How to open an individual investment account in 2019?

Many prominent investors have repeatedly spoken about the benefits of long-term investments. Thus, Warren Buffett, who heads Berkshire Hathaway, constantly repeats this in his annual letters to the shareholders of the company. This is evidenced by John Bogle, the Creator of Vanguard Group.

Russians have an excellent tool for long-term investment – an individual investment account (IIS). It is placed with a broker, which, in turn, helps the client, subject to a number of restrictions, to earn profit.

This tool appeared in 2015 together with the changes adopted in the tax code.

Important aspects of IIS

• The IPI may be opened by a natural person who has reached the age of 18.
• An account is opened with a broker or a Bank. Of the requirements – the status of a resident in Russia (ie stay in Russia over 183 days a year).
• One individual can open only one IPI. If you have previously opened an ICI with another broker, the securities can be transferred to another broker, and the ICI with the previous broker can be closed.

In which brokerage company is best to open an ICI, we will consider in one of the next articles.

In order to receive tax benefits, it is necessary to maintain the minimum investment period – 3 years. The term begins to flow from the moment of signing the contract.

• The account can only be rouble. Rubles can always be exchanged for another currency to purchase securities denominated, for example, in us dollars. But you can only Deposit rubles.
• Replenishment within 12 months is possible in the amount of not more than 1 million rubles.

It is important to remember that brokerage and banking fees will be charged for securities transactions.

Tools for IMS

All instruments traded on the Moscow and St. Petersburg exchanges can be purchased on the IIS:

• Shares of Russian and foreign companies;
• Shares Of Mutual Funds;
• Currency;
• Bonds of municipalities, corporations;
• Options, futures and other derivative methods.

"Some brokers and banks do not work with some instruments, issuers, etc. Full list of supported instruments can be obtained from the broker."

Tax deductions on IIA

The main advantage of the ICI is the return of part of the investment, which increases the profitability of the account. Moreover, there are 2 types of tax preferences:

Deduction for contribution

In this case, a 13 percent refund of the amount that was credited in the previous year. The maximum amount is limited to 52 thousand rubles (PP. 1 item 3 of Art. 219 of the tax code). Since July 2017, the threshold for depositing funds to the ICI has been increased (from 400 thousand rubles to 1 million rubles). However, the maximum contribution deduction has not changed.

Important! The deduction is possible only if the personal income tax has been paid.

If less than 3 years have passed since the opening of the ICI, its replenishment, filing an application for a tax refund and its subsequent receipt, then the funds will need to be returned to the state.

If the investor closes the account, a tax of 13% will be withheld from the received profit.

Herewith:

• Income received from transactions, dividends, coupon income are not contributions.
• Do not get a deduction for dividends. The Tax code of the Russian Federation States that in respect of dividends, the deductions provided for in Art. 218 – 221 of the tax code do not apply (para. 2 p. 3 article 210 of the tax code).
• The unused deduction is not transferred, i.e. if you have paid less than 400 thousand rubles to the account in a particular year or the amount of tax paid is not enough to obtain a maximum deduction of 52 thousand rubles, then it will not be possible to transfer the unused right to the next tax period.
• No payment of personal income tax – no deduction. If in the calendar year your income has not been withheld and transferred personal income tax, there will be no refund. The deduction for contributions will also not be able to apply to individuals exempt from personal income tax. In particular, pensioners, disabled people who have no other sources of income except pensions, unemployed, individual entrepreneurs who are on special regimes (UTII, eschn, USN).
• The tax refund period is limited. If you choose to deduct contributions, the tax refund can be made within 3 years following the reporting period (clause 7 of article 78 of the tax code). That is, for example, if you have the right to deduct in 2019, you can file a Declaration and return the tax in 2020, 2021 or 2022.

Income deduction

This deduction exempts the investor from the taxation of income received in the course of operations on IIA.  The law provides for a deduction without any other taxable profit.

This type of deduction can only be calculated after three years from the date of the opening of the ICI. If the account is closed before the deadline, the state has the right to withhold personal income tax similar to the scheme of the brokerage account.

It is important to initially take into account all the nuances of investment when choosing the type of deduction. Thus, personal income tax does not apply to payments on coupons and Russian government bonds. In the case of OFZs, for example, a contribution deduction can be obtained.

Comparison of deductions

For clarity, we present a comparison of the types of deductions in tabular form.

Deduction for contribution	Income deduction
1.       Can be obtained annually	1.       It is provided once at the closure of the ICI after 3 years.
2.       Is 13% of the amount of funds deposited in the calendar year, but not more than 52 thousand rubles from the sum of paid personal income tax (excluding dividends) for the specified tax period	2.       Assumes exemption from payment of personal income tax from the positive financial result obtained on transactions with financial instruments
3.       When the account is closed, a positive financial result from the operations of the IIA will be subject to personal income tax, except for operations with securities, taxable at a reduced rate	3.       This deduction does not apply to dividend income and income on the foreign exchange market of the Moscow exchange (para. 2 section 3 of article 210 NK the Russian Federation, the Letter of the Ministry of Finance of the Russian Federation from 23.06.2017 No. 03-04-06/39694)

 

Important! It is not possible to combine or change the type of deduction during the period of the contract for the maintenance of the IIA.

