How and when to declare your investments?

The IRS campaign for the 2022 tax year is under way and, when filling out the declaration, it is natural that doubts arise about what should or should not be included in the IRS. Most of the income obtained through the investments most common ones have already been subject to withholding tax, which means they have already paid tax and so you don’t have to declare to the IRS.

There are however some exceptions. If you obtained capital gains from the sale of shares, or intend to enjoy the tax benefits of your PPR, you must include this income in your return. In this article, we show you how investments are taxed, on a case-by-case basis, and which ones are required to be declared to the IRS.

Gathering or autonomous taxation?

Before submitting your tax return, you will have to choose between one of these two forms of taxation, not least because the decision you make will determine the tables and fields to be filled in.

If you opt for autonomous taxation, a single rate will be applied to each category of income. If you choose the aggregation, all the income you have obtained in the same year will be added and it is on this cake that the IRS rate corresponding to your income level will fall.

The obligation to declare or not your investments to the IRS will depend on the income in question, as we will see later.

But if you opt for aggregation, all income of the same nature, even those that are exempt, now have to be declared in detail, indicating the income received and the withholding tax already made.

In case of doubt about which is more advantageous, it is best to simulate both types of taxation and then compare the results.

Which investments to declare to the IRS?

Financial investments belong to category E and are called, for tax purposes, capital income.

But with regard to the taxation to which they are subject and, consequently, the obligation or not to declare them to the IRS, there are several distinctions to be made.

Savings and Treasury Certificates are savings products launched by the State. Normally, these products are equated with time deposits in terms of risk, which is low. But it’s not just the security levels that are identical, they are also treated similarly for IRS purposes.

Interest on these three products is taxed at the withholding rate of 28%. As this taxation occurs at source, you already receive the respective interest net. That’s why, you do not have to declare to the IRS the interest you receive from these financial investments.

However, if you choose to include interest from these applications, you must declare the income received and the withholding tax. In that case, they will be taxed at your IRS rate like other income.

Did you choose to invest your savings in units of investment funds? In this case, taxation is exactly the same as in the previous situation.

The income you may obtain through these investments, such as capital gains resulting from the sale of your shareholding or the distribution of dividends, already reach your hands “tax free” and there is nothing to declare for IRS purposes.

As in the previous case, you will only have to declare these incomes if you opt for aggregation.

But this only applies to funds based in Portugal. One way to identify whether the funds are national is through the ISIN code, which starts with “PT”. In foreign funds it is differentand taxation is identical to that of shares.

At the time of redemption, any gains are not taxed. In return, the Redemption operations carried out each year by the investor will have to be entered in the IRS declaration. The overall balance of capital gains and losses on all operations carried out throughout the year (shares, bonds, ETFs and foreign funds) will be taxed at the autonomous rate of 28%, unless you opt for aggregation.

The shares represent portions of the capital of a company and when you buy them you also become the owner of a part of it. The money you invest in these securities can then provide you with income in two ways: through capital gains or through dividends.

Gains

By selling the shares for a higher price than you bought them, you will earn money, that is, it will generate a gain. And for IRS purposes, capital gains from the sale of shares must always be declared in Table 9 of Annex G. The same annex also serves to declare capital gains obtained from the sale of real estate.

In the case of the sale of shares, you must indicate the number of shares sold and the respective purchase and sale amounts. You can and should also include any expenses you incurred with that transaction, such as brokerage commissions, which must be subtracted from the sale price. An autonomous taxation rate of 28% is then applied to the balance of that operation.

dividends

Another source of income provided by stocks is the dividends that some companies pay. Dividends are a sharing of profits by the company’s shareholders, and the amount of the dividend is fixed per share. Thus, each shareholder will receive dividends in proportion to the number of shares he owns.

In the case of dividends, a tax rate of 28% is also applied. The difference is that this fee is withheld at source by the paying entity and when the money arrives in your bank account it is already tax-free. For this reason you don’t have to report them to the IRS.

