Spanish tax authorities reassess retirement pensions and pension plan withdrawals of Spaniards under Portugal’s Non-Habitual Resident regime

Madrid, October 13, 2026

Summary

The tax audit bodies of the Spanish Tax Agency (AEAT) are reassessing Spanish pensioners who, after moving to Portugal under the Non-Habitual Resident regime (NHR), withdrew the funds from their Spanish pension plans and paid tax on them in Portugal at 10%. Relying on the 2024 doctrine of the Central Economic-Administrative Court (TEAC), the tax authorities deny that these taxpayers are residents for the purposes of the double tax treaty with Portugal and require them to pay Spanish tax, without deducting the amount paid in Portugal. We analyze the origin of the problem, how these reassessments are being conducted, the opposing position of the Portuguese tax authorities, and why the matter is far from settled.

1. An unexpected tax bill for retirees who moved to Portugal

The AEAT’s tax audit bodies are reassessing Spaniards who moved to Portugal, opted into the Non-Habitual Resident (NHR) regime, and, while already resident there, withdrew the funds from their Spanish pension plans—in addition to receiving the corresponding retirement pensions. These taxpayers therefore reported this Spanish-source income in Portugal, paying tax there at 10% on it, convinced that the double tax treaty between Spain and Portugal (hereinafter, the DTT)[1] reserved taxing rights to their new country of residence.

The Spanish tax authorities now take the view that the DTT did not apply to them, and have therefore opened numerous tax audits (inspection procedures) resulting in a second layer of taxation in Spain, at rates that may approach 40%, without deducting the tax already paid in Portugal and, in addition, charging late-payment interest from the date on which the corresponding tax return should have been filed in Spain until the date of the reassessment.

At OC Tax & Legal we are defending several of these cases, and in this article we explain the origin of the problem, how the tax authorities are reassessing, and what arguments exist to challenge it.

2. The starting point: the NHR, pensions at 10%, and Article 18 of the Spain-Portugal DTT

The Non-Habitual Resident regime was created in Portugal in 2009[2] to attract qualified professionals, high-net-worth individuals, and foreign pensioners, and was granted for ten consecutive years from registration as a resident.

For foreign-source pensions and pension plan withdrawals, the regime went through two stages:

• Until March 31, 2020: such income could be exempt in Portugal.
• From April 1, 2020[3]: such income became taxed at a flat rate of 10%.

Finally, the NHR was abolished with effect from January 1, 2024[4], although it was maintained for those who had already been granted it at that date until their ten years expired.

At the same time, Article 18 of the DTT provides that private pensions—and similar remuneration—paid to a resident of a State in consideration of past employment may be taxed only in that State of residence. Benefits from withdrawals from Spanish pension plans thus fall within this category.

On that basis, many Spanish pensioners acted in the same way:

1. They moved to Portugal.
2. They obtained from the Autoridade Tributária e Aduaneira a certificate of residence declaring them resident in Portugal, under the NHR, for the purposes of Article 4 of the DTT.
3. They filed Form 210 for Non-Resident Income Tax (IRNR) in Spain in respect of their Spanish-source retirement pensions and pension plan withdrawals, applying the Treaty exemption to both types of income. Those who had borne withholding in Spain during the year on such income requested a refund of it through the Forms 210 filed.
4. They reported the retirement pensions and withdrawals in their Portuguese personal income tax (IRS) return, paying tax at 10% on them in Portugal.

For years, the tax authorities accepted this arrangement and refunded the withholdings after reviewing the tax residence certificate, which in most cases they required to be submitted beforehand for that purpose.

3. The tax authorities’ change of position: the TEAC doctrine and its application by the Inspectorate

The tax authorities’ change of position stems from three TEAC decisions of June 24, 2024, reiterated on May 22, 2025, and April 20, 2026[5], which, constituting reiterated doctrine, are binding on the tax audit bodies.

The TEAC’s reasoning rests on the final clause of Article 4.1 of the DTT, under which a person who is liable to tax in a State only in respect of income from sources in that State, and not on worldwide income, is not a resident for DTT purposes. Reading this together with the Commentaries on the OECD Model Tax Convention, which refer to excluding those who are not subject to comprehensive taxation (“full liability to tax”) in the country of residence, the TEAC concludes:

• The NHR does not involve taxing the Portuguese taxpayer’s worldwide income, but merely “selective” taxation of certain income, typical of non-residents. Therefore, in the TEAC’s view, the final part of Article 4.1 of the DTT applies and, as a result, it concludes that residents under the NHR, although they may indeed be resident in Portugal, cannot be considered residents for DTT purposes. Accordingly, the TEAC concludes that neither the DTT nor the taxation rules it lays down apply.
• The Portuguese certificate of residence is a unilateral assertion of residence that does not enable the DTT to be applied.
• Absent the DTT, Spanish domestic legislation applies and the taxpayer’s income is reassessed under Personal Income Tax (IRPF) if the taxpayer is resident in Spain, or under the IRNR if not.

