Using an investment account enables postponing taxation of income earned on investments. This means you can reinvest the earned profit in full.

How does it work?

Questions and answers

Frequently asked questions in relation to the investment account:

What are financial assets in the meaning of an investment account?

In the meaning of an investment account, financial assets are shares, bonds, investment funds, index-linked bonds i.e. structured bonds, a credit institution`s deposits, unit-linked life insurance contracts.

Should I open a separate account for investing?

Yes, your investment account should definitely be a separate bank account, which is not used for daily settlements (salary receipt, card transactions, loan payments etc.). An investment account can be opened as a new account or an existing account can be reformatted. If you reformat an existing settlement account into an investment account, then you must make sure that no other banking services are related to this account, for example loan repayments, card transactions, direct debit etc., which would make it complicated and time-consuming to keep stock of incoming and outgoing payments.

Is mandatory to use an investment account if you invest in securities?

No, it is not. There are two parallel investment income taxation systems: so-called ”regular system”, where income tax liability arises based on the time a security is liquidated/sold and the new investment account system.

How does taxation takes place with an investment account?

If an investment account is used, then the sum by which the investment account disbursements exceed contributions to the account is taxed. The investment account holder declares all contributions and disbursements made to and from the investment account in their tax return and calculates the contributions` balance. As long as the balance of contributions if positive (less has been paid out of the account than into it), then tax liability does not arise.

When is it sensible to use the investment account system?

If you plan to start using the invested sum with earned income immediately, then it does not make sense to use an investment account. If you plan to reinvest the received income and investment principle in financial assets, then you may want to consider using an investment account.

What is an investment account contribution?

An investment account contribution is any funds transferred to the investment account. The balance of funds on the bank account before the account is used as an investment account is a contribution. Such a bank account balance is declared as the first investment account transfer.

 A contribution is not...

  • Untaxed income received from financial assets (income received from disposal of assets, interest etc);
  • Funds transferred to the investment account from the person`s other investment account.
Return received on financial assets is a contribution if it is taxed with income tax.

Can I have several investment accounts?

The number of investment accounts is not limited. You may open separate investment accounts in different currencies and in different banks, also, if necessary, you can open several investment accounts in the same currency. 

You can make transfers between investment accounts without income tax liability arising.

How does taxation of return received on index-linked i.e. structured bonds take place according to the new Income Tax Act?

From 01.01.2011, interest received on index-linked i.e. structured bonds is taxed with income tax. As a rule, the income tax withholder is obliged to withhold income tax on interest payment taxed with income tax paid to a natural person. To enable postponement of taxation of such income in the investment account system, the tax payer (security holder) must inform the withholder of income tax (the bank) that interest has been received from financial assets acquired for funds on the investment account.

How to act when selling securities acquired before 01.01.2011?

If the securities on the securities account as at 01.01.2011, with the tax return submitted in 2011, were not transferred to the investment account system at their acquisition cost, then their disposal transactions must be declared as disposal of asset and income tax paid on earned income. If the disposal of security came with a loss, then the loss can be carried forward to next taxation periods and netted off during future taxation periods with income from disposal.

If the securities on the securities account as at 01.01.2011, with the tax return submitted in 2011, were transferred to the investment account system at their acquisition cost, then on the dealing order, the investment account must be indicated as the account where you want to transfer the funds from the sale of securities. Thereby, you can postpone taxation of received income if you wish or decrease the income tax liability on account of loss from sale of securities.

Can the funds on investment account be used as guarantee?

Funds on investment account cannot be used as guarantee for such liabilities that are not linked to acquisition of financial assets.

How is taxation of financial assets received as inheritance and as a gift organised in the investment account system?

In order to postpone income tax liability on income from financial assets received as inheritance or a gift, the acquisition cost of such financial asset must be declared as a contribution to the investment account (acquisition cost for the recipient of inheritance or gift).

If the recipient of inheritance or gift does not incur costs to accept inheritance or gift, then the acquisition cost is zero. Usually, in case of disposal of asset, the recipient should pay income tax on full sales income. However, by declaring the acquisition cost (zero) as a contribution to investment account, the tax payer can later reinvest income from disposal of this asset and not pay income tax on it the year after asset disposal.

Whether and how can the investment account be closed?

The investment account can be closed at any time. However, this may lead to income tax liability. If at the time of closing one account, the tax payer has another investment account and wishes to continue to postpone income tax liability, then the balance of the account to be closed must be transferred to the other investment account. If the account holder does not transfer the balance to the other account or does not have another account, then the balance on the account at the time of closing is declared as an investment account disbursement.  

Investment account closing may also be its ”declarative closing” – the tax payer keeps using the bank account, but does not wish to continue using it as an investment account. In this case, the account holder will declare the entire account balance as an investment account disbursement. But investment account closing may also mean closing the bank account entirely.

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