There has been much buzz among digital nomads and online workers about Estonia lately. Their innovative e-Residency program allows anyone in the world to use its e-government systems and set up a remotely managed company.
Since I’ve been nomadic and have lived in different countries while working online, it made me interested in the program as well.
I went through the whole process of becoming an e-resident, starting an Estonian company, and even traveling to Tallinn to open a bank account (an optional step). I’ve now been using my Estonian company for over a year. Based on this, I can share with you some tips and experiences.
In another post, I already explained what e-residency is and isn’t. Give it a read if you’re still new to Estonian e-Residency.
Here, I’ll be giving an overview of Xolo Leap (formerly known as LeapIN), which is one of the most popular Estonian service providers for e-residents.
Xolo Leap or Xolo Go?
This post is about Xolo Leap, but Xolo recently also introduced a second product called Xolo Go.
To be clear, Xolo Go does not give you your own legal entity/company. It is simply an invoicing platform in which the company Xolo acts on your behalf. This is ideal if you are just starting out and need a quick way to invoice clients. If you just became a freelancer, experimenting with working online, or you have an online business idea that won’t have loads of turnover yet, then Xolo Go might be perfect for you. You can sign up for Xolo Go here. It will get you started in basically 10 minutes.
But if you want to have your own location-independent legal business, and want to have all of the Xolo platform’s features available to you, then you should probably consider Xolo Leap.
This turn-key service is ideal for freelancers, remote workers, independent consultants, educators, and other types of solopreneurs who sell their digital services internationally and want all the advantages of having your own location-independent company.
Setting up your company
The process of setting up your company is very straightforward and can be done entirely remotely. You can sign up for Xolo Leap here. Not all types of businesses are accepted though, so you’ll have to wait for Xolo to confirm your sign-up.
Once you’re in, Xolo has created an easy step-by-step onboarding process, which requires you to fill out some forms and digitally sign a few contracts. You sign the agreements using your e-Residency identity card, so you need to be registered as an Estonian e-Resident first. (Anyone can do this regardless of nationality – instructions for this are here.)
The whole process of setting up with Xolo Leap took about 5 business days for me. It typically involved filling out some details or just clicking an accept button, then waiting for the next step while Xolo set things up in the background.
If you’ve ever experienced a lot of bureaucracy or physical paperwork before, then you’ll probably be delighted by how easy it is with Estonian e-Residency and Xolo Leap. Going through the process felt like a breeze.
Adding bank accounts
Once your company is created, the next step is to associate one or more bank accounts.
Xolo Leap integrates seamlessly with PayPal and TransferWise, both of which can be set up online without ever visiting Estonia. In many cases, PayPal and/or Transferwise might be all you need for your business.
Leap can also integrate with a business bank account of LHV in Estonia, which is Xolo’s partner bank, though this requires an in-person visit in Estonia to set up.
[March 2020 Update: Xolo announced that new customers with Xolo Leap can now automatically get a fully-licensed bank account without having to travel to Estonia.]
TransferWise integration is a real killer app of Xolo for me. I use Euro at home but often receive payments in USD, GBP, AUD or CAD — and traditional banks and PayPal tend to charge truly eye-watering fees for currency conversion.
Using a TransferWise Borderless account can save you hundreds of Euros in conversion fees and will work seamlessly with Xolo’s dashboard.
With Transferwise (which is also an Estonian company) you can receive money to a European IBAN, a US account number, a British account number, and so on. This works exactly the same as if you had a real bank account in all of those countries. And if you need to convert any of the money you receive, it’s at a very low rate.
I held off on using TransferWise before as it didn’t work well with the accounting platform I used in the past. But Xolo uses the TransferWise API to import transactions automatically, making a Borderless account super easy to use in combination with your Estonian company.
The Xolo dashboard can also import transactions from your PayPal account automatically. While PayPal charges hefty fees, for some of my clients it’s still the only possible payment method, so it’s great to have this integration available.
You’ll need to set up a PayPal Business Account on the Estonian PayPal site. The reason is that PayPal makes all its accounts specific to the country, so it’s the only way to link your account with your Estonian company. It’s easy to do though, and from a user perspective an Estonian PayPal account is exactly the same.
When you go to PayPal it will normally redirect you to your local version, but if you just enter www.paypal.com/ee/ in the address bar you can sign up from there. You can then grant Xolo Leap read-only access to PayPal via the dashboard.
