Other than being able to establish a company in Estonia there doesn't seem to be anything compelling about this. Those tax rates - 20% VAT and 33% social taxes - are not friendly. You have to rely on a third party for a mailing address just to open the company. And if you want to try to open a bank account you have to visit.
> Those tax rates - 20% VAT and 33% social taxes - are not friendly.
If selling in Europe (common tax area), VAT is mandatory at the point of sale. If the seller is outside Europe (common tax area) and purchaser in Europe (common tax area), the receiver of goods or services is liable to need to pay the tax, and buyers don't like tax/price surprises at point of import or use.
As for social taxes... if there are no Estonia resident employees this doesn't seem an issue.
For bank account - this seems like a headache - for banks as much as anyone, as they have to provide anti-money lending screening, which means 'know your customer' which means a physical visit from the customer. I'm sure Estonia has branches of HSBC, Citi, or other international networks, and they're working on, for example, allowing you to walk into a HSBC/Citi/etc located near where you are, and do the KYC from there. For me, this is the deal-breaker. If opening a bank account can happen without need to visit Estonia, then I'd try this, otherwise, without being able to receive or make payment, it is a nice idea but not in my use-case.
I think the small benefit here is that they let you do everything online. And they take that serious. In any other EU country there will probably be something you'll have to do in person.
So this also means you can live the nomad life. Although I guess this isn't their (only) target audience.
Doing business is a separate (though connected) subject. The e-residency is broader than business alone.
For business you'll need an accountant to do tax-related work. You'll probably be able to find one which you can communicate with online, so your nomad lifestyle is still safe.
It gets a lot more attractive (at least compared to other EU countries) if they would take the next step and simplify tax work so you don't need to spend sums like €2000-€3000 on an accountant every year.
I would expect that VAT is only relevant for products sold to Estonian residents and income/social tax only relevant if you employ residents of Estonia.
Income tax is typically based on residency, I believe the US is the only developed country in the world that taxes non-residents on income.
As I understood it, as of 2015 EU digital goods VAT must be paid based on the VAT in the customers country, regardless of whether the sellers business is located inside or outside the EU.
If so, what's the downside of having your business based in Estonia vs the US with respect to VAT?
If you and your small business are based in the US then you could ignore the VAT nonsense when selling to the customers from the EU [1]. It's not in the interest of the IRS to make you pay taxes in Europe.
What is the attaction of this?