LHV

Will the buyback create any tax implications for shareholders?

Created August 08, 2025 at 01:31 PM

Short answer:

A share‑buyback (also called a “share repurchase”) can generate tax consequences for shareholders, but the exact impact depends on the legal and tax framework in the shareholder’s jurisdiction, the way the buy‑back is structured, and the timing of the transaction. The LHV Group announcement does not spell out the mechanics of the repurchase, so we can only outline the typical tax issues that may arise for shareholders who hold LHV shares on the record date of the buy‑back.

1. How a buy‑back is taxed in most jurisdictions

Tax treatment	What it means for shareholders	Typical jurisdictions that apply it
Capital‑gain treatment	The cash received for the shares is treated as a sale of the shares. The shareholder must calculate the gain (or loss) as sale price –  acquisition cost (plus any allowable adjustments). This gain is then subject to the local capital‑gains tax rate.	Most EU countries (e.g., Estonia, Finland, Germany, France, Spain, etc.).
Dividend‑equivalent treatment	Some tax regimes treat a portion of the buy‑back proceeds as a “deemed dividend” (often the amount that exceeds the shareholder’s cost basis). That portion can be subject to dividend withholding tax or ordinary income tax.	United Kingdom (deemed dividend rules), Netherlands, Belgium, and certain U.S. “constructive dividend” doctrines.
Withholding tax on the distribution	If the buy‑back is classified as a dividend in the host country, a non‑resident shareholder may be subject to a withholding tax on the cash distribution (often 15 %–20 %).	Estonia (15 % dividend withholding tax on non‑resident shareholders), other countries with dividend withholding.
No tax at the time of the buy‑back	In a few jurisdictions, a buy‑back is treated purely as a capital‑transaction with no immediate tax; tax is only triggered when the shareholder later sells the remaining shares (i.e., the “step‑up” in basis).	Some U.S. cases (if the buy‑back is a “stock‑redemption” that meets specific tests).

2. What this means for Estonian‑resident shareholders (the most likely group for LHV)

Capital‑gain tax – Estonia does not levy a personal income tax on capital gains for individuals (the corporate‑level tax system applies only to retained earnings).
- If you are an Estonian tax‑resident individual, the cash you receive from the LHV buy‑back is generally tax‑free (no personal income tax on the gain).
- However, if you are a Estonian‑resident corporation that holds LHV shares, the gain is subject to the Estonian corporate income tax (20 % on distributed profits) when the proceeds are distributed.
Dividend withholding tax for non‑residents – For a non‑resident shareholder, the cash distribution is treated as a dividend and is subject to a 15 % withholding tax (unless a tax treaty reduces the rate).
Potential “deemed dividend” – If the buy‑back price exceeds the shareholder’s acquisition cost, Estonian tax law does not normally re‑characterise the excess as a dividend for residents. For non‑residents, the entire amount is still considered a dividend for withholding‑tax purposes.

3. What this means for shareholders in other jurisdictions

Jurisdiction	Typical tax treatment of a buy‑back	Key points to watch
United Kingdom	Treated as a sale of shares → capital‑gain tax; if the price exceeds the cost basis, the excess may be a “deemed dividend” taxed at dividend rates.	Use the “share‑redemption” test; check if the “market‑value test” applies.
United States	Generally a sale of shares → capital‑gain tax; if the buy‑back is a “constructive dividend,” the excess may be taxed as ordinary income.	Verify the “stock‑redemption” rules (Section 305).
Germany / France / Spain	Cash proceeds are capital‑gain; no dividend treatment unless the repurchase is deemed a “distribution of profits.”	Capital‑gain tax rates (25 %–30 % in Germany, 30 % in France, 19 %–21 % in Spain).
Nordic neighbours (Finland, Sweden, Norway)	Capital‑gain tax on the spread; dividend withholding may apply for non‑residents.	Capital‑gain rates: 30 % (Finland), 30 % (Sweden), 22 % (Norway).

4. Practical steps for shareholders

Identify your tax residency and whether you are a individual or a corporate holder of LHV shares.
Determine your cost basis (the price you paid for the shares, adjusted for any splits, dividends, or previous buy‑backs).
Calculate the gain/loss:
[ \text{Gain} = \text{Cash received per share} \times \text{Number of shares sold} - \text{Cost basis} ]
Apply the local tax rules:
- If you are an Estonian individual: No personal tax on the gain.
- If you are a non‑resident individual: Expect a 15 % withholding tax on the cash distribution (unless reduced by a treaty).
- If you are a corporation: The gain is part of taxable profit and will be subject to corporate tax when distributed.
Check for double‑taxation treaties (e.g., Estonia‑UK, Estonia‑US, Estonia‑Germany) that may lower the withholding‑tax rate for non‑residents.
Report the transaction in the appropriate tax return (e.g., capital‑gain schedule for the U.S., “KAP” for Estonia, “Self‑Assessment” for the UK).

5. Summary of likely tax implications for LHV shareholders

Shareholder type	Expected tax impact on the LHV buy‑back
Estonian‑resident individual	No personal income tax on the cash received (tax‑free). No withholding tax.
Estonian‑resident corporation	Taxable profit at 20 % corporate tax when the cash is distributed to shareholders.
Non‑resident individual	15 % dividend withholding tax on the cash distribution (subject to treaty reductions). Possible capital‑gain reporting in home country, but the primary tax is the withholding tax.
Non‑resident corporation	15 % withholding tax on the distribution; the cash may be treated as dividend income for the corporation’s home‑country tax return.
Shareholders in other EU jurisdictions	Generally capital‑gain tax on the spread; no dividend treatment unless local law re‑characterises the excess as a dividend.

6. Caveats & Need for Professional Advice

The LHV announcement does not disclose the exact price per share, the total amount repurchased, or whether the buy‑back is being executed under a “open‑market” or “tender‑offer” scheme. Those details can affect the tax treatment (e.g., a tender‑offer may be treated differently in some countries).
Tax laws change frequently; the above reflects the situation as of 2025‑2026.
Individual circumstances matter (e.g., prior losses that can be offset, specific treaty provisions, or special tax‑deferral regimes).

Therefore, shareholders should consult a qualified tax adviser in their home jurisdiction to confirm the exact tax consequences of the LHV Group buy‑back for their specific situation.