6 major changes in filling out the 2023 IRS for investors

The mandatory declaration of earnings from crypto-assets and the mandatory inclusion of financial capital gains are two of the situations that investors should be aware of when filling out the 2023 IRS.

This Monday marks the beginning of another IRS filing season. And, as always, taxpayers' expectations are to reclaim some of the taxes they paid in IRS throughout the past year.

The IRS 2023 filing period will run until June 30th, and although there are no profound changes in filling out the declaration compared to the previous year, there are about half a dozen changes in the tax rules relevant to taxpayers who are also investors.

Examples of this are the mandatory inclusion of financial capital gains for taxpayers with high incomes, the mandatory declaration of earnings from crypto-assets held for more than one year, and tax incentives for long-term leases and the purchase of startup shares.

So, before filling out and submitting the IRS 2023 declaration on the Tax Authority's portal with potential errors, see if any of these changes apply to your income and learn how to fill it out properly.

  • Mandatory declaration of earnings from crypto-assets

Investors who have generated earnings from the sale of crypto-assets in 2023 must declare the capital gains generated for IRS purposes. This applies to both capital gains generated less than 12 months ago, which are taxed at 28%, and to capital gains from crypto-assets held for more than one year, for which a tax exemption applies.

Investors should reflect these transactions in Annex G if they involve capital gains from the purchase and sale of crypto-assets, or in Annex B if the gain was generated through income earned by independent workers.

  • Mandatory inclusion of financial capital gains

One of the most significant changes for taxpayers in the highest IRS bracket (earning over 78,834 euros per year) concerns the mandatory inclusion of capital gains from financial assets held for less than one year.

Thus, wealthier taxpayers, instead of seeing capital gains from stocks, bonds, and other financial assets generated less than one year ago subject to the traditional autonomous rate of 28%, or 35% for gains generated in tax havens, will now be subject to the maximum rate of 48%. It is important to note that these capital gains must be reported in Annex G.

Tax Benefit on the purchase of startup shares by workers
Taxpayers working in small and medium-sized startups who bought shares of these companies in 2023 enjoy favorable tax conditions on this investment. Annex A of the IRS declarations has been updated to include a specific section dedicated to the purchase of startup shares by their employees.

This change introduces a 28% tax exemption on capital gains until the shares are sold. And when the time comes to sell these securities, income tax will only be imposed on 50% of the amount obtained, thus providing a significant tax advantage.

However, this measure is not indiscriminate and is subject to a set of rigorous criteria that define eligibility for the tax incentive. In addition to covering only shares of startups with up to 250 employees and with a turnover of more than 50 million euros, the legislation excludes the tax benefit from any worker who owns more than 20% of the company's share capital or voting rights, as well as managers and members of the administration.

  • Capital gains from real estate by foreigners

The Portuguese tax reform introduced a significant change in the way income obtained by foreigners through the sale of real estate in the country is taxed, leveling the playing field between national and non-resident citizens.

Previously, until the fiscal year 2023, profits from the sale of properties in Portugal by non-resident foreigners were subject to a fixed tax of 28% on the total gains. In contrast, Portuguese residents faced a different regime: only 50% of real estate capital gains were taxable, but these were subject to progressive IRS rates, which can reach up to 53%. This difference in treatment not only complicated the tax system but also introduced an element of inequality in the taxation of real estate income.

The change defined now, reflected in Annex G of the IRS declarations, harmonizes the tax treatment of real estate capital gains, eliminating discrepancies that existed until then between residents and non-residents. With the new regulation, all gains from the sale of properties in Portugal, regardless of the seller's tax residence, are now included in the same regime.

  • Exclusion of taxation on offshore income

Taxpayers who earned income last year and held assets exceeding 500 euros in offshore accounts are exempt from declaring this wealth to the Tax Authority, even those assets and income that are tax-exempt. All due to a peculiarity in the legislation that is numbered.

Starting from the 2024 IRS, this exception in the law will cease to exist. A new rule, introduced by the State Budget for 2024 and driven by the Socialist Party, will require that all types of income, including tax-exempt ones, as well as assets located in tax havens that exceed the value of 500 euros, be declared.

  • Tax incentives for long-term leases

Landlords who opted for long-term lease agreements last year benefit from a significant reduction in the taxation of rental income. Depending on the duration of the contract, autonomous rates on rents decrease gradually, ranging from a rate of 28% to a minimum level of 5% - in the case of contracts lasting 20 or more years.

This difference is stated in Annex F, which now distinguishes between short and long-term lease contracts, with the taxpayer filling in the amounts received in 2023 according to the type of lease contract entered into.