Source: Application of the Tax Treaty to ‘Non-Habitual Residents’ in Portugal.

In recent years, the Spanish Tax Administration has maintained a restrictive approach toward taxpayers benefiting from the Portuguese Non-Habitual Resident (NHR) regime. Both the Directorate-General for Taxes (DGT) and the Central Economic-Administrative Court (TEAC) have argued that this regime does not entail “full tax liability,” thereby preventing such taxpayers from being recognized as tax residents for the purposes of the Double Taxation Treaty between Spain and Portugal.

This approach has led to numerous tax reassessments. In particular, pensioners residing in Portugal under the NHR regime have seen their Spanish-source pensions become taxable in Spain, either through the Non-Resident Income Tax (IRNR), with withholding rates that may reach up to 40%, or even under Personal Income Tax (IRPF) if they are deemed tax residents in Spain.

The TEAC’s position, reaffirmed in recent decisions (2024 and 2025), has been clear: tax residence certificates issued in Portugal do not allow for the application of the Treaty, leaving these taxpayers subject exclusively to Spanish domestic law.

This stance conflicts with the doctrine of the Spanish Supreme Court, which has established that tax residence certificates issued by another State with an applicable treaty cannot be unilaterally disregarded by the Spanish Administration when they have been issued for the purposes of that very Treaty.

The debate has taken a significant turn in 2026. The Portuguese Tax Authority has clarified, through a binding ruling, that the NHR regime does indeed constitute a system of full tax liability.

This implies that taxpayers under this regime must be considered tax residents for the purposes of the Treaty. Consequently, and in accordance with Article 18 thereof, private pensions should be taxable only in the country of residence, that is, Portugal.

Although such income may be exempt under the special regime, it remains subject to Portuguese Personal Income Tax (IRS), which reinforces the existence of full tax liability.

This new scenario opens the door to important practical implications. On the one hand, it could lead to a revision of the TEAC’s position, aligning it with both the interpretation of the Portuguese authorities and the case law of the Spanish Supreme Court. It also strengthens the grounds for challenging previous reassessments, increasing the likelihood of success for affected taxpayers. In this context, claims for refunds of undue withholdings applied in Spain on pensions may also be considered. Finally, reciprocal effects cannot be ruled out, which could lead Spain to reconsider the treatment of its own inbound expatriate regime in its relationship with Portugal.

The position of the Portuguese Administration significantly reinforces the defense of taxpayers under the NHR regime. Although each case must be analyzed individually, this new criterion constitutes a strong argument to challenge taxation in Spain and to claim the proper application of the Treaty.

Despite the fact that the NHR regime was abolished in 2024, its transitional application ensures that this controversy will remain relevant in the coming tax years.

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