economic connection to Estonia.
In cases where an Estonian company’s VAT liabilities are not in Estonia, that company will need to determine where its liability for VAT is. This is similarly based on criteria such as client base, operations, etc. This is a topic on which we do recommend e-residents seek out a professional consultation, as international taxation, especially VAT, can be a complex topic. You can find some service providers who can help with this on our Marketplace: https://marketplace.e-resident.gov.ee/en/service-providers/?services=7.
You can find a more detailed guide to VAT registration and how it is determined here: https://www.e-resident.gov.ee/blog/posts/a-guide-to-vat-for-e-residents/.
So, my takeaways from this are:
- The typical “digital nomad” company legally does not receive an Estonian VAT ID;
- That company would pay VAT similarly like non-EU businesses do it, i.e. register for VAT in one or multiple EU countries and pay it there (painful).
The big remaining question would be whether their internal policies have changed recently which would explain the fact that e-Residency companies no longer receive VAT IDs.
Regardless, running your business through an Estonian company as a digital nomad just got harder, as you EU VAT compliance just got more painful.
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