The bundling option

Although the “general case” is described above, in which income obtained from shares is subject to autonomous taxation at the rate of 28%, it is always possible to opt for its inclusion.

In case of aggregation, in the case of national shares, dividends are partially tax exempt, as only 50% of dividends are effectively taxed. Therefore, 50% of the dividends received must be entered in Appendix E of the income tax return.

It should not be forgotten that, if you choose to include dividends, you will have to do the same for all category E income, including interest earned on term deposits.

In this situation, capital gains and dividends will be added to all your other income (pensions, wages, etc.) and the total obtained will be taxed according to the rate corresponding to your IRS level. In this way, the option for aggregation will only compensate if your IRS rate is less than 28%.

PPRs are one of the financial investments most appreciated by the Portuguese, not only because of the tax benefit of 20% of deliveries, but also because they enjoy very favorable taxation of capital gains.

In practice, taxation of income from PPR, determined by the difference between the amount received and the amount invested, is carried out at the rate of 8%, provided that the redemption is carried out within the conditions set out in the law (article 4 of the Decree-Law No. 158/2002).

When recovering the investment, if you withdraw all the money at once, the insurer or entity that manages the PPR will apply an 8% retention rate. And you don’t need to fill out anything on your IRS return. But if you opt for reimbursement in the form of an annuity for life, then you pay tax as if it were a normal pension. In this case, it is necessary to fill in Table 4 of Annex A, with code 406.

In addition to more favorable taxation, the PPR also has a tax benefit, which consists of the possibility of deducting 20% ​​of annual deliveries for IRS collection. But there is a catch.

If you enjoy these benefits and decide to redeem the money before the age of 60, or before the PPR reaches five years, you will have to return them plus 10% for each past year. These values ​​have to be declared in Table 8 of Annex H, with code 803.

If you do not want to take advantage of the PPR tax benefits, in order to be able to redeem it at any time without penalties, simply delete the field referring to the PPR deduction, which appears pre-populated in Table 6B of Annex H. If you decide to take advantage of the tax benefits, then you don’t need to do anything.

For more information on how to file PPR with the IRS, see the following article:

See too
How to declare the PPR in the IRS?

Income from crypto assets on the IRS: news for the 2023 fiscal year

Until the entry into force of the State Budget for 2023 (OE2023), cryptoassets were in a kind of tax void, with no taxation on income obtained from their sale or mining.

As of 2023, this income will be taxed as category B income (business and professional), as capital income or as capital gains, depending on how it was obtained.

Thus, income obtained from issuing crypto assets, such as mining or validating transactions, is now taxed as category B income. Taxpayers can, in this case, opt for the simplified regime or organized accounting.

In accordance with article 31 of the IRS Code (CIRS) tax rates are applied to professional and business income according to certain coefficients. In the case of crypto assets, these coefficients are:

• 0.15 in operations with crypto assets;
• 0.95 to income from mining crypto assets.

Capital income and capital gains related to business income-generating activities are also covered by the coefficient of 0.95.

In situations where the investor opts (or, due to having an income of more than 200 thousand euros, is obliged to opt) for organized accounting, the taxable income to be included obeys rules similar to those of companies.

OE2023 now considers as capital income any form of remuneration resulting from operations related to crypto-assets, which have been generated by the application of capital. However, if this remuneration is made in crypto assets, there is only taxation when the cryptocurrency is sold; in this case, it is understood that it is about added value.

Capital gains, when there is no aggregation, apply the withholding rate of 28%. Even so, this taxation only occurs if you sell crypto assets that you have held for less than a year. If payment for the sale is also made in crypto assets, there is also no taxation.

The exemptions no longer apply if the capital gains or transactions are associated with beneficiaries or entities that pay income in tax havens or countries with which Portugal does not have tax information exchange agreements.

Article originally published in February 2020. Last updated in April 2023.