Securities and investment account

What is a security

Gains and losses from the sale and exchange of securities must be declared in the income tax return. Securities or financial assets are:

Therefore, it is possible to declare in the income tax return:

• loss from a loan granted through a crowdfunding service provider as of 2024; and
• gains or loss from a transaction carried out through a crypto-asset service provider as of 2025,

i.e. to take into account loss-making transactions as well, but only in the case of service providers holding an activity licence issued in a Contracting State.

If a service provider does not hold such activity licence, losses resulting from loans granted through crowdfunding and from transactions with crypto-assets cannot be taken into account. In the case of crypto-assets, only the gains derived from transactions are taxed on the basis of table 6.3 or 8.3 (transfer of other assets) of the income tax return.

How the taxable gains are calculated

Gains or losses from

• the sale of securities are the difference between the acquisition cost and the selling price
• the exchange of securities is the difference between the acquisition cost and the market price of the asset received in exchange. 

Acquisition cost is the purchase price of securities and transaction fees related to the purchase (e.g. transaction fee, brokerage fee), which are included in the bank account and securities account reports. In addition to the acquisition cost, documented expenses directly related to the sale or exchange of securities (e.g. transaction fee, brokerage fee) can also be deducted from the gains or added to the losses.

The acquisition cost of securities of the same class which have been acquired at different prices and different times must be calculated by consistently applying one of the following methods:

• FIFO – the transfer takes place in the order of purchase; or
• the weighted average method – the acquisition cost of one transferred security is found by dividing the amount of the acquisition costs of securities of the same class existing at the time of the transfer by the number of securities of the same class. 

Taxable gains are:

• income from securities sold and exchanged in Estonia and abroad (tables 6.1 and 8.2), and
• income from the reduction of holdings in Estonia and abroad and liquidation proceeds (tables 6.4 and 8.4), minus
• losses carried forward from previous tax periods.

How loss is calculated

In order for the loss from the sale of securities to be taken into account in the calculation of income tax, it must be declared in the income tax return. In addition, loss incurred upon reduction of holding or receipt of liquidation proceeds and loss incurred upon liquidation of a common investment fund or returning of units can be taken into account.

Loss that is not deducted (subsection 1 of § 39 of the Income Tax Act) is the loss incurred:

• from the transfer of securities at a price lower than the market price to a person associated with the taxpayer (§ 8 of Income Tax Act) or from the transfer of securities acquired from such person at a price higher than the market price or
• from the cessation of validity of securities for the benefit of a person associated with the taxpayer on the conditions different from the market conditions or
• from the transfer of securities acquired for the money held in an investment account specified in § 17².

Also, loss is not deducted (subsection 1¹ of § 39 of the Income Tax Act) and an “X” must be entered in the relevant column of table 6.1 or 8.2 of the income tax return in the situation where the security granting the right to receive a dividend was acquired within 30 days before the day when the persons with the right to receive a dividend were specified and was transferred on the day when the persons with the right to receive a dividend were specified or within 30 days after such day.

Which data on income from securities is pre-filled in the income tax return

Transactions in shares, bonds and derivative instruments, as well as in currencies, are carried out on securities markets, i.e. financial markets. Securities markets involve the purchase and sale of securities.

The place for securities trading may be a regulated securities market (e.g. Nasdaq Tallinn), multilateral trading facility or organised trading facility. The Nasdaq Tallinn Stock Exchange is part of the world's largest stock exchange group Nasdaq and forms a single Baltic securities market with the Riga and Vilnius stock exchanges.

The selling price of securities transactions carried out on the Nasdaq Baltic Stock Exchange is pre-filled in table 6.1 or 8.2 of the income tax return. The data on transactions made on the Nasdaq Baltic Stock Exchange through an investment account is also pre-filled, because only taxpayers themselves know whether they made the transaction in the ordinary system or the investment account system.

Taxpayers themselves must:

• delete the pre-filled data on transactions made through investment account and leave only transactions that are subject to taxation in the ordinary system;
• include the acquisition cost of the securities, and
• other transactions with securities in Estonia and abroad.

Shares and bonds

Income from securities, including income received from the sale of shares and bonds, must be declared as gains from transfer of property (§ 15 of the Income Tax Act) in table 6.1 (income received in Estonia) and table 8.2 (income received abroad) of the income tax return.

