All about IIS: how to receive up to 52,000 rubles from the state every year

Author:

Antonina Ter-Astvatsaturova

Almost four years have passed since the appearance of individual investment accounts (IIA) in Russia. But few private investors on the Russian stock market know about all the intricacies of this instrument and know how to use them.

We have selected 5 life hacks for working with IIS that will definitely be useful to you if you are already using or are just planning to open an individual investment account. Check if you are missing something.

READ IN THE ARTICLE:

✔ IIS from a broker or management company: what to choose and why? ✔ Option from the state, not “freeze” ✔ A and B: which type of deduction is more profitable? ✔ Maximum contribution to IIS: do you need a million? ✔ Just top up your account or buy bonds?

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IIS what is it

An individual investment account, or IIA, is a special type of brokerage account or trust that can be used to buy stocks, bonds and other securities. The main purpose of the account is to accumulate and earn, and only then spend.

IIAs first appeared in 2015, and by May 2022, their number, according to the Moscow Exchange, exceeded 4 million. If the trends observed over the past 1.5 years continue, by the end of this year the number of IIAs in the Russian Federation will approach 5 or even 5, 5 million accounts.

Individual investment accounts were specially created by the state to promote long-term investing. The government pursues several goals at once:

• increasing the number of private investors within the country;
• eliminating financial illiteracy of the population;
• growth in the well-being of Russians;
• the formation of an internal desire among the population for independent pension provision;
• reduction in the number of workers who receive unofficial income.

It is not necessary to deposit any amounts into an IIS upon opening: neither on the same day, nor in the next month. In this case, the validity period of the account has already started. Even if you open an IIS on January 1, 2022, and replenish it only on December 31, 2022, in 2022 the account owner has the right to claim a tax deduction.

Numbers

2 200 000
investors - individuals are currently registered in Russia, according to the Moscow Exchange. In total, since the beginning of 2015, about 750 thousand new private investors have come to the market. 341 thousand people have made at least one transaction on the exchange markets over the past six months.

400 000

exceeded the number of individual investment accounts (IIA) registered on the Moscow Exchange as of August 20, 2022. At the end of 2022, 302 thousand IISs were opened in Russia, in 2016 - 195.2 thousand, in 2015 - 88.9 thousand IISs.

850,000,000,000 rub.

amounted to the trading volume on IIS for the period 2015 - 9M 2022.
Source: Moscow Exchange
Obviously, an individual investment account is a very interesting opportunity for private investors, which allows not only to invest, but also to receive a bonus from the state for this.

However, the devil is in the details. Here are some practical tips for using IIS that will help make investing through an individual investment account even more profitable.

Lifehack#1

Advantages and disadvantages

The main advantage of IIS , which attracts new investors, is the right to a tax deduction . Owners of such accounts can make transactions on the exchange, and then return part of previously paid taxes or save on paying them when closing the account. The deduction is available even if there are no transactions on the exchange.

The main disadvantages of IIS:

1. Money in the account is not insured . Invested funds are not protected, therefore, if the broker goes bankrupt, the money can only be returned through legal action. When investing in securities, the investor's position is safer. He will not be able to lose assets if the broker goes bankrupt.
2. The profitability of securities purchased on IIS is not guaranteed. The result of investment activity is under the full responsibility of the investor, even if the capital is transferred under the management of a qualified company. The lowest risk when purchasing federal loan bonds. In this case, the issuer is the state, so the probability of bankruptcy is minimal, but the income is too low. If you take corporate bonds, the risk of bankruptcy becomes higher, but the profitability of the investment also increases.
3. You cannot withdraw funds from an IIS before it is closed . At the same time, the broker can transfer income from stocks and bonds directly to a bank account, from where they can be spent. Please note that bond coupons and dividends are subject to tax.
4. You can only buy securities that are traded on Russian stock exchanges, which significantly narrows the options for investors.
5. You can only deposit Russian rubles in an amount of up to 1 million rubles into an IIS..

In addition to the disadvantages, an individual investment account has limitations that will need to be taken into account in order not to violate the law and to obtain maximum benefits.

Where can you invest money through IIS?

In theory, anywhere: stocks, bonds, futures, options, ETFs, currencies. You can invest in everything that is on the Russian stock exchange. Sometimes some brokers limit the choice of instruments. This needs to be looked at when concluding a contract.

Profitability of IIS - how much you can earn

Potential profit depends on the strategy and what tools you use:

• Conservative strategy. Do nothing with the money in the account and receive income from deductions (for payroll taxes).

• Optimal strategy. Buy securities, for example, OFZ bonds, which are guaranteed to provide a 5-7% yield.

Conservative strategy

This plan is very simple: every year you replenish your account, for example, by 400,000 rubles and receive deductions for these contributions. In the first year you need to save 400,000, and in the second and third - 348,000 each, because you will receive 52,000 with deductions.

