This article will cover the limitations of using TransferWise in combination with your e-Residency/Estonian company.
I recommend you read TransferWise VS PayPal first in order to understand how TransferWise can be used for your online business.
Here’s the short version:
Having a PayPal account (with your e-Residency business) & receiving US Dollar payments means you’ll end up paying hefty fees any time you withdraw money to your Euro bank account.
By law, PayPal isn’t allowed to let you withdraw anything other than Euro to a EU bank account.
PayPal’s exchange fees are criminal. All about that (+ solutions) in my article TransferWise VS PayPal.
TransferWise + e-Residency
While TransferWise is a great smart solution to compliment your remotely-controlled Estonian company, there are limitations in regards to how you can use it with your online business.
TransferWise does NOT replace a ‘real’ bank account.
Neither does PayPal, or Holvi.
Before I explain why that is, have a look at the comparison table below. (PayPal falls into the same category as TransferWise = electronic money account.)
TransferWise, Holvi, PayPal – these are not banks but banking/payment service providers. As such, they come with a number of downsides compared to ‘real banks’ – I’ll cover those below.
Ever thought about opening a TransferWise Borderless account to run your e-Residency business with? What about a ‘real’ bank account? Would it be obsolete?
As mentioned above, at some point you will need to set up an actual bank account. What you CAN do is use TransferWise or similar services to get started, receive payments and then set up your bank account at a later point.
Right now, you’re required to have a face to face meeting to establish a bank account in Estonia. That might change soon, so you can definitely opt to wait and use PayPal, TW, or Holvi in the meantime.
TransferWise, Holvi or LHV?
Here’s a setup that you can use – starting today – to get your business up and running as quickly as possible.
- Submit your e-Residency application.
- Once approved, sign up with LeapIN. They’ll do your accounting and help you set up your Estonian company.
- Once you’ve incorporated, you can use those documents to establish a PayPal business, a TransferWise Borderless or Holvi account.
- Make money! Collect funds/payments.
- Delay setting up a real bank account until you really need it or face to face meetings are no longer required.
First off, devil is in the detail. In this case TransferWise’s ‘Acceptable Use Policy‘. Certain types of payments are not allowed.
In addition, you’ll run into the following issues when trying to use TransferWise as a replacement for a real bank account.
1. Direct Debits NOT Allowed
If you have regular monthly payments for your business (e.g. email marketing, hosting), you can’t automate those. Not allowed as per TransferWise’s Acceptable Use Policy.
This isn’t the end of the world as you can use PayPal for direct debit/monthly recurring payments – or simply use a debit card attached to your Holiv or Estonian bank account.
2. Accounting = Hassle
Surprise, surprise! Running a location independent business doesn’t mean you can escape accounting & tax requirements.
Estonia let’s you have your fun making $$$ online – without too much bureaucracy – but they still want to know what you’re up to.
The good news is that there are service providers such as LeapIN (I’m with LeapIN) that take care of all the accounting/taxes for a small monthly fee of less than €100/month.
If you’re like me, you always think about automating as much as possible and being efficient in what you do.
TransferWise – unlike PayPal/LHV bank accounts – doesn’t integrate with LeapIN. That means additional work submitting documents on a weekly/monthly basis.
With the PayPal/LHV bank account combo, you can grant LeapIN view-only access so that they are able to do all the accounting with minimal input from your side.
3. You can’t invest. Zero interest.
With TransferWise, you’d have all your money just sitting in the account. Can’t invest your hard-earned cash and neither do you get any interest on it.
Using your LHV/real bank account, you can start investing right away and tap the power of compound interest 😉
When you invest and/or trade, it’s all done under your company’s name. Meaning, there are no ramifications in regards to your taxes as an individual.
Operating under your company’s name can be an advantage as you might be barred from trading/investing based on your country of residency or citizenship.
4. No Guarantee on Deposits
If you’re just starting out, this might not be an issue.
Imagine having $50,000 in a TransferWise or PayPal account.
None of that money is backed by the state and in the case of PayPal, do a quick Google search “PayPal account frozen” to get an idea of what’s possible …
5. Paying Share Capital Isn’t Possible
At some point, you will pay the share capital for your Estonian company. That money has to come from your personal bank account and it has to go into your company’s bank account.
YOUR company’s bank account.
The account you have with TransferWise isn’t yours and neither is it a bank account.
6. Sending Money Isn’t Free
Sending money to a bank account in the same currency will cost you a small fee whereas with LHV it’s free in Europe/EUR.
Sending funds to somebody else or your main bank account will incur those fees.
7. It’s NOT Your Account
When you make a payment using your TransferWise account, that payment will be sent under the name & bank account of TransferWise.
The sender name on that payment will be “TransferWise”, not “Your Name”.
Your name can only be added to the payment in the reference section.
In some instances, this might not suffice – depending on who you’re sending money to.
Also, when you add money to your TransferWise Borderless account, that money has to come from your company’s bank account.
8. US Residents Not Supported
If you’re a US resident, you are in luck because you don’t need to spend time thinking about whether you should use TransferWise, Holvi or open your bank account right away.
TransferWise & Holvi don’t accept US residents meaning besides PayPal, your only other option is taking the route of opening an Estonian bank account.