NHR: Brief Note on Portuguese Constitutional Court Decision 366/2026

The recent Portuguese Constitutional Court Decision 366/2026 of 21 April 2026 has generated discussion regarding the 20% flat tax rate applicable under the former Non-Habitual Resident (“NHR”) regime and, more broadly, the role and scope of Ministerial Orders (Portarias) within Portuguese tax law.

At the outset, it is important to highlight the potentially limited scope of the decision. The constitutional case originated from tax arbitration proceedings (Case 732/2024-T) involving a technical constitutional challenge concerning the legal basis for the definition of “high value-added activities” under the NHR framework.

The judgment was issued in the context of a specific case review and therefore does not automatically apply generally to all taxpayers or situations. The Court did not assess the constitutionality of the whole NHR regime itself, nor did it invalidate the regime as a whole. Rather, it focused on the constitutionality of a rule concerning the definition of high value-added professions for purposes of applying the 20% flat tax rate to active entrepreneurial income (Category B income).

Specifically, the decision analysed the reference in the Portuguese Personal Income Tax Code to a Ministerial Order listing activities considered to qualify as “high value-added activities” for purposes of applying the reduced 20% NHR flat tax rate.

The Court’s reasoning centred on the nuanced constitutional concept of the degree of legislative density required under Portuguese principles of tax legality and parliamentary reservation of law. In particular, the Court considered that the law did not sufficiently define the relevant qualifying activities and that the Ministerial Order effectively performed a primary normative function. On this basis, the Court held the relevant provision unconstitutional.

The decision should not automatically affect historical situations, as this would undermine the broader principles of legal certainty and legitimate expectations, which also benefit from constitutional protection under Portuguese law. In this context, and absent further judicial developments or legislative initiatives, the Portuguese Tax Authorities are bound to continue applying both the NHR framework and the relevant Ministerial Order currently defining high value-added activities.

Equally important is the distinction between the former NHR framework concerning active income and the current IFICI regime (“NHR 2.0”). Unlike the former provisions analysed by the Court, the IFICI regime contains a materially denser legislative framework regarding scope, eligibility and applicable criteria.

As with other stakeholders following this matter closely, a careful approach should be taken regarding the interpretation of the decision and its implications. Any overly expansive interpretation could undermine Portugal’s longstanding institutional commitment to stability, predictability and the international credibility of its tax framework.

For the time being, the decision should be viewed as a localized and fact-specific issue relating to the circumstances under consideration by the Court, rather than one with immediate systemic implications. We will continue to monitor developments closely and provide updates should any material changes arise.

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