The gains (loss) from the sale of securities are calculated as the difference between the selling price and the acquisition cost (subsection 1 of § 37 of the Income Tax Act). When calculating the acquisition cost of securities of the same class purchased at different times, the FIFO method or the weighted average method must be used (subsection 6 of § 38 of the Income Tax Act).

Losses from the sale of securities may be deducted from the gains from the sale of other securities. If there is no income from securities, the losses are carried forward to the following years, but it can be deducted only if the loss has been previously declared in the income tax return of a natural person (§ 39 of the Income Tax Act).

Dividends received from shares and interest received on bonds are the income of a person, which must be declared in tables 5.1, 7.1 (income received in Estonia) and 8.1, 8.8 (income received abroad) of the income tax return. Dividends and interest received from Estonian companies are taxed upon making a payment and data on these payments is pre-filled in the income tax return.

In the case of shares and bonds publicly traded on the basis of a prospectus or an information sheet, the use of an investment account is permitted, which allows to postpone the payment of income tax on reinvested securities income and interest.

Short selling of shares

Short selling is the process by which a seller sells a quantity of shares that he does not actually own. The seller borrows the shares to sell. Short sellers expect to be able to buy back the shares later from a lower level (at a lower price). Therefore, short-sellers expect the market to fall.

In case of short selling of shares, the gains or losses from the transaction must be declared in table 6.1 or 8.2 of the income tax return. Interest expense cannot be taken into account because it is not an expense directly related to the transfer of a security.

Example 1. Gains from transaction

A person borrowed 10 shares and sold them for 100 euros per share, or 1000 euros (10 × 100). The person bought back 10 shares at a price of 90 euros per share, or 900 euros (10 × 90). The person paid interest on the loan of the shares in the amount of 5 euros.

Gains from short selling of shares in the amount of 100 euros (1000 – 900) are subject to declaration in the income tax return. Interest charges cannot be taken into account, i.e. interest charges do not reduce the gains from the sale of securities.

Example 2. Loss from transaction

A person borrowed 10 shares and sold them for 100 euros per share, or 1000 euros (10 × 100). The person bought back 10 shares at a price of 110 euros per share, or 1100 euros (10 × 110). The person paid interest on the loan of the shares in the amount of 5 euros.

Loss from short selling of shares in the amount of 100 euros (1000 – 1100) are subject to declaration in the income tax return. Interest charges cannot be taken into account, i.e. interest charges do not increase the loss from the sale of securities.

Shares bought and sold with margin loan

Shares bought and sold with a margin loan and gains or loss from the transaction must be declared in the same way as the short selling of shares. The only difference is that a person borrows money, buys shares, sells shares and repays the loan.

Similar to short selling, it is not possible to reduce the gains or increase the loss by the interest paid on the loan. Only the price of the shares at the time of their purchase is to be regarded as the acquisition cost of the shares.

Example 1. Gains from transaction

A person borrowed 10 000 euros from a bank and bought 100 shares at a price of 100 euros per share, i.e. for 10 000 euros (100 × 100). The person subsequently sold those shares at a price of 120 euros per share, i.e. 12 000 euros (100 × 120). The person paid a loan interest of 200 euros.

The gains from the sale of securities in the amount of 2000 euros (12 000 – 10 000 euros) must be declared in the income tax return. Interest expenses cannot be taken into account, i.e. interest expenses do not reduce the gains from the sale of securities.

Example 2. Loss from transaction

A person borrowed 10 000 euros from a bank and bought 100 shares at a price of 100 euros per share, i.e. for 10 000 euros (100 × 100). The person subsequently sold those shares at a price of 90 euros per share, or 9000 euros (100 × 90). The person paid a loan interest of 200 euros.

The loss from the sale of securities in the amount of 1000 euros (9000 – 10 000 euros) must be declared in the income tax return. Interest expenses cannot be taken into account, i.e. interest expenses do not increase the loss from the sale of securities.

Derivative instruments

Derivative instruments are financial instruments the value of which depends on the movement of underlying assets (another asset or indicator). The price of a derivative instrument depends on the price movement of another instrument (e.g. a share or raw material), interest rate, exchange rate of the currency or some other factor.