Your investments for 3 years: 400,000 + 348,000 + 348,000 = 1,096,000 rubles.

Profit due to deductions: 156,000 rubles.

Profitability: 156/1096 = 14.23%.

Optimal strategy

If you use money in an IIS to buy government bonds (OFZ), your profit will increase: you will receive both deductions and coupon income (income on bonds that is paid at a certain frequency).

OFZ is a financial instrument with the lowest risk. They are not subject to tax unless you sell them early. Therefore, investors hold them until the maturity date, when the bond is bought back for its original cost.

Limitations of IIS

Some brokers do not promote IIS as a service to clients very correctly. They present information that everyone who opens an individual investment account will receive 52,000 rubles. But that's not true. In order for the state to return such an amount, several conditions must be met at once:

1. One individual has only one IIS open. You cannot open multiple investment accounts with different brokers. This is a violation of the law.
2. The account owner officially pays 13% personal income tax. If the tax is levied under a different regime, you will not be able to claim a deduction.
3. Monthly salary is not less than 33,400 rubles. From such income during the year, a little more than 52,000 rubles will be withheld, which means that you will be entitled to the maximum deduction amount. If the salary is only 15,000 rubles, the amount that can be returned from the budget will be 23,400 rubles. But even if your monthly income is 100,000 rubles, the Federal Tax Service will not reimburse more than 52,000 rubles.
4. The account owner deposits at least 400,000 rubles per year into the IIS. The rule also works here: if you deposit only 100,000, you will get back 13,000 rubles. However, if you deposit 1 million, more than 52,000 rubles will still not be compensated. You can deposit money into an IIS any day of the year until December 31 to qualify for a tax deduction for that year.
5. The owner of the IIS will submit a 3-NDFL declaration along with an application confirming the right to receive a deduction.
6. The account tenure period is at least 3 years. During this period, you cannot withdraw money from your IIS.

If you close the account before the end of three years, you will have to return all deductions received, if they have already been compensated by the state. In such a situation, the Federal Tax Service will also oblige you to pay a penalty for using the money returned from the budget.

If more than three years have passed from the date of opening of the IIS, it is not necessary to close it; you can continue to use it and retain the right to annual deductions.

An option from the state, not a “freeze”

Many novice private investors are confident that it is impossible to withdraw money from an IIS within the first three years after opening and first replenishing the account, that is, the money is actually frozen for a three-year period.
At least, this is what some brokers and management companies say and write about IIS. The good news is that this is not true! Let's explain why. No one can stop you from managing your money. By opening an IIS, you receive the same rights as the owner of a regular brokerage account and can use all the opportunities of a private investor on the Russian stock market. If an urgent need arises and you need to urgently withdraw money from your IIS, you can do this in a year or two. It’s just that in this case you will not receive a tax deduction on the contribution or will be forced to return it if you have already received a bonus from the budget earlier.

So, in fact, IIS is not a shock “freeze”, but an option from the state, which allows you to annually receive additional passive income in the amount of up to 52,000 rubles. within three years. It would be stupid not to take advantage of this option.

Lifehack#3

What to do with money in IIS

It is not necessary to invest money from an IIS. They can just lie there, and still the investor has the right to apply for a tax deduction under type A. But it will not be possible to apply for a deduction under type B, since the account owner has no profit.

To receive income from investment activities through an IIS, you can:

• buy state, municipal and corporate bonds;
• invest in mutual funds and ETFs listed on the Moscow Exchange;
• buy shares of Russian and foreign companies;
• convert rubles on the stock exchange into foreign currency, which can be stored or spent on purchasing assets of foreign countries;
• invest money in options, futures or other structured financial instruments.

At the same time, you can withdraw money from an IIS only in rubles. When closing an account, all securities and currencies are translated at the exchange rate.

You cannot use money from an IIS to purchase federal loan bonds for the population (OFZ-n).

Money in an IIS can be transferred to trust management. Then all decisions regarding the purchase and sale of assets are made by the management company.

Unavailable assets

You cannot purchase OFZ-N (people's bonds) using IIS; this is a special investment instrument, similar to a bank deposit, but with higher profitability and special conditions. Such assets are only available in banking institutions.

According to legal regulations, you cannot buy foreign securities traded outside the Moscow and St. Petersburg exchanges. However, there is an alternative - ETFs or mutual funds, consisting of foreign stocks, bonds, and indices.

The essence of IIS is to get to know the stock market better, learn to build your own strategies, increase capital by investing mainly in domestic companies. For inexperienced bidders, this is the best solution that combines ease of making transactions and protection against loss of savings due to insufficient financial literacy.