Even though, in the cases now being challenged by the tax authorities, the Portuguese residents were not taxed exclusively on their Portuguese-source income, since the Spanish-source withdrawals and pensions were taxed at 10%, the TEAC having described this tax rate as “extraordinarily meager” compared with ordinary Portuguese rates, its criterion is being extended to those who did pay tax in Portugal, on the grounds that they were not taxed there on a comprehensive basis.

3.1. The practical consequences in Spain

Where the taxpayer proves, within the audit procedure, their actual residence in Portugal, as has happened in the cases our firm is handling, the Inspectorate has accepted that residence and reassesses the Spanish-source income under the IRNR. However, this is not always the case, as we are aware that the tax audit bodies do not always consider actual residence in Portugal to have been proven, in which case they treat the taxpayer as tax resident in Spain, liable to pay tax here on their worldwide income under the IRPF.

In cases where residence in Portugal is proven, the Inspectorate, since it does not consider the DTT or the taxation rules it lays down to be applicable, assesses IRNR on the Spanish-source pensions and withdrawals as follows:

• The progressive scale is applied to the Spanish pensions and withdrawals under Article 25.1.b) of the consolidated text of the Non-Resident Income Tax Law (TRLIRNR)[6], applied to each accrual. Thus, a lump-sum withdrawal concentrates the tax base in a single quarter and sends the tax rate soaring. Specifically, the scale is as set out below:

• No credit in the IRNR for the tax paid in Portugal. The Inspectorate maintains that the IRNR does not provide for such a deduction and refers the taxpayer to Portugal to request the corresponding refund there, as that is the country of residence in which the credit to avoid international double taxation for the Spanish tax now claimed by the AEAT should be applied.
• Late-payment interest is charged from the end of the filing period for each Form 210 until the date of the assessment.
• Previous refunds have no effect. The fact that the tax authorities refunded the withholdings borne in Spain on the pensions and withdrawals after examining the tax residence certificate issued by Portugal certifying tax residence for DTT purposes is not regarded as a binding prior act (acto propio) of the AEAT.

To illustrate the consequences of the reassessments carried out by the Inspectorate, consider the case of a taxpayer who withdrew €200,000 from a pension plan in a single lump sum. In this case, the tax audit bodies would reassess the taxpayer’s IRNR, including the €200,000 withdrawal, resulting in tax payable of approximately €75,500, an effective rate close to 38%, not counting the corresponding late-payment interest. In addition, the tax reassessed on the retirement pension received would be added to this amount. In Portugal, the taxpayer would have paid €20,000 on that same withdrawal, by applying the 10% rate.

The Inspectorate also refuses to initiate, even at the taxpayers’ request, the mutual agreement procedure with Portugal provided for in the DTT, as it considers that only the taxpayer can initiate it.

If, on the other hand, the taxpayer fails to prove their actual residence in Portugal in the course of the procedure, the Inspectorate will reassess the withdrawals and pensions received, as well as worldwide income, under the IRPF, in which case the general tax base rates would apply, which, depending on the Autonomous Community (region), could range between 19% and 47%. In this scenario, the tax authorities would apply the credit for international double taxation for the tax paid in Portugal and would charge late-payment interest.

3.2. Are penalties imposed?

Not in all cases. In those cases in which the tax authorities have verified residence in Portugal, the Inspectorate has not imposed penalties for the tax left unpaid during the voluntary filing period, as it has taken into account the novelty of the 2024 TEAC decisions and the absence of negligence in the conduct of taxpayers who, being genuinely resident in Portugal, understood that they were acting lawfully in considering that they did not have to pay tax in Spain on the pension plan withdrawals or on the retirement pensions.

The situation is different in those cases in which, because residence in Portugal is not considered proven, the taxpayer is treated as resident in Spain and reassessed under the IRPF. In those cases, the tax authorities do not start from the premise of a genuine resident of Portugal who acted in good faith, and the risk of penalties is higher.

4. What does Portugal think of all this?

Portugal maintains exactly the opposite of Spain. For the Autoridade Tributária e Aduaneira, the NHR holder is a full tax resident: they are subject to Portuguese IRS on their worldwide income. The NHR does not turn them into a non-resident; rather, it applies a special tax regime to certain income. The 10% on foreign pensions is therefore a form of taxation, not an absence of it.

That position has been set out in writing in its binding ruling (informação vinculativa) No. 29111, of January 16, 2026. The binding ruling rests on a key distinction: exemption is not the same as non-liability to tax. The NHR resident is subject to Portuguese IRS on their worldwide income; what happens is that, under that regime, exemptions or differentiated tax rates apply to certain foreign-source income. Thus, only income that is already subject to tax can be declared exempt.

