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

This interpretation has resulted in 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) when they are deemed tax residents in Spain.

The TEAC’s Position Versus the Supreme Court’s Doctrine

The TEAC’s position, reaffirmed in decisions issued in 2024 and 2025, has been clear: tax residency certificates issued by Portugal do not automatically allow taxpayers to benefit from the Treaty, leaving them subject exclusively to Spanish domestic tax rules.

However, this interpretation conflicts with the doctrine established by the Spanish Supreme Court, which has held that tax residency certificates issued by another treaty partner country cannot be unilaterally disregarded by the Spanish Tax Administration when they have been issued specifically for the purposes of that treaty.

A Turning Point in 2026

The debate took a significant turn in 2026. Through a binding ruling, the Portuguese Tax Authority clarified that the NHR regime does, in fact, constitute a system of full tax liability.

This means that taxpayers covered by the regime should be considered tax residents for Treaty purposes. As a result, and in accordance with Article 18 of the Treaty, private pensions should be taxable exclusively in the country of residence — Portugal.

Although such income may benefit from exemptions under the special regime, it remains subject to Portuguese Personal Income Tax (IRS), reinforcing the existence of full tax liability.

Potential Implications for Taxpayers

This development could have important practical consequences. On the one hand, it opens the door to a possible revision of the TEAC’s position, bringing it into line with both the interpretation of the Portuguese authorities and the case law of the Spanish Supreme Court.

It also strengthens the legal basis for challenging previous tax reassessments and increases the likelihood of success for affected taxpayers. In this context, claims for refunds of withholding taxes applied in Spain to pension income may also be considered.

Finally, reciprocal effects cannot be ruled out, potentially leading Spain to reconsider the treatment of its own inbound expatriate tax regime in its relationship with Portugal.

The position adopted by the Portuguese Tax Authority significantly strengthens the defense of taxpayers benefiting from the NHR regime. While each case must be assessed individually, this new interpretation provides a strong basis for challenging taxation in Spain and seeking the proper application of the Treaty.

It is worth noting that, although the NHR regime was abolished in 2024, its transitional provisions ensure that this controversy will remain relevant for years to come.

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

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