Derivative instruments are financial instruments traded on exchanges and used to invest in commodities and currencies (e.g. call and put options, futures, forwards and swaps). These are not equivalent to share options granted to employees, which is a contract between an employer and an employee and the taxation of which is subject to separate rules (subsection 5³ of § 48 of the Income Tax Act).

Similarly to the income received from the sale of shares and bonds, income received from the sale of derivative instruments must also be declared as gains from the transfer of assets in table 6.1 (income received in Estonia) and table 8.2 (income received abroad) of the income tax return.

Loss from the sale of derivative instruments may be deducted from the gains from the sale of other securities. If there is no income from securities, the deduction of loss is carried forward to the following years (§ 39 of the Income Tax Act).

Example 1. Gains from transfer of derivative instrument

A person bought a call option, which gave the person the right to buy 100 shares at a price of 50 euros per share, i.e. 5000 euros (100 × 50). For the option, the person paid a premium of 300 euros.
When the market price of the share increased to 60 euros, the person exercised the option, i.e. bought the shares under the option for a total of 5000 euros and then sold them on the market for 6000 euros (100 × 60).Therefore, the total proceeds of the transaction amounted to 6000 euros and the total expenses (shares bought using the option + premium) to 5300 euros (5000 + 300), resulting in gains of 700 euros (6000 – 5000 – 300).

The amount of gains to be declared in the income tax return is 700 euros The option premium is included in the acquisition cost.

A call option gives the option holder the right, but not the obligation, to purchase the underlying asset (e.g. shares) at a predetermined price (strike price). If the market price is below the option price, it is not reasonable to exercise the option (e.g. if the market price is 45 euros but the option allows to buy for 50 euros). In this case, the option expires and the buyer loses the option premium.
 

Example 2. Loss from a futures transaction

A person entered into a futures contract under which the person was obliged to buy 1 ounce of gold at a price of 2000 euros. Before the end of the contract, the market price per 1 ounce fell to 1850 euros. During the term of the contract, the contractual obligation was terminated by cash settlement, which meant that the investor suffered a loss of 150 euros due to the difference between the price of the contract (2000 euros) and the market price (1850 euros).

The loss to be declared in the income tax return is 150 euros. If no gains have been derived from the sale of securities in the same year, the loss is carried forward to the following years (§ 39 of the Income Tax Act).

Futures contracts are designed to bet on price movements and are usually traded on the market before expiration. Trade is closed with a cash settlement or positions are closed with the counterparty.

Contracts for difference (CFD)

A CFD is a derivative instrument (clause 6 of subsection 11 of § 2 of the Securities Market Act). A CFD is an agreement between a buyer and a seller to exchange the difference between the current price of an underlying asset (shares, currencies, commodities, indices, etc.) and its price when the contract is closed. CFDs are leveraged products.

CFDs allow investors to use an increase (taking a “long” position) or a decrease (taking a “short” position) in the prices of the underlying asset. Upon termination of a contract, the difference between the closing value and the opening value of the CFD and/or its underlying asset must be paid. If the difference is positive, the CFD provider pays the person. If the difference is negative, the person pays the CFD provider.

CFDs differ from traditional investments because an investor does not buy or own the underlying asset of the CFD.

Similarly to income from securities, the income received from CFDs (positive difference) must be declared in table 6.1 (income received in Estonia) and table 8.2 (income received abroad) of the income tax return.

Loss from CFDs (negative difference) may be deducted from the income from the sale of other securities. Deduction of the loss requires a declaration of the transaction. If there is no income from securities, the deduction of loss is carried forward to the following years (§ 39 of the Income Tax Act).

In the case of derivative instruments traded on the stock exchange, the use of an investment account is permitted, which allows postponing the payment of income tax on the income from securities that is reinvested. If derivative instruments are traded using an investment account, taxation takes place on the basis of the rules of the investment account.

Short selling of CFDs must be declared in the same way as the short selling of shares.

Example 1. Gains from contract for difference (CFD)

A person entered into a contract for difference (CFD) for an underlying share with an opening price of 100 euros. When the share price rose to 120 euros, the person terminated the contract.

The difference between the opening price and the closing price was 20 euros per share. If the contract involved 10 shares, the total profit was 200 euros (10 × 20). The CFD provider paid the person 200 euros at the termination of the contract.

