Tax Competitiveness Index 2022: Estonia has the world’s best tax system

October 19, 2022

by Invest in Estonia

Article content

According to Tax Foundation, Estonia’s top score in 2022 is driven mainly by four positive features of its tax code:

• It has no corporate income tax on reinvested and retained profits (and a 14-20 per cent corporate income tax rate on distributed profits). This means that Estonia’s corporate income tax system allows companies to reinvest their profits tax-free.
• It has a flat 20 per cent tax on individual income. The tax is not applied in the case of distributed dividends that have already been taxed with a corporate income tax (see above).
• Its property tax applies only to the value of land, rather than to the value of real property or capital.
• It has a territorial tax system that exempts 100 per cent of foreign profits earned by domestic corporations from domestic taxation, with few restrictions.

 

A simple tax system means less hassle

A clear advantage of Estonia’s tax system is that companies spend less time on tax compliance than they would in any other country in the OECD. For example, in an average OECD country, 42 hours per year are used by companies to comply with just corporate income taxes. In Estonia, the figure is five hours. The report also stresses that other taxes, such as the value added tax (VAT), also have a low compliance burden.

Estonia is also among the few countries in the OECD that do not have any property transfer taxes, meaning taxes on the transfer of real property (real estate, land improvements, machinery) from one person or firm to another.

Low marginal tax rates create a competitive tax code

According to Tax Foundation, the structure of a country’s tax code is an important determinant of its economic performance. A well-structured tax code is easy for taxpayers to comply with and can promote economic development while raising sufficient revenue for a government’s priorities. A competitive tax code keeps marginal tax rates low.

A study by the World Bank found that countries with simpler, more efficient tax systems had higher rates of economic growth than those with more complicated tax systems. The study also found that businesses in countries with simpler tax systems were more likely to invest and create jobs than businesses in countries with more complicated tax systems.

Last year, Estonia’s gross domestic product (GDP) grew 8.3%, beating the average European Union GDP growth rate of 5.38%. This year, tax efficiency will help the country to battle rising energy prices and inflation in Europe.

In today’s globalized world, businesses can choose to invest in any number of countries throughout the world to find the highest rate of return. This means that businesses will look for countries with lower tax rates on investment to maximize their after-tax rate of return.

If a country’s tax rate is too high, it will drive investment elsewhere, leading to slower economic growth. In addition, high marginal tax rates can lead to tax avoidance. According to research from the OECD, corporate taxes are most harmful to economic growth.

Wish to invest in Estonia or do business in the country that has the world’s best tax system? Read more about taxation in Estonia and send us a request for e-Consulting to find out more from one of our advisors

Resource: e-estonia

Estonian digital identity pioneer Cybernetica in the Asian hotspot

October 19, 2022

by Peeter Vihma

Cybernetica shines as one of the lead authors of the renowned Estonian digital architecture. In September, Cybernetica shone again as a silver sponsor of the Identity Week Asia conference, which brought together the brightest minds in the identity sector in Singapore. Considering that Asia Pacific’s digital identity market is growing 21% annually, reaching $148.74 billion over 2020-2030, this is one of the current hotspots of the field. Marika Popp, Head of Sales and Partnership for Digital Identity Technologies at Cybernetica, was leading a round table on The EU Digital Wallet at the conference. 

Proof of identity as a fundamental right

One of the obvious questions in Singapore was why governments should deal with digital ID in the first place. These may seem like highly advanced digital gadgets meant for the rich and busy, and one undoubtedly would come up with seemingly more critical areas to develope that would ensure the income or safety of people. However, this is precisely where the reasons are hidden. In a society where contrasts between the rich and the poor are significant, so are differences in their access to (public) services. Digital solutions, applied in the right way, are allowing access with a much lower threshold. Universal and easy access to all digital government services is not a fancy add-on but is at the core of contemporary government duties. It boosts economic and social welfare. This is one reason the UN has also declared September 16 “Identity day“.

Hence, according to Ms Popp, the key is to pay attention not only to access to digital but also access to the required hardware. Cybernetica’s approach has always been to remain hardware agnostic. As a result, no platform or producer is essential to use its trust, identification and encryption tools. This is obviously preferable to people who cannot always afford the latest mobile phone model. 

Also, connectivity may be an issue. Unreliable internet services hamper digitalisation in Asia and African countries, for example, adopting digital agriculture solutions. Ms Popp reported that the appropriate answer is to therefore skip the e-solutions stage and get right into m-solutions. But, again, making it as low-tech as possible is vital.

Security and interoperability: lessons from Estonia

Two main topics that were raised during Identity Week were identity thefts and interoperability. With hundreds of millions of potential users, identity thefts in Asia are often massive. Existing technologies do not always address this adequately. This is where Cybernetica could showcase its strong side. Its two-step authentication and the SplitKey technology, which never places digital keys together, have until today remained un-hackable.

Yet, introducing digital ID solutions in a country is more than just activating one technological gadget. This is where the Estonian experience from the 1990s has been extremely valuable. The main lesson is in creating trusting relationships between core partners. In the development of Estonian digital ID, for example, banks had a vital role because secure digital transactions were essential for them.

“Our main message in Asia stems from this: while technological premises such as unique identifiers are important, the first steps should be identifying the services given access to and who owns them,” says Ms Popp. “This also creates demanding customers for the digital identities that want to ensure it is secure and functional.”

