Navigating the labyrinth of cross-border taxation: Portugal’s NHR regime and tax residency

The conflict between Portugal and Spain regarding the tax residency status of non-habitual tax residents (NHRs) persists. The Portuguese tax authorities (PTA) recently issued a binding ruling clarifying that NHRs are deemed tax resident in Portugal for all legal purposes, making them eligible for double tax treaty (DTT) benefits. However, the Spanish tax authorities have been challenging tax residency status for NHRs, questioning whether the nature of the available exemptions compromise the residency criteria set forth in Article 4(1) of the DTT.

The conflict is far from being resolved, with the potential to spread to other jurisdictions, compromising the tax status of NHRs and legal certainty, and increasing risks of double taxation.

On January 16 2026, the PTA issued ruling No. 29,111, stating that a Portuguese NHR is considered a tax resident for the purposes of the Spain–Portugal DTT, specifically under Article 4(1) of the treaty.

From a Portuguese standpoint, although NHRs may benefit from preferential tax treatment on foreign-sourced income (notably, employment and capital income), they are fully tax resident in Portugal according to domestic legislation and subject to tax on their worldwide income. Furthermore, for income abroad, the NHR regime clearly sets a mandatory flat 10% rate for foreign pensions, whilst income flowing from low-tax jurisdictions is subject to an aggravated 35% rate. Also, the NHR regime allows for taxpayers to opt for the exemption method, which operates on an exemption‑with‑progressivity basis, whereby exempt income is still considered for determining the applicable progressive tax rate where relevant. Finally, foreign-sourced income shall only be optionally exempt if taxable in the source country under DTT provisions.

In a nutshell, it is imprecise to consider that taxpayers covered by the NHR regime are only subject to tax on local income. As such, they should be deemed tax resident in Portugal and fully covered by the DTT provisions with Spain. Furthermore, the ruling stipulates that a valid tax residence certificate issued by the Portuguese authorities should be recognised by Spain for treaty purposes, and its validity cannot unilaterally be challenged by Spain.

This position contrasts with previous interpretations by the Central Economic-Administrative Tribunal (TEAC), which occasionally questioned the sufficiency of such certificates for establishing treaty residency.

Spanish tax authorities have historically adopted a differing interpretation, leading to interpretative conflicts. Spanish bodies, including the TEAC, have questioned whether NHRs, due to the specific tax exemptions they receive in Portugal, genuinely qualify as residents for the comprehensive application of the DTT. This position is likely influenced by the Spanish interpretation developed in the context of the ‘Beckham Law’ (see “Los impatriados 'Beckham' no podrán obtener certificados de residencia fiscal”, Lexology), notwithstanding the fact that that regime is materially different from the Portuguese NHR framework.

The Spanish tax authorities’ arguments often suggest that if an NHR’s foreign income is largely untaxed in Portugal, the individual may not be considered fully subject to tax in Portugal within the context and purpose of Article 4. This interpretation could allow Spain to apply its domestic tax laws – such as the non-resident income tax (IRNR) or personal income tax (IRPF) – to Spanish-source income or even ignore the residency status in Portugal.

According to Binding Ruling No. 29,111, tax residency certificates serve as primary evidence for individuals seeking to claim treaty benefits and prevent double taxation. However, the Spanish judiciary has articulated a more nuanced stance.

Spanish courts, including the Supreme Court, generally acknowledge that a tax residence certificate issued by another country under a DTT should be respected and cannot be automatically ignored. However, they also emphasise that a case-by-case analysis is required, notably to investigate if an individual’s primary residence and economic interests predominantly align with Spain, considering the tie-break rules set forth in Article 4(2) of the DTT.

This debate and controversy, although still limited to Portugal, entails a significant risk. In fact, given the wording of Article 4(1) of most of the treaties signed by Portugal, we cannot rule out the possibility of other countries repealing the NHR status – and tax residency in Portugal – in a scenario where a taxpayer is effectively only subject to tax on Portuguese-sourced income, with a total exclusion of any foreign-sourced income. There is no precedent for such an approach, but the door has been opened by the Spanish authorities.

A similar risk could be applicable to the new IFICI regime (that replaced the NHR), as the same grants a full exemption on foreign income, with the exception of pensions.