The amount of gains to be declared in the income tax return is 200 euros. Underlying assets were not bought or sold, taxation is based on the price difference.

Example 2. Loss from contract for difference (CFD)

A person entered into a contract for difference (CFD) for an underlying share with an opening price of 100 euros. When the share price fell to 90 euros, the person terminated the contract.

The difference between the opening price and the closing price was –10 euros per share. If the contract involved 10 shares, the total loss was 100 euros (10 × –10). The person paid this amount to the CFD provider.

The loss to be declared in the income tax return is 100 euros. The loss can be deducted from other gains from the sale of securities or carried forward to subsequent years.

Through the crowdfunding service provider, it is possible to:

• to grant a loan; or
• purchase a security or a holding.

Loan-based crowdfunding brings together people who want to get a loan and those who are willing to give the loan for a fee (interest).

Loss arising from the transfer of a loan receivable or from the assessment of the loan receivable as uncollectible cannot be deducted from the interest income.

Therefore, starting from 2024, it is possible to declare the gains and loss from loans granted through a crowdfunding service provider, i.e. also take into account loss-making transactions, but only in the case of a service provider holding an activity licence issued in a Contracting State (subsection 1² of § 39 of the Income Tax Act).

If the service provider does not hold the activity licence, the loss from a loan granted through crowdfunding is not allowed to be taken into account.

In the case of investment-based crowdfunding, the applicant offers the opportunity to invest in the applicant's securities, shares or equity instruments through a crowdfunding service provider and the investor receives a holding, bond or part of the project's revenue in return.

The principle of crowdfunding is used when investing in start-ups. The income from the sale of shares in a start-up private limited company must also be declared as gains from the transfer of assets similarly to ordinary income from securities. The gains, as well as loss from the sale of start-up private limited company shares can be taken into account.

Example 1. Gains from loan-based crowdfunding (platform with a licence from a contracting state)

A person provided a loan of 1000 euros through a crowdfunding platform. The borrower repaid the principal amount to the person with interest of 100 euros. At the same time, the person sold a second loan agreement (loan claim) on the secondary market at a price of 200 euros, the purchase price of which was 150 euros.

Gains:

• Interest income: 100 euros, taxed as interest income (declared in table 5.1 or 8.1 of the income tax return)
• Gains from the transfer of the loan claim: 200 – 150 = 50 euros, taxed as gains from transfer of assets.

Example 2. Loss from loan-based crowdfunding (platform with a licence from a contracting state)

A person provided a loan of 500 euros through a crowdfunding platform, but the claim was later declared irrecoverable. In addition, the person sold a second loan claim on the secondary market at a price of 100 euros, the purchase price of which was 200 euros.

Losses:

• Loss from the claim declared irrecoverable: 500 euros
• Loss from the transfer of the loan claim: 200 – 100 = 100 euros
• Total losses to be taken into account: 600 euros. Can be deducted only from other gains of the same kind (i.e. not interest income) if the platform is licensed (declared in table 6.1 or 8.2 of the income tax return).

How are taxable gains calculated

An investment account allows to postpone the payment of income tax on the income from reinvested financial assets (securities), interest and foreign dividends.

The calculation of taxable gains or the amount carried forward (the payment does not exceed the contribution) is carried out in part II of table 6.5 of the income tax return on a date-by-date basis, i.e. after the date of each contribution or payment. The tax calculation of the investment account is not based on a calendar year.

A taxpayer may have several investment accounts, in which case the calculation of taxable gains or amount carried forward takes place on the basis of all investment accounts, but also on a date-by-date basis.

Only a taxpayer who is a resident of Estonia can use the investment account to postpone income tax liability, because the income from securities of a non-resident is taxed in his or her home country.
If a resident taxpayer in Estonia becomes a resident of another state, i.e. a non-resident in Estonia, the taxpayer must declare the date of closing the investment account in part I of table 6.5 of the income tax return and pay the income tax liability in Estonia. In the future, the non-resident’s income from securities will be taxed in their new home country.

Closure of an investment account (i.e. termination of postponing of income tax liability) does not mean closure of a bank account or securities account. These accounts can still be used.