Therefore, in the view of the Autoridade Tributária, the NHR does not fall within the exclusion in Article 4.1 of the DTT, which refers to persons taxed only on income obtained in the State of residence. Consequently, considering the DTT applicable, Portugal concludes that, under Article 18 thereof, Spain cannot tax either the pensions or the pension plan withdrawals, since that taxing right belongs to Portugal alone.

4.1. The final consequence: double taxation with no unilateral way out

The Spanish Inspectorate refers the taxpayer to Portugal to recover the tax overpaid there, either because the double taxation credit was not applied, in the case of taxpayers who manage to prove their residence in Portugal and are reassessed under the IRNR, or because tax was unduly paid in Portugal on any Spanish-source income, in the case of those who fail to prove residence in Portugal and are reassessed under the IRPF.

In light of the statements made by the Autoridade Tributária in its binding ruling, it would foreseeably refuse to make such a refund:

• There is no Spanish tax “in accordance with the Treaty” to credit. Portuguese legislation[7] limits the double taxation credit, where a treaty exists, to the tax paid abroad on the terms the treaty permits. Given that Portugal considers that the taxpayers now being reassessed were tax residents of Portugal and that Spain, applying the DTT, could not tax the retirement pensions or the pension plan withdrawals, neither the IRNR nor, still less, the IRPF demanded by the AEAT would fall within that scenario.
• Nor can a refund of the 10% be expected. From the Portuguese standpoint, that tax was correctly charged to a taxpayer who was actually resident in Portugal on income that the Treaty allocates to Portugal.

The taxpayer is thus subject to effective double taxation as a result of the opposing conclusions reached by the two States.

4.2. How the conflict can be resolved

There are only two ways to correct this situation:

1. The mutual agreement procedure under Article 25 of the Treaty. It allows the competent authorities of Spain and Portugal to negotiate a solution. This procedure, however, must be initiated by the taxpayer within two years of the first notification of the Spanish assessment. The DTT only requires the States to endeavor to reach an agreement, not to reach one. With positions as opposed as those of Spain and Portugal, and with no obligation to reach an agreement, this route does not seem likely to be conclusive.
2. The courts. The appeal route in Spain—before the Regional Economic-Administrative Court (TEAR), the TEAC, and the administrative courts—can annul the assessment if the argument that the taxpayer under the NHR is resident in Portugal for Treaty purposes is upheld.

In addition, Directive (EU) 2017/1852[8] on tax dispute resolution allows a complaint to be filed with both States within three years.

5. Conclusion

The TEAC doctrine, which affects Spanish pensioners who moved to Portugal under the NHR, has turned an arrangement that the Spanish tax authorities themselves accepted for years, refunding withholdings after examining Portuguese residence certificates, into a first-order tax contingency. As we have seen, the tax demanded by the authorities can be more than three times the tax paid in Portugal, to which late-payment interest would have to be added and, in cases where residence in Portugal is not proven, the risk of penalties.

The problem does not end in Spain, since the two States have made opposing statements on the application of the DTT in these cases, leaving the taxpayer trapped in double taxation that neither State will correct on its own.

However, the matter is far from settled. The TEAC doctrine is binding on the tax audit bodies but not on the courts, and the Supreme Court has not yet ruled on the merits of the issue, its ruling being the one that will in any event bind both the administrative bodies and the courts. Moreover, that doctrine is being applied to situations different from those decided by the TEAC in 2024, in which the pensioners had not paid tax in Portugal on their Spanish-source income; not to mention that it is being applied to taxpayers who filed their returns before June 2024, in accordance with the criterion that the tax authorities themselves applied until then, which should raise the question of whether a subsequent change of criterion can be projected onto those returns, as the tax audit bodies are doing. Nor is the weight that our case law has been giving to residence certificates issued for the purposes of a treaty a minor point, and the AEAT seems to have forgotten it in these cases. There is, therefore, room to challenge these reassessments, especially where the taxpayer actually paid tax in Portugal, but that room depends to a large extent on how the defense is approached from the start of the audit procedure.

At OC | Tax & Legal we assist taxpayers who have moved to Portugal in tax audits, economic-administrative claims (reclamación económico-administrativa), and judicial review appeals before the administrative courts (recurso contencioso-administrativo) on this issue. If you have received an information request or a proposed tax assessment, or simply wish to review your situation, please contact us.

About the author

Laura Esteban Igual, Senior Associate at OC | Tax & Legal, is a professional specializing in domestic and international taxation, tax procedures, and litigation. She holds the Expert in Taxation qualification from the Universidad Autónoma de Madrid, a program in which she participates as a lecturer.