Taxation of P2P investments in Estonia

Tax filing season has once again started in Estonia and many investors have been asking about declaring the earnings from their Bondora investments. To answer this question we gathered the relevant information and provided a step-by-step guide on where to get it on Bondora. The information has been collected with the help of Estonian Tax and Custom Board.

Below we have provided:

  1. A short summary on how peer-to-peer lending is taxed for Estonian residents and,
  2. A step-by-step guide on where to find the relevant data on our platform.

Summary: How P2P Lending is Taxed for Estonian Residents

What type of personal income is taxed in Estonia?

Taxable income in Estonia includes income from:

  • Employment,
  • Business income,
  • Interest (§ 17),
  • ental income and royalties,
  • Capital gains,
  • Pensions and scholarships,
  • Dividends,
  • Insurance indemnities and payments from pension funds
  • Income of a legal person located in a low tax rate territory.[i]

Charging income tax from interest (§ 17. Interest of the Income Tax Act)

Income tax is charged on all interest accrued from loans, leases and other debt obligations, as well as securities and deposits, including such amount calculated on the debt obligations by which the initial debt obligations are increased.

Interest also includes monetary payments made to unit-holders on account of a contractual investment fund, excluding the payments specified in subsection 15. The fine for delay (late fee) payable in the event of delay in performance of a monetary obligation is not deemed to be interest. Find more detail in English or in Estonian:

How income in peer-to-peer lending is taxed in Estonia for a private person?

The income tax rate in Estonia is 20%. In peer-to-peer lending the yearly declaration consists of:

  1. Earned interest (received interest payment from the borrower)
  2. Earned interest from defaulted loans
  3. Secondary Market capital gains (profit earned from selling and buying loan shares)

For Bondora investors that means declaring “Total Interest Received”. This column consists of all earned interest and earned interest from defaulted loans. This information is on the Cash Flow page. Read on to learn where and how to find the data from Bondora.

Citizens must still declare the earned interest even if your net profit are purely virtual and your strategy is to reinvest all your returns.

If for some reason you haven’t earned any profit in a calendar year, then you have no duty of declaration – you only pay on actual received interest payments.

Keep in mind that you cannot use Investment Account (§17-2) to invest on Bondora. And when declaring your income as a private person you cannot offset any losses or fees against earned interest and income tax is payable on gross interest received.

Are capital gains earned from trading on the Secondary Market also taxed?

Yes, you are obliged to declare any capital gains earned from profitable sales on the Secondary Market. Here is an illustrative example: Let’s say you bought a €5 loan and sold it with a mark-up for €6 from which you made a profit of €1 – this €1 you declare as the Secondary Market capital gain.

Step-By-Step Guide: Finding Your Earned Income on Bondora

REPORTS – Tax Report PDF

Go to the Reports page, choose the period and click on the PDF icon. The Tax Report will be created for you immediately. On the Tax Report PDF the most relevant rows are “Interest Received” and “Interest Repaid from Loans in Default”. Total interest received is the sum of the two.

If you want to know the earned capital gains from Secondary Market trading, the relevant values to look at are “Profit from secondary market sales”, “Profit from secondary market purchases”, “Losses from secondary market sales” and “Losses from secondary market purchases”.

Bondora Tax Report

Tax Report - Income Statement

Tax Report - Account Statement

REPORTS – Monthly Overview

The second option is look at the Monthly Overview report in the Reports page. Click on “Create new report” and check “Monthly overview” and choose your period. The relevant rows for you are “Repaid Interest”, “Repaid Penalties”, “WriteOffInterest” and “DebtServicingCostInterest”.

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[i] According to Estonian Income Tax Act chapter 3 Taxation of income of resident natural persons – § 12.