In order to postpone income tax liability:

1. financial assets must be acquired only for the money held in an investment account; and
2. the income derived from financial assets must immediately be transferred to the investment account (§ 17² of the Income Tax Act), except for in the event of:

• exchanging financial assets or
• income derived from the financial assets held in an account opened with an investment firm or an account opened on a platform managed by a crowdfunding service provider or crypto-asset service provider (crypto-assets as of 2025).

Therefore, the general rule is that in order to postpone income tax liability, financial assets must be purchased only for the money in the investment account.

An exception is financial assets which, due to the substance of the transaction, could not be acquired for money (subsection 8 of § 17² of the Income Tax Act). For example, financial assets received by:

• inheritance,
• gift,
• liquidation proceeds or
• exercise of a share option.

In the case of an exception, it is possible to include financial assets in the investment account system for postponing income tax liability and to indicate the acquisition cost of financial assets in the income tax return as a contribution to the investment account.

The following can be taken into account as acquisition costs:

• in the case of inherited financial assets, costs incurred by the successor;
• in the case of financial assets received upon exercising gifts, liquidation proceeds or share options, the amount subject to income tax in Estonia on the basis of §§ 48, 49 or 50 of the Income Tax Act or the amount subject to income tax in a foreign state.

Acquisition cost of financial assets received from employer or legal person

If a taxpayer has received:

• securities free of charge or at a preferential price from an employer as a fringe benefit on which the employer has paid income tax and social tax
• securities from a legal person as a gift on which the legal person has paid income tax,

the taxpayer has the right to declare the market price or the difference between the market price and the preferential price taxed as a fringe benefit or gift as the acquisition cost of these securities.

In order to calculate the acquisition cost, a certificate in free form must be obtained from the employer or legal person indicating the name and registry code of the issuer of the securities, the type and quantity of the securities and the amount on which the employer or legal person paid taxes. It is also important to indicate on the certificate the tax period (month, year) during which the fringe benefit or gift was taxed based on Annex 4 or 5 of the TSD declaration.

The details of an account opened with a bank, payment institution, e-money institution or investment firm must be declared as an investment account in the income tax return:

• the “opening” and “closing” (closing date) of the investment account in part I of table 6.5 of the income tax return. Declare the IBAN of the bank account, the name of the bank and the SWIFT (BIC) code; the number of the account opened with the payment institution or e-money institution or investment firm, the name of the firm and, where available, the SWIFT (BIC) code.

  For example, an account opened with Lightyear Europe AS can be declared as "LY-xxxxxxx" (Lightyear account reference, a combination of letters and/or numbers generated for a particular client) and the SWIFT (BIC) code can be declared as "LY".

• investment account contributions and payments in part II of table 6.5 of the income tax return. Declare the money transferred to the account and the money withdrawn from the account. Transactions with financial assets must not be declared in order for the tax calculation to be correct.

  If there were no contributions or payments during the tax period, confirm with a ‘tick’ that there are no entries and that the amount to be carried forward will be transferred to the next tax period.

An investment account report can be sent from Estonian banks to the Tax and Customs Board and the data can be entered in the pre-filled income tax return in the e-services environment e-MTA.

Before sending the report, it is important to review the transactions (i.e. contributions and payments, transactions with financial assets) and receipts in order to declare the taxed interest and dividend received on the financial assets as a contribution.

The same rules apply to the declaration of the investment account of a minor. For a child up to and including 18 years of age, a parent submits the income tax return and fulfils the income tax obligation. A minor has the right to basic exemption and the final tax liability is determined on the basis of the income tax return.

A contribution to a child's investment account is usually a gift from parents or grandparents and a basic exemption for the child (clause 6 of subsection 3 of § 19 of the Income Tax Act).

What to know when buying and selling financial assets through a broker (e.g. a bank, investment firm)

An investment account is in the name of the taxpayer, but the financial assets are recorded in the nominee account in the name of the bank or investment firm. Financial assets are bought and sold through a nominee account.

The investment account in the name of the taxpayer includes all the accounting for the money received from the taxpayer, the financial assets bought and sold, and the money returned to the taxpayer.

When inheriting a financial asset, a distinction must be made between the situation where the successor is the surviving spouse and the financial assets were the joint property of the spouses and the situation where the successors are children, relatives or a third person and the financial assets were not joint property.

