Investment account

• Using an investment account allows investors to defer income tax on the income earned on financial assets. The obligation to pay tax arises when the amount paid out of the investment account exceeds the amount paid into the account.
• Payment of income tax can be deferred if financial assets are purchased for the money in the investment account. Financial assets are defined in the Income Tax Act. Purchase of any other assets for the funds held in an investment account is regarded as a payout from the investment account.
• Investment account is an ordinary current account, which must be opened in a contracting party to the European Economic Area Agreement or OECD member country.
• The tax authority must be informed of investment accounts. This means that you must specify the relevant account as an investment account in your tax return. A current account becomes an investment account only after the Tax Board has been notified of this. Any payments made into or from the investment account must be indicated in the tax return for the year when the payments were made.
• We do not recommend investors to use the current account they use for everyday transactions (card payments, transfers, e-invoices, etc.) as the investment account, because it means that they would have to declare all incoming and outgoing payments on the account. New current accounts can be opened at any branch of the bank.
• The number of investment accounts per person is not limited.

• Two systems are in use – the so-called ordinary system and the investment account system – everyone can choose which system they want to use. Both systems can also be used at the same time (e.g. income tax can be deferred when transactions are concluded with financial assets; and transactions with securities not classified as financial assets can be concluded using the ordinary system where investors pay income tax in the year following the earning of profit).

• Not any more. Securities and unit-linked life insurance contracts owned at 31 December 2010 could have been transferred into the investment account system only in case the investment account system was taken into use in 2011 – otherwise the mentioned assets remained in the so-called ordinary system and shall be taxed in the ordinary way.

It is possible to defer taxation of the income earned on investments (securities, investment deposit, unit-linked life insurance) since 1 January 2011 by using an investment account. You can read more about investment accounts HERE.

In order to defer taxation of the income earned on securities purchased before 1 January 2011, it was possible to declare the acquisition cost of these securities as a payment into the investment account in the tax return submitted for 2011. The current account tied to the securities account had to be declared as an investment account and the investment account regulation had to be applied from the moment the investment account was taken in use.

• Not any more. Declared securities loss owned at 31 December 2010 could have been transferred into the investment account system only in case the investment account system was taken into use in 2011 – otherwise it remained in the so-called ordinary system.

• A contribution into an investment account means any money paid into an investment account. If an investor starts using a current account which already contains money as their investment account, the money held in the account is deemed to be a contribution. Such account balance is declared as the first transfer into the investment account.
• Income earned on financial assets is a contribution if it is taxed with income tax.
• The direct documented expenses associated with the purchase and sale of financial assets are deemed to be a contribution into the investment account if such expenses were not incurred on account of a contribution.
• Until 31.12.2014 foreign currency conversion for reasons other than purchase of financial assets is also deemed to be a contribution. In such a case the foreign currency sold is declared as a pay-out from the investment account and the foreign currency purchased is deemed to be a contribution into the investment account. From 01.01.2015 foreign currency conversion on the investment account is not deemed to be a contribution or a payout and the foreign currency conversion does not have to be declared.
• Untaxed income on financial assets (income from transfer of assets, interest paid into the investment account, etc.) and money transferred into the investment account from the person's other investment account are not contributions.

• A payout from an investment account is any transfer/payment made from an investment account, which is not used to purchase financial assets or not transferred to the person’s other investment account.
• Purchase of securities that do not comply with the definition of financial assets given above (e.g. third pension pillar, non-publicly offered shares etc.) for the funds held in investment accounts is deemed to be a payout.
• If the account tied to a securities account is an investment account, then the monthly maintenance fee of the securities account withheld from this account is deemed to be a payout from the investment account.
• Until 31.12.2014 foreign currency conversion for reasons other than purchase of financial assets is also deemed to be a contribution. In such a case the foreign currency sold is declared as a payout from the investment account and the foreign currency purchased is deemed to be a contribution into the investment account. From 01.01.2015 foreign currency conversion on the investment account is not deemed to be a contribution or a payout and the foreign currency conversion does not have to be declared.
• It pays to keep in mind that an investment account is an ordinary current account. This means that if necessary, money will be withheld from the account to cover any debts. For example, in the event of a loan where the accountholder is the borrower or the co-borrower, the necessary amount may be withheld also from the investment account in the event of arrears (if the terms and conditions of the loan agreement allow the lender to check all accounts for available funds). This also constitutes a payout, which may lead to the emergence of income tax liability.
• So-called everyday banking transactions (payments, transfers made under direct debit and standing order agreements, debiting bankcard fees, card payments etc.) made from an investment account are deemed to be payouts.

• Unit-linked life insurance contracts can also be concluded in the investment account system, but it may not be the most reasonable thing to do. In the event of the School Fund, for example, the recipient of the payout is a third party, which may create the risk of double taxation!
• Investment deposits can also be opened in the investment account system.

