Newsletter September 2025

1. IRS Withholding Reduction in August and September: Higher Net Income, but Beware of 2026 Tax Settlement

During August and September 2025, employees and pensioners will notice an increase in their net income due to an extraordinary reduction in the IRS (personal income tax) withholding tables. This measure aims to return to taxpayers part of the tax withheld in excess between January and July, following the €500 million tax relief package approved by the Government.

What changes in practice?

 

• • Salaries up to €1,136 will be exempt from withholding tax, whereas until July the exemption limit was €991 (for a single worker with no children).

• • Example: An employee with a gross salary of €1,000 who previously had a monthly withholding of around €58 will receive the full amount during these two months.

• • Pensioners also benefit: a pension of €2,500, which previously had a withholding of €497, is now subject to only €52 in withholding, resulting in a net gain of approximately €1,200 over August and September.

However, caution is advised for the future. Despite the immediate relief, it is important to remember that withholding tax is an advance payment of IRS. This means that in 2026, taxpayers may receive a smaller refund — or even face additional tax due — if the total amount withheld throughout the year does not cover their actual tax liability.

Certified accountants should inform clients about the temporary nature of this benefit and its potential future implications. It is advisable to suggest planning or provisioning — especially for those experiencing significant variations in monthly withholding — and to review estimated taxes due at year-end to avoid surprises in the next settlement.

2. IAS 21: New Guidance on Non-Exchangeable Currencies

In 2025, a significant update to IAS 21 – The Effects of Changes in Foreign Exchange Rates came into effect, directly impacting how entities account for transactions in economies where the local currency is no longer accepted as a medium of exchange — i.e., it has become non-exchangeable.

The amendment addresses a previous gap by providing practical guidance on how to determine the spot exchange rate in situations where the local currency can no longer be freely converted into a foreign currency due to economic or political restrictions.

Key highlights of the update:

 

• • Objective criteria to identify when a currency ceases to be considered exchangeable;

• • Methods for determining the spot exchange rate in the absence of an active market;

• • Enhanced disclosure requirements, including:

     

    • • Explanations of how non-exchangeability affects the entity’s financial performance and position;
    • • The exchange rate used at the reporting date and how it was determined.

The amendment is to be applied retrospectively, without restating comparative periods, and the impact must be recognized in:

 

• • Retained earnings, when converting from a foreign currency to the functional currency;

• • Currency translation reserve, when converting from the functional currency to the presentation currency.

This update is particularly relevant for groups operating in economies subject to exchange controls or monetary instability. It is essential that reporting systems and technical teams are prepared to comply with these new measurement and disclosure requirements.