1. Successor is a surviving spouse and financial assets were joint property of the spouses.

   The successor (the surviving spouse) inherits the money and financial assets (transfers them to his or her accounts, including securities account) and:

   • does not continue in the investment account system, i.e. the successor submits the income tax return on behalf of the deceased (the bequeather), closes the investment account and performs the tax liability in the name of the bequeather. In the future, the successor has the right to take into account as the acquisition cost of securities (upon declaration in the ordinary system) the acquisition cost of the financial assets declared upon closing the investment account of the bequeather.

     The postponement of the bequeather’s income tax liability has been ended and the income tax liability has been fulfilled.

   • continues in the investment account system, i.e. the successor does not close the investment account in the bequeather’s income tax return, includes the financial assets into his/her own investment account system and declares the “transferable amount” of the investment account of the bequeather in his or her income tax return as a contribution to investment account.

     The successor will fulfil the income tax liability in the future on the basis of the rules of taxation of the investment account.

2. The successors are children, relatives or a third person and the financial assets were not joint assets.

The successors (usually children) inherit money and securities (transfer them to their respective accounts, including securities accounts) and

• do not continue in the investment account system. If the successors file an income tax return on behalf of the deceased (the bequeather), close the investment account and perform the tax liability on behalf of the bequeather, the successors are not entitled to the acquisition cost of the financial assets, as they were not joint assets. The acquisition cost of the financial assets acquired as an inheritance is 0 euros, because the successors can take only the expenses incurred by them into account as acquisition cost (subsection 1¹ of § 38 of the Income Tax Act). Inheriting money is exempt from tax.
• continue in the investment account system, i.e. the successors do not close the investment account in the bequeather’s income tax return, include the inherited financial assets into their own investment account system and fulfil the tax liability in the future on the basis of the rules of taxation of investment accounts.
  The successors can enter only the costs incurred by them as a contribution to the investment account.

What is a pension investment account

From 2021, it is possible to collect money in the so-called second pension pillar and invest it through the pension investment account (§ 3¹ of the Funded Pensions Act).

In the case of a pension investment account, a person can make investment decisions on their own. For this purpose, a separate cash account and a securities account related to it must be opened in a bank. Four banks offer pension investment account service in Estonia – LHV Pank, Luminor Pank, SEB Pank and Swedbank. The bank managing the pension investment account checks that the pension money is directed to investments permitted by law and back to the pension investment account upon exiting the investments.

In the value of the assets accumulated in pension funds so far, a person can:

• make a contribution to the pension investment account or
• keep the previously collected money in the pension fund; and
• direct new contributions to the pension investment account.

In this case, the Estonian Tax and Customs Board transfers the monthly funded pension contribution declared to the person's pension investment account. A person can have several pension investment accounts at the same time (e.g. in different banks), but contributions can be made to one account at a time only. Similarly to the investment account, when using the pension investment account, account holders themselves decide when and how to invest the money received in the account.

However, the pension investment account is not the same as the investment account.Only the money of the second pension pillar can be kept in the pension investment account, and the pension investment account is not declared in the income tax return, because payments made from the pension investment account are taxed on the basis of the rules of the second pension pillar (§ 20¹ of the Income Tax Act). The Funded Pension Registry fulfils the income tax obligation according to the conditions of payment of pension.

It is possible to postpone the income tax liability on interest received on financial assets (e.g. bonds) acquired through pension investment account. To do this, the person making the interest payment (e.g. the issuer of the bond) must be informed that the investment has been made through a pension investment account (clause 4 of subsection 2 of §  40 of the Income Tax Act).

Also, interest and dividends received from abroad on financial assets acquired through the pension investment account do not have to be declared in the income tax return.

Similarly to an investment account, income earned through the pension investment account is not taxed before a payment is made. Payments made from pension investment account are taxed on the basis of the rules of the second pension pillar (§ 20¹ of the Income Tax Act).

It is not possible to postpone income tax liability on dividends received in Estonia. Information on the dividend received in the pension investment account, from which 7% has been withheld, is pre-filled in part I of table 5.1 of the income tax return, and information on the dividend on which the tax rate until 2024 is 20/80 and from 2025 is 22/78, is pre-filled in table 7.1 of the income tax return. It is important to mark these lines with an ‘X’ and then they do not count as annual income of the taxpayer and do not affect the amount of basic exemption in 2024.