Individual investment account — an innovation in the stock market of Russia for private investors, which is valid in the country for more than a year. Were the investments profitable for the investors? About peculiarities of taxation of individual investment accounts read in this article.
Since 2015, the program for private investors was launched in Russia, providing the opening of individual investment accounts to smooth the path of individuals on the stock exchanges of the country. From a conventional brokerage account (personal investment account is also open with a broker or management company) individual investment account differs in features of taxation, but rather an exemption from income tax or from paying the tax of 13%. Moreover, the system of preferential taxation will be attractive also to those who are not leading active investment activities.
What the private investor needs to know about the personal investment account and the types of tax benefits
When opening a classic account with a broker, the investor doesn’t receive any interest, if he has no trading with account. Individual investment account assumes a passive income of 13% (payment of personal income tax) or active — exemption from tax. How it works:
- the investor opens personal investment account at any broker (you can transfer the money in trust). You can only open one account from which either investor or the management company will trade;
- On personal investment account, you can add the amount of 400 thousand RUB. (Logical, since the goal is to attract small private investors from the common people, not to give tax evasion for major stock players);
- the investor’s money must be on account for at least 3 years (kind of a long-term deposit);
- assets for investment — stocks and bonds of Russian companies, bonds, Eurobonds, mutual Funds;
- a tax deduction can be obtained only in may of the following year by submitting up to 30 April Declaration 3-pit. That is, investing money in 2016 year to receive a deduction can only be in may 2017.
The idea of individual investment accounts is quite interesting as it involves not only active, but passive and raising capital of ordinary citizens. After all, if people “lend” the Russian economy through the banks, why not implement a mechanism of crediting of legal entities through stock markets? However, there is a risk of losing money in the investment trade. Because the greatest value from your IMS will receive a large management companies and brokers, who have a certain credibility.
Options for tax incentives:
- the passive option. 13% personal income tax is deducted from wages. If within 400 thousand wages to be invested in ASCS, the state personal income tax returns paid in the same amount. It is convenient to the management company, which receives management investor’s capital. It is noteworthy that the investor has nothing to lose, even if the management company will receive loss of around 13%. However, if individual investment account generates revenue that will offset 13% of the deposited sum, but 13% of income still should be paid;
- the active option. Provides an exemption from payment of tax on income received as a result of trading by individual investment account. If 400 thousand bring 100% of income, the tax from received additional 400 thousand should not be paid.
The nuances of Personal investment account:
- if the money are removed from the personal investment account before the expiration of the 3-year period, the tax deductions already received by the client, are returned to the state;
- the owner of the personal investment account can transfer the money by inheritance, but a tax deduction will not be applicable;
- it is impossible to equate the status of personal investment account to already opened accounts at broker;
- if it is later determined that one person opened an individual investment account from different brokers, a tax refund will be lost;
- risks on personal investment account lie on investor — unlike deposit insurance for personal investment account is not provided;
- it is possible to invest only in Russian assets, investments in the Forex market are prohibited (which also is logical: private investment needs to increase capitalization of the companies, and not rock the exchange rate).
Peculiarities of taxation of personal investment account
This spring, private investors have benefited from the idea of individual investment accounts, first attempted to legitimate a deduction of 13% and faced an unforeseen circumstances: few people understand the IRS, how to make it. The tax authorities do not accept even properly executed documents, because in the tax return the item of tax deduction is missing.
Since May 2015, according to the Moscow exchange, more than 95 thousand people opened individual investment accounts, and now they faced the fact that they are forced to dislodge their money from the tax officers. In theory, to obtain the deduction, you must:
- to be exempt from personal income you should take document from the IRS that the investor had used only one type of tax deduction, and provide the document to the broker or management company;
- for deduction for any investment you need document from the main place of work, a contract with a broker about opening an individual investment account, the document (payment order), confirming the transfer of funds. Then, you complete a tax return where there should be a section (sheet E2) for personal investment account.
Comment: the other day we wrote about the features of taxation in Forex. If the investor is working with a Russian broker (a tax agent, Russian Federation), the income tax is deducted directly by the broker. If the broker is in another country, the tax burden on the private investor, which should be guided by the agreement “On avoiding double taxation.” However, you need to specify which country this agreement was concluded.
But even this fact does not solve the real issue: the IRS does not know, and not trying to learn how to correctly declare the tax of private investment in private investment account in Russia or with the stock trading in the United States and Europe. Theoretically, the payment of tax with the trade in the US should look like the following:
- the investor, receives document upon request from US broker about obtained profit (for US this is a 1042-S form). Certificate is stamped with the seal of the broker;
- the investor working with a broker, is not obliged to know the source of income, because in tax returns the income is reported in column “other income” (after all, such earnings may include securities trading, options trading, and other assets);
- the contract with the broker and a statement about introduction to segregated funds are applied to the declaration.
In practice, the tax authorities refuse to accept original documents from the American brokers, forcing to issue foreign income according to national standards. Or to recourse the assistance of lawyers or tax agents (intermediaries).
Summary. Individual investment account is an interesting idea for those who do not trust in Bank deposits, has no fundamental knowledge about currency trading and does not want to communicate with foreign markets. Given that the first issues have already become clear, it is hoped that next year they will be eliminated. So try to work with this tool today.