Types of deductions according to IIS

An investor with an IIS has a choice of which type of deduction to claim, A or B:

1. Type A. This deduction can be received annually. The tax office returns the money to the bank account. The amount can be spent on anything: pay for goods, pay for housing and communal services, put it into an individual account or buy assets through a brokerage account. From 2022, it will become easier for some taxpayers to receive compensation from the state. In the taxpayer’s personal account, the Federal Tax Service will issue a notification that must be confirmed. If a profit is made as a result of investment activities when closing an account, you will need to pay 13% personal income tax on it.
2. Type B. Implemented on a different principle - this is an exemption from tax on income received as a result of transactions with assets in an individual investment account. The right to a Type B deduction is available when closing an IIS, if more than three years have passed from the date of its registration. The deduction amount is not transferred anywhere; it remains with the owner of the IIS.

It is impossible to combine both types of deduction. If an investor receives type A compensation at least once, it will not be possible to receive a type B deduction from this IIS. It is not necessary to indicate the type of deduction when registering an IIS. This can be decided in a month, six months, a year or when closing the account.

Tax deduction for received income under type B is suitable:

• traders who conduct many transactions with securities and receive high income;
• working Russians with unofficial income or with official, but very low income;
• successful investors with a portfolio whose profitability is above 40% per annum, and contributions for three years exceeded 1.5-2.5 million rubles.

If none of the three options is suitable, it is more profitable for an investor with official income to receive a Type A tax deduction.

Just top up your IIS or buy bonds?

In the fall, brokers and management companies, as a rule, begin to persistently remind their clients that it is important to have time to replenish an individual investment account before the end of the year.
And this is reasonable, as it will give you the opportunity to submit documents for a tax deduction for 2022 already in the first quarter of 2019. But if you opened an IIS not only to receive a bonus from the state while the money simply lies in the account for three years, but you want the funds deposited into the IIS to also work, that is, to bring stable passive income, then now is the best time It’s time not only to replenish the IIS, but also to buy highly reliable bonds at competitive prices with the deposited funds.

Due to high volatility, bond prices of most securities traded on the Russian market have seriously declined, and yields have increased.
This is a good time to enter the market by purchasing securities from interesting issuers for your portfolio. Yango experts have selected for you several interesting ideas for buying bonds on an individual investment account. Source: Yango

IIS, brokerage account and bank deposit

For a clear understanding of whether you need to open an IIS or not, a table has been compiled:

A brokerage account has fewer restrictions than an IRA, but does not qualify for a deduction. A bank deposit is the safest, but at the same time the most unprofitable savings option.

Who must report and pay taxes?

According to the Tax Code of the Russian Federation, when income is paid to an individual, the source of income, with some exceptions, becomes a tax agent for personal income tax. This means that the source of income is obliged to calculate personal income tax, withhold it from the income it pays to the individual, and transfer it to the state budget. You cannot refuse the role of a tax agent. The same goes for shifting the burden of paying taxes onto individuals.

NOTE! In the case of trading securities on an individual investment account, a broker or trustee becomes a tax agent for a citizen.

The investor does not submit a 3-NDFL declaration and does not pay the tax on his own. This is the responsibility of his broker. However, there are a couple of exceptions, which we will discuss below.

Conclusion: the received coupon income or dividends come to the individual’s account without taxes.

At the end of the year, the tax agent reports to the regulatory authorities and provides them with a certificate of the individual’s income related to investment activities. This should be kept in mind when applying for various types of benefits where the amount of income is important.

Expenses for opening, closing and maintaining an IIS

You don’t need money to register for an IIS. They open it for free. The investor will incur expenses if he begins to conduct transactions on the stock market:

• commission on asset purchase and sale transactions;
• payment to the depository for storage of securities;
• commissions for consulting, software, other additional services;
• expenses that may arise when replenishing or withdrawing funds from the account.

All these costs in total will reduce the efficiency of investment by 0.1-1.5%. If costs exceed this figure, look for better rates than your current broker is offering.

Most often, maintaining and closing an IIS with brokers is free. But it is better to review the rates from several brokerage companies before concluding an agreement.

How to choose between a brokerage account, IIS and deposit

Any Russian over 18 years of age can open an individual investment account, a brokerage account and a bank deposit at the same time. Most long-term investors do just that:

• they store securities on the IIS with which they do not plan to do anything for more than 3 years;
• short-term transactions are carried out through a brokerage account;
• The deposit is used to store a financial cushion.

If we are talking only about investing, you will have to choose between a brokerage account and an IIS. To do this, answer 2 questions:

1. Are you planning to invest for more than three years? If yes, consider IIS.
2. Do you want to invest more than 1 million rubles per year? If yes, choose a brokerage account.

Both of these accounts give the investor access to the stock exchange. Please take into account a number of restrictions that are established for IIS, which a brokerage account does not have. After that, make a decision.