Example

You opened the ICI in January 2017, the contributions amounted to:

• 2017 year 200 thousand rubles. Official salary – 30 thousand rubles. per month
• 2018 350 thousand rubles Official salary – 45 thousand rubles per month
• 2019 – 1 million rubles. the Official salary of 30 thousand rubles. per month

You've decided to get a deduction for contributions. This deduction is limited to 52 thousand rubles., as well as the amount paid personal income tax, so you have the right to expect a refund:

• 2017 – 26, 000 (the maximum deduction could be 46 800 roubles at a salary of 30 000 rubles).
• For 2018 – 45 500 rubles. (the maximum deduction could be 52 000 rubles.).
• For 2019 – 52 000 rubles.

The total amount of deduction will be 123 500 rubles.

How to determine the type of deduction

The choice depends on a number of factors:

• Availability of official income from which personal income tax is paid at the rate of 13% (except dividends);
• Investment period;
• Investment portfolio (for example, if you select a contribution deduction, you can select those securities for which tax benefits are provided);
• Interest yield.

Remember that the deductible contribution is limited and cannot be more than 52 thousand rubles per calendar year, then as a deduction on income has no restrictions. It follows that the lower the yield on securities transactions and the lower the contribution, the more profitable it is to use the contribution deduction. But for a contribution deduction, you must have taxable income. There is no such requirement in the deduction on the income. If you are an active investor with high performance, and can annually replenish the ICI in the amount of 1 million rubles., the priority for you will be a deduction for income.

Compare the size of the deduction for example

For example, you opened an ICI in January 2017 and contributed to it:

• In 2017 – 200 000 rubles.;
• In 2018 – 400 000 rubles.;
• In 2019 – 1 000 000 RUB.

Suppose that the official income over the 3 years amounted to 50 thousand rubles per month. Accordingly, the pit is paid annually in the amount of: ((50 000 x 12)*0.13) = 78 000 rubles. Annually, the investor earns 30% per annum on the stock market.

In January 2020, the investor decided to close the ICI and choose the type of deduction.

The deduction for contributions will be: (200 000 * 0,13) + 52 000 + 52 000 = 130 000 RUB

Deduction of income:

Income for 2017: 200 000 * 30% = 60 000 RUB.;

Income for 2018: (260 000 + 400 000)*30% = 198 000 RUB

Income for 2019: (858 000 +1 000 000)*30% = 557 400 RUB

Income = 2 415 400 – 1 600 000 = 815 400 RUB

(60 000 + 198 000 + 557 400)/0,13 = 106 002 RUB. (for 3 years).

The example shows that, despite the large annual income and large investments, the contribution deduction becomes more profitable. But it is important to consider the time factor.

Consider another example:

Years	The amount of the contribution	Yield	Net income at the end of the year	Deduction for contribution	Income deduction
1	400 000	5%	20 000	52 000	-
2	400 000	10%	82 000	52 000	-
3	800 000	15%	255 300	52 000	46 449
4	1 000 000	5%	147 865	52 000	19 222,45
5	1 000 000	20%	821 033	52 000	106 734,29
6	1 000 000	30%	1 777 859,4	52 000	231 121,72
7	1 000 000	40%	3 481 622,96	52 000	452 610,98
8	1 000 000	30%	3 955 704,11	52 000	514 241,53
9	1 000 000	30%	5 442 415,34	52 000	707 513,99
10	1 000 000	40%	9 833 519,92	52 000	1 278 357,59
Total for 10 years:			25 817 319,73	520 000	3 356 251,55

 

It is obvious that from the sixth year the income deduction becomes more profitable than the contribution deduction. And with unstable profitability. After 10 years of ownership of the ICI, the income deduction begins to exceed the contribution deduction by almost 7 times.

Therefore, opening the ICI, do not rush with the choice of deduction, first weigh all the pros and cons and calculate your benefit.

How to get a tax deduction

Even if you are not officially working now, you can open the ICI. Within 3 years a lot can change, you can get a job and start getting a deduction when replenishing.

It is not necessary to trade, to obtain a 13-percent deduction when replenishing simply Deposit funds on the IIS and keep them there for 3 years.

Important! Money can be deposited at the end of the year and get paid as if they had been in the account for the whole year. For example, at the end of 2019 to make 400 thousand rubles, and at the beginning of 2020 to get them 13% - 52 thousand rubles.

To receive a deduction for the contribution, the investor applies to the tax in the year following the year in which the replenishment was carried out. It is necessary to fill in the Declaration form 3-pit and attach the following documents:

• Proof of receipt of income in the previous year, taxed at the rate of 13% (for example, a certificate from the employer on the form 2-pit);
• Confirmation of the creation of the ICI and transfer of funds to it (provided by the broker);
• Application for tax refund with Bank details.

In order to receive the income deduction, the investor applies to the broker or the Bank and submits a certificate from the tax on the absence of cases of receiving the deduction for contributions. Thus, the Bank or broker pays the full amount on the IIS, without deduction of 13%.

Do you have any questions? Leave them in the comments, our experts will answer them in the near future.