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Taxation of income received from financial assets through the investment account

The investment account enables to reinvest the gains or income exempt from income tax received on financial assets and to postpone the income tax liability (§§ 171 and 172 of the Income Tax Act).

The investment account is a usual cash account opened with a resident credit institution of a member state of the Organisation for Economic Cooperation and Development (OECD) or in the permanent establishment of a credit institution located in the OECD country.

A securities account is not an investment account.

A person may have one or several investment accounts. In order to postpone the income tax liability, transactions with financial assets shall be concluded through the investment account.

The definition ’financial assets’ covers, for example, the securities which are traded publicly, shares and units of an investment fund, bank deposits and contributions bearing the investment risk and that are made on the basis of the life assurance contract entered into (subsection 171 (2) of the Income Tax Act).

The definition ’financial assets’ does not cover insurance premiums of the funded pension and units of pension funds, premiums linked with life assurance contracts, on the stock exchange non-marketable holdings in companies, the money granted on the basis of loan agreements, as well as immovable property and precious metals.

Financial assets shall be acquired for the money in an investment account and the money obtained from the sales of financial assets or the income received on financial assets shall immediately be transferred to an investment account. Also in the event that services of an investment firm (or brokerage firm) shall be used for investment.

The data about the investment account and the income on financial assets shall be declared in a resident natural person’s income tax return (hereinafter tax return) in table 6.5. The depositions only made to an investment account (cash account) as well as outpayments from the account shall be declared in the tax return. If the outpayment exceeds the downpayment, then the tax liability shall arise.

In table 6.5 of the income tax return, in general, the following shall be declared only:

  • the money transferred to the investment account (cash account) and
  • the money withdrawn from the investment account (cash account).

No purchase/sale of financial assets (for example, the securities which are traded publicly, units of investment funds, bank deposits) or the movements between the investment account, securities account and the deposit account shall be declared in table 6.5.

The following amounts of contributions to the investment account shall be declared in table 6.5 as well:

  • upon opening an investment account, the amount of balance in the account,
  • the dividends received on the financial assets and charged in a foreign state (these shall be declared in addition in table 8.8),
  • the interests received on the financial assets and charged in a foreign state (these shall be declared in addition in table 8.8),
  • the dividends received on the financial assets and charged in Estonia (are in the pre-completed table 5.1 or 7.1),
  • the interests received on the financial assets and charged in Estonia (are in the first part of the pre-completed table 5.1).

The amount of contribution shall not be dividends/interests on the financial assets that are not taxed.

The following amount of outpayment from the investment account shall be declared in table 6.5 as well:

  • the income received on the financial assets which is not to be immediately transferred to the investment account.

Remittances between the investment accounts shall be declared neither as contributions nor as outpayments.

In table 6.5 the balance of the contributions shall be calculated after each contribution and outpayment. The taxable amount shall arise, if the outpayment made from the investment account exceeds the deposit balance. If there are several investment accounts, then the taxable amount shall arise, if the outpayments made from all the investment accounts exceed the balance of the contributions.

Example

If the deposit balance of the investment account is 2000 euros, the taxable amount shall arise if the outpayment from the investment account exceeds 2000 euros.

If during a calendar year neither contributions to the investment account nor outpayments from the investment account have been made, then the corresponding notation shall be made in table 6.5 and the deposit balance shall be carried forward to the following calendar year.
 

You can read more about the taxation of income from securities in general on the page "Transfer of securities".

03.07.2020