Accounts for investing

Since 2011, Estonia has two parallel systems for the taxation of private individuals’ investment income:

• the ordinary system, (if you only use a securities account), under which all securities sales transactions must be reported;
• the investment account system, (if you use a securities account and a current account designated for investing), under which only cash deposits and withdrawals made on the account must be reported.

You can also declare income from securities under both systems.

If you use the ordinary system, all securities sales transactions made during the year will be declared. Income tax liability arises when you have made a profit on all your sales. Income tax must be paid under the tax return to be submitted in the following year (e.g. on the profit from the sale made in 2024, income tax must be paid on the basis of a return to be submitted in 2025). However, if you make a loss for the year, you can carry it over to the next year. Under the ordinary system, you can deduct service fees from the realised income, but not administration fees.

When you use the investment account system you declare deposits and withdrawals of funds made to a bank account designated as the investment account, not the securities transactions. You can also use several investment accounts with several banks at the same time. A tax liability only arises if the total of the payouts made from all investment accounts exceeds the total of the contributions made to all investment accounts.

Generally, profit or loss can arise in two ways.

• When selling securities:
  Profit or loss = sales price – cost of sales – acquisition cost
• When exchanging securities:
  Profit or loss = acquisition cost of the security to be exchanged – market price of the security received upon exchange

The acquisition cost is considered to be all documented costs incurred by the investor to acquire the asset.

The FIFO method (first bought is sold first) or the weighted average method is used to calculate the acquisition cost of securities of the same name acquired at different prices and at different times. Losses on securities of the same or previous years can be deducted from the profit from a securities transaction. Losses can be carried forward indefinitely, but cannot be inherited, given as a gift, sold, etc.

As it is not possible to distinguish whether you are using the ordinary system or the investment account system when submitting the data, this information reaches the Tax and Customs Board automatically.

When completing the tax return, make sure that no transactions are automatically included in sections 6.1 and 8.2 – these fields must be left blank when using an investment account. However, if there are any records of your transfer of Estonian or non-Estonian securities, delete them.

In addition, review section 6.5 of the Tax and Customs Board’s tax return, where you must confirm that you have an investment account, and make sure that your report is included in the tax return.

An investment account is a current account used exclusively for investments and transactions with financial assets.

If you happen to make a single transfer from your investment account, for example, when paying online, there is nothing to worry about. When completing the investment account report in the future, mark this transaction as just a payout. If, for example, someone accidentally transfers funds to your investment account, mark it as a contribution in the investment account report. The report must normally be sent to the Tax and Customs Board during the income declaration period. In the future, just try to be more attentive.

An investor can have several securities accounts with the same bank or with different banks.

If you use an investment account with a securities account, fill in the investment account report in each bank separately and submit it to the Tax and Customs Board.

If you only use a securities account, these transactions will be recorded in the Tax and Customs Board’s tax return under sections 6.1 and 8.2. In this case, make sure that the transactions made with all banks are recorded correctly.

Documentary evidence of an expense directly attributable to the acquisition and transfer of a financial asset will be treated as a contribution to an investment account if the expense is not incurred on account of the contribution. When considering expenses, follow the rule that expenses incurred on account of a contribution cannot be declared again as a contribution.

Example 1

Investor A has 0 currency units in his/her investment account and a contribution balance of 0 currency units. He/she transfers 228 currency units to his/her investment account. His/her investment account now has 228 currency units and his/her contribution balance is 228 currency units.

He/she buys shares in AS ABC for 225 currency units and pays a transaction fee of 3 currency units from his/her investment account.

In such a case, it is not allowed to declare the transaction fee as a contribution, as the same amount cannot be treated as a contribution twice.

Example 2

Investor B has 228 currency units in his/her investment account and a contribution balance of 200 currency units. He/she withdraws 200 currency units from his/her investment account. His/her investment account now has 28 currency units and his/her contribution balance is 0 currency units.

The investor transfers an additional 200 currency units to the investment account.

He/she buys shares in AS ABC for 225 currency units and pays a transaction fee of 3 currency units from his/her investment account.

In such a case, it is allowed to declare the transaction fee as a contribution, as the amount of the transaction fee has not been previously included as part of the contribution.

Declaring income on behalf of a child depends on the child’s age; whether they have Internet Bank; and whether you only use a securities account or also an investment account to invest on their behalf.

If you use an investment account and a securities account to invest on behalf of your child:

a) the child is up to 5 years of age (incl.) or does not have an Internet Bank: declare the contributions and payments manually on the page of the Tax and Customs Board using the statement of your child’s investment account.

b) the child is at least 6 years of age and has an Internet Bank: generate an investment account report in the Internet Bank and send it to the Tax and Customs Board, then confirm it with the Tax and Customs Board and submit an income tax return there on behalf of the child.

If you only use a securities account to invest on behalf of your child:

a) the child is up to 5 years of age (incl.) or does not have an Internet Bank: declare all sales transactions manually on the page of the Tax and Customs Board using the statement of the child’s securities account.

b) the child is at least 6 years of age and has an Internet Bank: transaction data is generated in the child’s Internet Bank on the ‘My data’ page and you can use the data when filling in the income tax return on the page of the Tax and Customs Board.

If you have received dividends, they must in any case be shown in the income tax return.

Estonian dividends

• Dividends are added to the income tax return automatically (sections 5.1 and 7.1).
• These may not be deleted from the tax return (even, if you use the investment account system).
• These will be included in annual income.

Dividends received from abroad

• When using the ordinary system, dividends received from abroad must be added manually to the tax return: taxed dividend under section 8.8, untaxed dividend under 8.1.
• When using investment account system, untaxed dividends received from abroad must be marked in Investment account report as transaction with financial asset. Taxed dividends received from abroad must be added manually to the tax return under section 8.8 and marked in Investment account report as contribution.

You will find necessary information about dividends from the statement of the current account related to the securities account, i.e. the investment account statement in the Internet Bank. For this purpose, we recommend using the search: tick the ‘beneficiary/remitter and explanation’ box and type the word ‘dividend’ in the search window.

Foreign dividends are either tax exempt in Estonia (if the profit or dividend is paid abroad) or taxed. In any case, foreign dividends must always be declared.

If you use an investment account in addition to a securities account, dividends received will be reflected in your investment account report. In the explanation line, you can see the ISIN code of the security, the name, the dividends, and the amount of income tax withheld. If income tax has not been withheld, the amount of income tax at the end of the explanation is 0 and the line should be reported as a transaction with a financial asset.

If income tax has been withheld, i.e., there is a non-zero figure at the end of the explanation, the line should be entered as a contribution.

An amendment to the Income Tax Act entered into force on 1 January 2018. On this basis, a company that regularly pays dividends can benefit from a lower tax rate.

For a dividend-paying company, the income tax rate on the regular dividend is 14% (14/86 of the net amount) and non-regular dividends starting from 01.01.2025 are 22% (22/78 of the net amount). Until 31.12.2024 the income tax rate on the non-regular dividends were 20% (20/80 of the net amount).

Dividend payments taxed at 22% are exempt from tax for shareholders. Dividends subject to a tax rate of 14% shall also be subject to an additional income tax at the rate of 7% when making a distribution to the shareholder.

For a private individual, both dividend payments are contributions in the investment account system.