Most brokers, when applying for an IIS, automatically open a brokerage account, so the investor does not have to decide anything, but use both accounts at the same time.

How to apply for a deduction?

Unfortunately, deductions are not calculated automatically. To receive the benefit, you must submit documents to the Federal Tax Service, including a completed declaration. The easiest way to do this is on the tax office website through the taxpayer’s personal account.

To get a refund for taxes paid in 2022, submit your request in early 2022. The deadline to file your 2022 return is December 31, 2023. If you want to receive a deduction for three years at once, you will have to submit a declaration for each year.

Package of documents for submitting an application:

• notification of account opening;
• a certificate confirming income for the year;
• completed declaration in form 3-NDFL;
• document on replenishment of the IIS;
• brokerage report.

To submit documents on the Federal Tax Service website, a registered account and an electronic signature are required. If it is not there, log in through your State Services account or get a password at the nearest Federal Tax Service branch.

Read the article “Types of deposits: which deposit to choose?”

In what situations should an IIS not be opened?

It is better not to open an IIS if:

• the broker offers the investor to put the account under management, does not say anything about risks and strategies, but at the same time takes a high commission for its services in the amount of 5-7%;
• you will not be able to deposit more than 5-10 thousand rubles a year into an IIS and at the same time plan to frequently conduct transactions on the stock exchange, the commission to the broker can reset all profitability. For example, you bought bonds with a yield of 6% per annum and a broker’s commission of 1%, if you operate only with this amount, sell and re-buy securities with the same yield 5 more times, there will be no profit.
• you are sure that you will not be able to keep funds in an IIS for three years;
• there are no funds for current needs and there is no safety net for the next 6-12 months;
• If you want to start investing with borrowed capital, this option is too risky; you may be left without credit money and with debts that will have to be repaid.

In all other cases, it is better not to delay opening an IIS. Even if there is no money and no plans to invest seriously in the next year or two, the time from the date of opening an investment account will still count. Therefore, if the financial situation and attitude towards investing changes, at least one restriction on the validity period of the IIS will already be lifted.

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about the author

Klavdiya Treskova - higher education with qualification “Economist”, with specializations “Economics and Management” and “Computer Technologies” at PSU. She worked in a bank in positions from operator to acting. Head of the Department for servicing private and corporate clients. Every year she successfully passed certifications, education and training in banking services. Total work experience in the bank is more than 15 years. [email protected]

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How to open an individual investment account

You need to contact a stock broker who provides such services and whose terms and conditions suit you. Check if he has the appropriate license List of Central Bank brokers.

Just in case, you can familiarize yourself with the rating Rating of trading participants by the number of registered Individual investment accounts of trading participants by the number of registered IIS from the Moscow Exchange in order to understand what major players are on the market.

When choosing a broker, pay attention to the following points:

• The amount of the commission is how much, when and for what you will have to pay.
• A set of securities - what you can buy if you open an IIS. Different brokers give you different options.
• A system for withdrawing dividends and coupon income - in case you want to receive them and not lose a tax deduction.
• Customer reviews - it would be strange to ignore them.
• Ease of interaction - fast technical support, comfortable website and application for trading.

As always, read the contract carefully and make sure that all clauses in it are clear to you. After signing the agreement, the broker will open an account and then send you its details. You will be able to transfer money using them and trade securities, if we are not talking about trust management.

There are no restrictions on the frequency of replenishing IIS; you can transfer money as often as you want. The main thing is that the total amount does not exceed one million per year.

Comments: 2

Your comment (question) If you have questions about this article, you can tell us. Our team consists of only experienced experts and specialists with specialized education. We will try to help you in this topic:

Author of the article: Klavdiya Treskova

Consultant, author Popovich Anna

Financial author Olga Pikhotskaya

1. Michael
   11/17/2021 at 12:55 Good afternoon! Can I buy and sell currency on the exchange through an individual investment account during the period from its opening and closing without paying tax, provided there is no withdrawal of funds? And how will this be considered (reflected) in the event of a profit or loss from the sale or purchase of currency?
   Reply ↓ Anna Popovich
   11/17/2021 at 10:52 pm

   Dear Mikhail, you can buy and sell currency, if you have not withdrawn money during the year, then the tax will still be written off, but only at the end of the calendar year

   Reply ↓

Results

IIS is a convenient financial instrument that allows you to get more income from investment transactions, since it involves the use of tax benefits. The financial result from transactions on an automated investment system is completely exempt from tax. But this requires compliance with certain conditions. The exception is dividends of both Russian and foreign companies: they are in any case subject to taxation, deductions are not applied to them. Also, for transactions with currency, independent declaration of income and payment of tax are required.

Sources:

• Tax Code of the Russian Federation
• Federal Law of April 22, 1996 No. 39-FZ

You can find more complete information on the topic in ConsultantPlus. Free trial access to the system for 2 days.