The taxation of a Ukrainian property sale by a non-habitual resident in Portugal raises important technical questions under the Portuguese Personal Income Tax Code (CIRS) and the applicable double tax treaty. A recent binding ruling (Processo 29518, February 19, 2026) provides authoritative clarification on how capital gains derived from the sale of real estate located in Ukraine should be treated for Portuguese IRS purposes.
This article explains the legal framework, the applicable double taxation method, and the compliance obligations arising from such a transaction.
Legal Framework Applicable to Foreign Capital Gains
Under Article 15(1) of the CIRS, Portuguese tax residents are subject to IRS on their worldwide income, including income obtained outside Portuguese territory. Therefore, as a starting point, a Portuguese resident who sells property in Ukraine is subject to Portuguese taxation.
Furthermore, pursuant to Article 10(1)(a) of the CIRS, gains derived from the onerous transfer of rights in rem over immovable property qualify as Category G income, corresponding to capital gains. The taxable gain is determined as the difference between the realisation value and the acquisition value, subject to the applicable adjustment coefficients and deductible expenses.
However, the situation must be analysed in light of the taxpayer’s status as a non-habitual resident and the provisions governing the elimination of international double taxation.
The Role of the Portugal–Ukraine Double Tax Treaty
In cross-border situations involving immovable property, the relevant treaty is the Portugal–Ukraine Double Tax Treaty. Article 13(1) of that Convention provides that gains derived from the alienation of immovable property may be taxed in the Contracting State in which the property is situated.
Since the property is located in Ukraine, Ukraine is granted taxing rights under the treaty. The ruling clarifies that this allocation of taxing rights is sufficient to trigger the double taxation elimination mechanism in Portugal, because the income “may be taxed” in the source State.
Accordingly, although Portugal retains jurisdiction to tax its residents on worldwide income under domestic law, the treaty requires the application of the appropriate method to eliminate double taxation.
Application of the Exemption Method Under the NHR Regime
The binding ruling confirms that, for taxpayers benefiting from the Non-Habitual Resident regime and still covered by the transitional provisions following its legislative repeal, Article 81(5) of the CIRS (in the version applicable to NHRs) establishes the exemption method for foreign-source Category G income, provided that such income may be taxed in the other Contracting State under a relevant treaty.
Because the Portugal–Ukraine Double Tax Treaty allows Ukraine to tax the gain, the conditions for the exemption method are met. As a result, the capital gain derived from the sale of the Ukrainian property is exempt from Portuguese IRS.
Nevertheless, the exemption does not operate in isolation. Article 81(7) of the CIRS provides that exempt foreign income must be aggregated for the purpose of determining the tax rate applicable to the remaining taxable income. This mechanism is commonly referred to as exemption with progression.
Consequently, although the Ukrainian capital gain is not directly taxed in Portugal, it influences the marginal rate applied to other income categories that remain subject to IRS, such as employment income, business income, or rental income.
Impact of the Repeal of the NHR Regime
Although the Non-Habitual Resident regime was repealed by Law no. 82/2023, the ruling emphasises that transitional provisions preserve its application for taxpayers who were already registered within the applicable period. In the case analysed, the taxpayer is registered under the NHR regime from 2023 to 2032.
Therefore, individuals who validly acquired NHR status before the legislative change continue to benefit from the exemption mechanism described above for the remainder of their ten-year period, subject to compliance with the statutory conditions.
Declaration Obligations in Portugal
Even where the exemption method applies, the income must still be reported in the annual Portuguese tax return. The ruling specifies that the gain must be declared in Modelo 3, with completion of Anexo J (foreign income) and the relevant section of Anexo L, where the method for elimination of international double taxation must be indicated.
This reporting obligation is mandatory and independent of whether Portuguese tax is effectively due. Failure to disclose foreign income may result in penalties and additional assessments.
Conclusion
In the context of a Ukrainian property sale by a non-habitual resident in Portugal, the capital gain qualifies as Category G income. It falls within the scope of Portuguese worldwide taxation rules. However, because the Portugal–Ukraine Double Tax Treaty grants Ukraine taxing rights over gains derived from immovable property located in its territory, Portugal applies the exemption method under Article 81(5) of the CIRS.
The gain is therefore exempt from Portuguese IRS, yet it must be aggregated for rate determination purposes under the exemption with progression mechanism. In addition, the income must be correctly declared on the annual tax return, including the relevant foreign income annexes.
For taxpayers and advisers dealing with cross-border real estate disposals, careful analysis of treaty provisions, domestic law, and the transitional NHR framework remains essential to ensure both accurate tax treatment and full compliance.
This article is provided for general informational purposes only and does not constitute legal, tax, accounting, or other professional advice. The content is based on publicly available legislation and a specific binding ruling (Processo 29518, February 19, 2026) issued by the Portuguese Tax Authority, as cited in the text.
Binding rulings apply exclusively to the taxpayer who requested them and are limited to the specific facts presented in that request. They do not automatically apply to other taxpayers or to different factual circumstances.
Although every effort has been made to ensure accuracy at the time of publication, tax legislation, administrative practice, and treaty interpretation may change, and their application depends on the precise factual context of each case. The analysis provided may not reflect subsequent legislative amendments, regulatory developments, judicial decisions, or changes in administrative interpretation.
Readers should not act or refrain from acting based on this information without seeking independent professional advice tailored to their specific circumstances. No liability is accepted for any loss or damage arising directly or indirectly from reliance on the information contained in this article.