You can set up PayPal or TransferWise remotely, but these accounts do have a disadvantage. They’re not real banks in the legal sense, meaning you don’t get a deposit guarantee. If you want to be covered by the 100,000 EUR deposit guarantee that’s standard within the EU, you’ll still need to use a traditional bank.
Unfortunately, you can’t just use any bank. Xolo Leap integrates only with Estonia’s LHV bank.
I eventually decided to open an account with LHV, as I wanted to keep some funds in the company and have a safe spot to keep it. I was also interested in using LHV to make stock market investments through my company. But if you’re happy with PayPal and Transferwise — and you don’t need to keep too much money in those accounts — then perhaps you might not want to take this step.
Opening an LHV bank account used to be possible remotely via video call, but current rules require you to physically visit LHV’s offices in Tallinn. This may change again in the future, but right now it’s the only way to do this. It’s a bit inconvenient, though it does give you a nice excuse to visit Estonia and see the wonderful city of Tallinn.
As a Xolo Leap customer you can get pre-approved for an LHV account. I went to Estonia to finalize the account opening, which took only about 30 minutes at LHV Bank’s head office in Tallinn.
The Xolo dashboard will show you a list of all your accounts, separately listing different currencies you hold.
For example, in my dashboard, I can see how much USD, EUR, GBP, and AUD I have on TransferWise or on PayPal. This multi-currency support is wonderful if you’re running an international online business.
My previous bookkeeping platform essentially converted everything to EUR, but with Xolo I can get a more accurate picture of my funds and keep different currencies around if needed.
Invoicing can also be done in a range of commonly used currencies.
If you need to sell digital products directly to customers, then to take their payment you currently have the option of using PayPal, Paddle, or Stripe. There is also direct support for the Apple App Store or Google Play.
I have not yet tried these personally as I don’t have a direct sales channel that would need this, but if you’re a SaaS provider, app developer, or indie software developer, then you’ll surely be interested in these options.
The selection of payment gateways may seem limited at first glance, though Xolo’s FAQ states these gateways were chosen specifically as they work best with their platform and don’t have a negative attitude towards location-independent businesses.
Xolo added Stripe in September 2019, which is a big deal as Stripe is one of the most widely used payment processors these days. Stripe enables you to accept payments from Visa, Mastercard, Maestro, AmEx, Apple Pay, Google Pay, and numerous local payment methods. It integrates seamlessly with Xolo Leap, so that customer purchases appear in your dashboard automatically.
The Xolo dashboard
Xolo gives you a self-service dashboard from where you can manage your income and expenses. The dashboard is nicely designed and easy to use.
You can upload expense documents through the dashboard, after which they will be processed and digitized by Xolo. Documents are usually digitized within a few days.
Invoicing can be done easily from the dashboard. It’s basic but functional: you can keep a list of regular clients, choose from several colours for the template and upload a logo, and e-mail the invoice to your client as well as archiving it in the dashboard. The Xolo staff will do the matching of invoices to payments and filing them away.
You can record business trips under a separate tab. Any trip-related expenses will then be associated with its respective business trip. Note that if you’re a full-time digital nomad, you can’t just claim your perpetual travels as one long business trip. It needs to be a return trip with a clear business purpose (this seems to me like a reasonable requirement, or otherwise you could just expense your entire year as a supposed ‘business trip’).
Within the dashboard, your only responsibility is the reporting of expenses and sending of invoices. The accounting, tax filing, and compliance are all handled by Xolo.
The Xolo app
In September 2019, Xolo also launched its own app. It includes most of the features of the web-based interface.
I like the app as it lets me easily see my bank balances and admin.
The most interesting use of the app for me though is the reporting of expenses. You can simply snap a picture of an invoice or receipt when you make a purchase somewhere for your business, and easily report any out-of-pocket expenses while you’re on the go.
Xolo Leap pros and cons
To conclude, let me point out some of the features as well as potential limitations of the service.
Things to be aware of
No cash withdrawals. While you can technically withdraw cash at any ATM using your Transferwise Borderless or LHV debit card, you are not meant to do this as a Xolo customer. To keep things simple, Xolo wants to keep everything online and trackable.
Of course, this is not a big deal if you run an online business. Common expenses like buying software/hardware or accommodation and flights for a business trip can all be done via debit card. You can also register certain expenses as paid out-of-pocket (with your own cash), which you can reimburse through your company later.
No USD at LHV. You can’t receive USD on an LHV bank account at the moment. Fortunately, this is not an issue if you also use PayPal or TransferWise.
