What is Investeerimiskonto?
Investeerimiskonto is essentially an account opened with an investment firm, to which you can deposit cash for investing in securities such as stocks, bonds, ETFs and money market funds.
When using an investment account, the tax logic is not based on specific types of financial income (e.g. dividend, interest, profit from the transfer of securities). What’s taxed is the total income earned from investments. This also means that the investment account system aims to make the taxation of investment income fair and considerate of the factual financial situation, meaning it allows investors to deduct investment-related costs and investment losses from any profit made within the investment account.
Simply put, the investment account allows you to defer income tax until investment income is taken into regular consumption and the tax will only need to be paid on the amount of withdrawals that exceed the amounts you’ve paid into the investment account.
Until that point, investments can be bought and sold without an intermediate tax liability, and losses can be taken into consideration when determining potential earnings. If you don’t withdraw earnings - like profits from sales or dividends that exceed any occurred losses - out of your investment account (that is, out of Lightyear platform), you’re free to reinvest them without incurring tax liability.
The interest you earn on uninvested cash on your Lightyear investment account will also be paid to you in full amount every month, without withholding tax — meaning you can reinvest that in the investment account system in full as well.
It’s important to remember that the investment account allows for tax deferring, but does not clear you of tax liability.
How do I open an investment account with Lightyear?
With Lightyear, you only need to have one account — no need for both a securities and an investment account as you’re used to with local banks. Your Lightyear account operates as a combination of both and can be reported to the Estonian Tax Authority with your account reference number that you find on your account statements.
If you’re already a user, you’ll see a ‘Use as an investment account’ button in the main menu, under your personal Lightyear account. From there, you can start using your existing account as an investment account. If you do that, then all account activity since 1.01.2024 will fall under investment account activity in your 2024 tax declaration, to be submitted in the beginning of 2025.
If you’re creating a new account, we’ll ask you whether you want to use Lightyear as an investment account as you sign up.
How do I declare my investments from before 2024?
If you had an account with us before January 1, 2024, you can declare it as an investment account in the 2024 personal income tax return that you will be submitting to EMTA in the beginning of 2025.
On that declaration, both the uninvested cash balance as of 1.01.2024, as well as investments acquired in previous years and still in your portfolio on 1.01.2024, will count as contributions to your investment account in Lightyear.
In order to postpone tax liability from the profit or income generated from investments bought through (or transferred into) Lightyear in 2022 and 2023, you’ll need to declare the acquisition cost of these investments as a contribution into your investment account. These investments will then be considered as having been bought with the money in your investment account.
As we get closer to the next tax declaration season, we’ll make sure to send all our customers more specific guidance! But don’t worry — we’ll make it as simple as possible by enabling you to automatically forward all necessary data to EMTA.
Disclaimer
When you invest, your capital is at risk. Terms apply, seek guidance if necessary. This is not tax advice.