• As third pension pillar funds are not financial assets for the purposes of the Income Tax Act, then payments made from an investment account into the third pillar are deemed to be payouts. If an investor wants to hold and purchase additional voluntary pension fund units in a securities account where securities regarded as financial assets are also held, we advise to transfer the amount the investor wishes to invest in a third pension pillar fund to the investment account before the purchase is made (the contribution and payout are equal in such a case). However, in order to keep tax declarations simple, it is more reasonable to do transactions with financial assets in separate current and securities account.

• Term and savings deposits made from the investment account are recorded as financial assets in the investment account report.
• Investment deposit is a financial asset and hence it can be opened also in the investment account system.

• Any currency can be held in an investment account and used for transactions. Conversion of currencies on investment accounts is permitted immediately before the acquisition of financial assets and only in the amount required for acquisition of these financial assets. Using an investment account for earning income on currency conversion is not permitted.
• Until 31.12.2014 foreign currency conversion for reasons other than purchase of financial assets is also deemed to be a contribution. In such a case the foreign currency sold is declared as a payout from the investment account and the foreign currency purchased is deemed to be a contribution into the investment account. From 01.01.2015 foreign currency conversion on the investment account is not deemed to be a contribution or a payout and the foreign currency conversion does not have to be declared.

• The general rule is that payment of income tax can be deferred if financial assets are acquired for the money in the investment account. However, there are exceptions to the rule in the Income Tax Act that allow assets not purchased for the money in the investment account to also be added into the investment account system.
• Until 31.12.2014 such exceptions are financial assets acquired by succession or as a gift. This means that for deferring the payment of the income tax on the financial assets acquired as a gift or by succession, the acquisition cost of the said financial assets must be declared in the income declaration as a contribution to the investment account.
• From 01.01.2015 the exception is valid for all situations similar to gifts and succession. Income from financial assets that due to the nature of the transaction cannot be purchased for money can also be declared as investment account contribution, for example acquisition of financial assets as liquidation proceeds, holding option, etc. The exception is not valid in situations where due to the nature of the transaction the taxpayer can pay for the financial asset with money, but the taxpayer decides not to.

• When you use an investment account, you pay tax on the amount by which payouts exceed the contributions made into the account. Transaction fees, commission and other expenses directly related to the transaction are contributions, but the monthly maintenance fee of a securities account is a payout. Persons who use investment accounts declare all contributions into and payouts from all of their investment accounts in chronological order in their tax returns and calculate the contribution balance per transaction. No tax liability emerges until contributions exceed payouts, but all contributions and payouts must be declared!
• Transactions must be shown separately in chronological order.
• Investors who conclude transactions in currencies other than the euro must keep in mind that all contributions and payouts must be recognised in euros in the tax return. Contributions and payouts in currencies other than the euro must be converted into euros in the tax return using the European Central Bank exchange rate of the day when the relevant currency was purchased or sold from the investment account.
• Investors who use the investment account system must always file tax returns if money was paid into or withdrawn from the account.
• To make the declaration of investment account transactions easier we advise using the Swedbank investment account report , which helps to sum up the transactions made with financial and other assets on the investment account The report data can be electronically sent to the income declaration.

• An investment account can be closed at any time (also in the middle of the year). The following is deemed to be closure of an investment account:
  
  • closure of the current account used as an investment account;
  • declarative closure – the client continues using the current account, but doesn’t want to use it as an investment account anymore;
  • death of the person who used the investment account, as it is seen as equal to the closure of all of the person's investment accounts.
• The possibility that tax liability may emerge must be considered when an investment account is closed. For instance, if an investor has another investment account at the time they close an account and they want to defer the tax liability, they must transfer the monetary balance on the account they close into the other investment account. The balance of the account at the time of closure is otherwise declared as a payout.
• The financial assets existing at the time the last investment account is closed, which were purchased for the funds held in the investment account, must be transferred to the so-called ordinary taxation system. This is done by declaring the acquisition cost of the financial assets as a payout made on the day the investment account was closed.

• A current account becomes an investment account only after the Tax Board has been notified of this.
• You can add a name or reminder to the account in the Internet Bank by going to the private client’s home page and clicking Accounts under My Contact Details and Settings.

• securities offered publicly in contracting parties to the European Economic Area Agreement or OECD member countries.
• securities traded in stock exchange or alternative market of an EEA or OECD state.
• shares or units of an investment fund established in an EEA or OECD state.
• investment deposits opened in a bank located in an EEA or OECD state.
• unit-linked life insurance contracts concluded with an insurance undertaking located in an EEA or OECD state.
• derivative which counterparty is a financial institution of an EEA or OECD state.
• short-term debt securities issued by a resident of an EEA or OECD state.
• investment account interest paid by a bank located in an EEA or OECD state.
• investment fund shares/units and securities traded outside an EEA or OECD state only if the respective fund management companies and securities markets are under financial supervision and the investment fund share/unit or security is purchased through a financial institution located in an EEA or OECD state.
• Specific requirements of financial assets are provided in the Income Tax Act.