One shareholder only. Xolo is intended for creating a limited liability company with one shareholder. Other providers may allow multiple shareholders. While it supports only one shareholder, you can still of course hire freelancers or even employ people directly.
Not all business types accepted. You can use the registration form to check if your type of business qualifies. One thing that’s explicitly excluded at the moment is selling physical goods (e.g. dropshipping or selling via Amazon FSB is not supported).
Not a tax haven. Just to be clear, Estonia is not itself a tax haven. It has a 20% corporate tax rate, as well as income and social taxes if you choose to take money out as salary. e-Residency in Estonia can be convenient in many ways, but it probably won’t (purely by itself) lower your taxes.
That said, Estonia levies its corporate tax not at the moment of earning, but at the moment of distribution. This is a bit different from other tax regimes. It means you can keep your money in the company untaxed — either to hold it there, to invest in your company, or to invest in other companies or stocks. Only when you pay out profits to yourself as salary or dividends will you have to finally pay tax on it. This is a nice advantage, basically giving you more capital to put to use.
If your ultimate goal is tax reduction, you may also be able to move funds from Estonia to another company in an advantageous tax regime and take your earnings out there. When anyone claims they achieve ‘0% tax’ with Estonia, just be aware that it relies on a more complex structure like this. I don’t have experience with such setups, but just know that it’s not so simple as having no taxes by default. When people speak about zero tax, they’re usually talking about Estonia as a ‘gateway’ to use in combination with other tax regimes, or they’ve confused Estonia’s delayed taxation (at the moment of distribution) with having no taxes at all.
Avoiding bureaucracy. Company registration and management are super smooth. You can enjoy Estonia’s excellent digital services for your company while still remaining income tax resident in your home country or elsewhere.
Access to the EU market. For anyone living outside the EU, e-residency can be an excellent route through which to establish a company within the EU, do banking in Euro, and have all the credibility that comes with this.
Designed for online companies. The service is ideal for freelancers, bloggers, remote workers, independent consultants, etc. who sell their digital services internationally. Everything is remote and the Xolo team is accustomed to dealing with nomads and online workers. (This is really nice! My previous bookkeepers never understood my international situation, never heard of things like affiliate income, and often got confused.)
Postal mail digitization & forwarding. Any mail sent to your physical address at Xolo will be scanned and forwarded to you. So far I’ve had to use this only once (to get a confirmation code from Google Adsense) but it’s a great service to have.
No taxes until distribution. Estonia’s tax law is such that you don’t pay tax until the money is distributed as dividends or salary. This gives you some advantage if you plan to hold or invest company funds (e.g. in stocks or cryptocurrency).
Integrated bank accounts. No manual uploading of CSV files; you can get a combined view of your accounts via the dashboard.
Cost savings. Fees are pretty low thanks to Estonia being a low-cost country. Speaking for my personal situation, this has already halved my costs compared to doing my admin in The Netherlands. TransferWise integration can give you further savings on currency conversion fees.
Good service. The team is responsive and helpful. In most cases, their great FAQ already has the answers to everything you need to know. When something is still unclear, the team typically responds very quickly, in my experience.
You might still wonder why you should set up in a country you might have few (if any) relations with. Well, when you have an international online business, you can start looking around globally for a service that best matches your needs. That doesn’t necessarily have to be in your home country. For me, Estonia’s e-Residency with Xolo Leap ticked a number of boxes.
There are other options around though, so it can be helpful to do some research or speak with an advisor. I’ve heard of many different solutions being used by digital nomads or online workers. US-based Stripe Atlas is another one, for example.
A key benefit I see in Xolo Leap is that you can keep your company in one place while moving around internationally. I’ve lived in different countries and have been fully nomadic for a time as well. It’s a wonderful advantage to have one place for my business — one that is accustomed to dealing with nomads, online workers, and customers from different countries.
Another advantage is that everything is easy to manage. e-Residency can be a great way to avoid the bureaucracy that exists in some other places around the world. I know some German online workers using e-Residency for this reason, for example. Avoiding bureaucracy was also a key motivation for me. I’ve been pleased with the hassle-free experience I’ve had with e-Residency compared to some of the bureaucratic headaches I’ve experienced in Portugal, where I’m based most of the time.
If you’re still wondering if it could be right for you, I recommend checking out the unofficial e-Residency Facebook group, reading the Xolo FAQ, or starting the free sign-up at Xolo Leap that will let you evaluate if it’s the right service for you.