If you’re investing—whether in stocks, real estate, or alternative assets—you’ve probably come across the term capital gains tax.
It might sound technical, but the idea is actually very straightforward. Let’s break it down in a simple, investor-friendly way—and see how it compares to earning returns on platforms like Nectaro.
What is capital gains tax?
Capital gains tax is a tax on the profit you make when you sell an investment for more than you paid for it.
In other words:
- You buy an asset
- Its value increases
- You sell it for a higher price
The difference is your capital gain, and that’s what may be taxed.
A simple example
Let’s say:
- You invest €1,000
- Later, you sell your investment for €1,300
Your capital gain is:
€300 profit
You’re only taxed on that €300—not on the full €1,300.
When do you pay capital gains tax?
One of the most important things to understand:
You only pay capital gains tax when you sell the investment.
If your investment grows but you don’t sell → no tax yet
Once you sell and lock in the profit → the gain becomes taxable
This is called a realised gain.
What types of investments does it apply to?
Capital gains tax can apply to:
- Stocks and ETFs
- Bonds
- Real estate
- Cryptocurrencies
- Some alternative investments
If you sell an asset at a profit, capital gains tax may apply.
How is it calculated?
The basic formula is:
Sale price – purchase price – costs = capital gain
Then your local tax rate is applied.
Tax rates vary depending on your country, but in many European countries they typically range between 15% and 30%.
How this differs from earning on Nectaro
While capital gains tax is based on selling an asset, investing on Nectaro works differently.
You earn interest, not capital gains
On Nectaro:
- You invest in Notes (loan-backed instruments)
- You earn interest income over time
- You don’t need to sell anything to generate returns
This means your earnings are not capital gains, but interest income.
Tax is applied differently
- Capital gains → taxed when you sell
- Nectaro income → taxed as you earn interest
Specifically:
- Tax is automatically withheld at the moment interest is paid to your account
- The full interest is credited, and a portion is deducted as withholding tax at the same time
Withholding tax depends on your residence
The applicable rate depends on your tax residency:
- Latvia residents: 25.5%
- EU/EEA residents (excluding Latvia): 5% (for private individuals)
- Outside EEA: typically 25.5% (may be reduced with tax treaty)
- Lithuania (with certificate): 0%
The correct rate is applied automatically based on your provided tax details.
Automatic withholding makes things simpler
Unlike capital gains, where you often need to calculate profits yourself:
- Nectaro automatically withholds tax from your interest income
- The withheld amount is clearly shown in your account and reports
You may still need to declare income
Even though tax is withheld:
- You may still need to declare your income in your country of residence
- In many cases, the withheld tax can be offset against your total tax liability, helping avoid double taxation
Why understanding the difference matters
Knowing how capital gains tax compares to interest income helps you:
- Estimate your true after-tax returns
- Avoid confusion at tax time
- Choose investments that fit your financial and tax situation
Key takeaways
- Capital gains tax = tax on profit when you sell an asset
- You only pay it when gains are realised
- Nectaro returns are interest income, not capital gains
- Tax on Nectaro is automatically withheld at source
- Final tax obligations depend on your country of residence
Final thought
Capital gains tax is one of the most important concepts in investing—but it’s not the only way your returns can be taxed.
Understanding the difference between sell-based profits (capital gains) and ongoing income (like Nectaro interest) gives you a clearer picture of how your investments really perform.
Disclaimer: This article is for informational purposes only and does not constitute tax advice. Please consult a qualified tax professional regarding your individual situation.