EU driving global standards

The bigger picture of interoperability was one of the main topics of the round table Ms Popp was leading. The event’s name was telling — “Future unified digital identification system for Europe or the world?” On the one hand, the European digital identity regulations (EIDAS) are setting the strictest standards for data security in global comparison. There is no direct necessity for other countries to adopt these standards. Yet, on the other hand, governments are inclined to do so because this would ensure interoperability between their respective digital wallets. Already, Indonesia is aiming for compatibility in this regard. Hence the EU is driving the global standards of digital data management, and Estonia is in the engine room.

Resouce: e-estonia

Biometrics: the next generation’s standard of digital identities

October 19, 2022

by Justin Petrone

In the future, you won’t need to answer questions about your mother’s maiden name or the name of your first pet or primary school to verify who you are. Instead, you will need to snap a photo of yourself with a smartphone, and you will be approved. But, of course, the future is already here, and Veriff, the Tallinn-based global identity verification service firm, offers a biometrics service. Veriff predicts this service, and others like it, to soon replace the old ways of authentication. 

“The future of internet safety will require replacing knowledge-based authentication and passwords with biometrics,” says Kalev Rundu, a senior product manager at Veriff. “As these innovations advance, more organisations will be able to treat people’s identity as a password.” 

The result is a more difficult barrier for an intelligent and determined bad actor to bypass.

A diverse customer portfolio

Veriff was founded in 2015 by Kaarel Kotkas, then a 21-year-old entrepreneur who wanted to make online identity verification more secure than physical, face-to-face verification. Its solution relies on AI-based facial recognition to confirm a person’s identity by comparing a selfie to an uploaded identity document, such as a passport photo. Seven years later, the company has achieved plenty, enabling e-residents to open Estonian bank accounts without physically visiting the country while helping banks in the Baltics to verify that borrowers are who they claim to be.

According to Rundu, Veriff today has a diverse customer portfolio and services players from the fintech, crypto, mobility, and metaverse business sectors to enable them to build more trust with their users. Its clients include Blockchain.com, Wise, Bolt, Starship, Trustpilot, Visa, and AWS. 

Besides fintech, other sectors could benefit from Veriff’s technology, such as healthcare and education. “In the long run, Veriff’s mission is to create a single global identity so people would have equal access to services regardless of where they come from,” he says.

Kalev Rundu, a senior product manager at Veriff talks about identity verification and the future of biometrics.

A variety of use cases

After a Veriff user goes through the identity verification process for the first time and the company confirms their identity, they can use biometrics to access different services, according to Rundu. For example, using the firm’s technology, they are just one selfie away from making a high-value business transaction or accessing a room with a passcode.

Some use cases for Veriff’s service include authorising high-risk transactions; checking in for flights; unlocking the doors of rental cars, hotel rooms, and home-sharing services; age verification; resetting one’s password; verifying one’s identity for taking online tests and classes; and the continuous authentication of drivers of ride-sharing and delivery services.

The next generation’s standard

Users are increasingly adopting the solution in lieu of conventional authentication technologies.
“People today are much more willing to use biometrics for authentication, but they are only ready to do it if they receive a real value in return and maintain control over how and where their data is used,” comments Rundu. “The next generation’s standard will be digital identities that allow individuals to authenticate themselves on their mobile device using their biometrics.”

Biometrics are not limited to selfies, of course. Other kinds of characteristics can be read to verify one’s identity, and the biometrics toolbox includes fingerprints, iris recognition, vein recognition, and voice recognition, to name a few. Behavioural characteristics can also be measured, such as typing patterns and walking and finger movements, Rundu says.

Veriff mainly works with facial biometrics, which Rundu says is more secure than fingerprints and more convenient than retina scans. “Also, obtaining those is more complex,” he says of both approaches.

Mitigating risks

But even the newest technologies are still subject to attempted fraud, Rundu acknowledges, and cyber fraud is getting more sophisticated. Biometrics can therefore be a privacy-enhancing tool that, when combined with other privacy and cybersecurity measures, can help mitigate deepfakes.

“Just comparing biometrics similarity is obviously not enough,” says Rundu. “We also need to make sure the person in the photo is real.”

One way to do so is to employ a liveness detection technique to ensure the person in the photo is not fake. The method relies on machine-learning models to detect different ways that are used to trick a system, such as using screens, printouts, masks, slideshows, and other approaches.

Veriff also cross-compares verification sessions based on a user’s device, network, and behaviour.  “Instead of just matching two pictures, Veriff leverages device and network information, and customer behavioural information,” says Rundu.

A fact of life

According to Rundu, biometrics is increasingly becoming accepted as a fact of life and will become an integral part of our lives. As a result, businesses, organisations, and governments will be able to improve their services by using biometrics, and service quality is also expected to improve. 

In addition, the field of biometrics is evolving. Rundu believes that fingerprints are already passe. While facial biometrics is the current state of the art, iris recognition is poised to become the more secure form of biometrics in the future. Voice recognition is also on the rise, and DNA and vein recognition are also on the horizon.

“There is a lot of continued innovation happening in this area,” says Rundu. “More ways to utilise your biometrics will emerge, and we will be making sure we keep leveraging the best of this innovation,” he says.

For its part, Veriff is looking into age estimation and age verification using facial biometrics analysis. Such tools could be used to create a safer internet for children by reducing risks for them to access and be exposed to content they should not be able to access, Rundu says.

Resouce: e-estonia