In 2011, the investment account system was created in Estonia — a tax wrapper around personal investors’ investments, to encourage more people to grow their wealth. An amazing initiative, but one that was outdated since its inception.
That’s about to change! Today, on November 13th, Riigikogu has voted to pass an update to the law, which will bring about multiple changes for investors — but most importantly, will allow for investment firms (like Lightyear) to offer investment accounts.
Unfair competition
In its initial form, the income tax law only allowed for banks to offer tax efficient investing. This in turn created an unfair advantage on the market, where personal investors could look towards just a few players for tax efficiency. And with those players only being banks, you already know you’ll be paying an arm and a leg to make your investments, while navigating crazy confusing user interfaces.
All the while, banks and investment firms have followed the exact same rules and protections when it comes to investment services and products — both have rigid measures in place to safeguard your investments, and with both your investments are covered in the same amount.
Now, imagine that competition only exists between a few banks in the market. In a situation like that, there’s no motivation out there to build convenient solutions at a price point which makes sense for the end customer.
So while challenger solutions like Lightyear could offer investing for multiple times cheaper, we couldn’t offer tax efficiency — arguably one of the most important aspects for any investor. We’re so excited to see the law being amended, meaning investors don’t need to choose between convenient investing and tax efficiency anymore.
The investment account, the way it’s supposed to be
Here’s exactly what will be changing:
- Investment firms can now offer investment accounts
- A wider variety of costs that you might incur during the investing process, like account holding fees (which Lightyear doesn’t charge!) can be deducted from your profits
- More asset classes - like crypto, covered bonds and regulated crowdfunding - are accepted within the investment account system
With the revised law, Investeerimiskonto can finally act as it’s supposed to — allowing for people to choose the best investment platform for them, with banks and challenger solutions finally fully on the same playing field.
The cultural shift to get every Estonian investing
All these changes are great news for local personal investors. Competition between investment services providers is a great thing — one that the end user (you!) wins from.
Competition means all providers on the market are forced to build solutions that truly benefit investors. It means they need to build fast, to keep up with the ever changing economic situation. And it means they need to offer services at a competitive price point, with intuitive UX that people actually enjoy using.
We’re so excited to see this law being amended and can't wait for it to take effect. Hopefully this will encourage more and more Estonians to grow their wealth and build a stronger financial future for themselves and their families — a road which we’ll be here to support you on!
Disclaimer
When you invest, your capital is at risk. Terms apply, seek guidance if necessary. This is not tax advice.