Recent developments open a clear path for non‑resident pension funds to recover withholding tax (WHT) on Portuguese-sourced dividends and other income. Building on a landmark ruling of the European Court of Justice, non‑resident funds should reassess both historic WHT suffered and the evidentiary approach used for obtaining an upfront exemption or refund in Portugal (ECJ, case C-525/24 of 27 November 2025).
Current Portuguese framework
Under the current national law, foreign pension funds may benefit from a corporate income tax (and, thus: WHT) exemption, provided that:
- The foreign pension fund exclusively ensures the payment of retirement pensions granted for for old‑age, disability, survivors’ pensions, pre‑retirement, health and post‑employment benefits, and death benefits;
- It is managed by an entity covered by Directive 2003/41/EC of 3 June 2003;
- The pension fund is the effective beneficiary of the income;
- In case of dividends, the shareholding is held for more than one year; and
- The paying entity is provided with a statement issued by the entity responsible for the supervision of the fund, attesting the fulfilment of the requirements set out under Portuguese law.
By contrast, pension funds that are established and operate in accordance with Portuguese law are exempt from corporate income tax without needing to demonstrate fulfilment of any further condition.
The ECJ judgment
In light of this differential treatment in Portugal, a Spanish pension fund challenged the admissibility of imposing all of the above requirements, while not requiring equivalent proof from Portuguese pension funds. This litigation was initially filed in front of the Portuguese Tax Arbitration Court, which referred questions to the ECJ on whether the distinction breached the free movement of capital and was therefore incompatible with EU law.
The ECJ confirmed, in case C-525/24 of 27 November 2025, that imposing additional administrative burdens on non‑resident pension funds constitutes a restriction on the free movement of capital unless justified and proportionate. Differences in treatment require either non‑comparability or an overriding reason in the public interest. Where a Member State taxes both residents and non‑residents on inbound dividends and grants the same substantive exemption, resident and non‑resident funds are objectively comparable for evidentiary purposes. Ensuring effective tax control can be a valid justification, but proof conditions must not make it impossible or excessively difficult to benefit from the exemption.
Key takeaways from the ECJ decision
Upfront exemption: For an exemption upfront, the fund may be required to provide evidence that it complies with the substantive conditions via a declaration confirmed by the competent supervisory authority, under the conditions that:
- The supervisory authority has the necessary powers to issue such declaration;
- The declaration can be obtained within a reasonable timeframe: and
- There is no less restrictive but equally effective method for providing such proof.
Refund of tax withheld: When requesting a refund of tax withheld, the Portuguese Tax Authorities (PTA) cannot require this declaration as the sole means of proof. In other words, the PTA must accept alternative forms of evidence.
Practical implications
Following the recent ECJ ruling (in which the applicant was supported by Vieira de Almeida), foreign pension funds that have been subject to WHT on Portuguese sourced income may claim refunds even if they cannot obtain a statement from their supervisory entity attesting the fulfilment of Portuguese law requirements. This refund can be requested through a formal appeal submitted to the PTA within a two-year deadline. Alternatively, Portuguese law also provides a special mechanism that allows a refund to be requested within a four-year deadline.
As the ECJ based its reasoning on the free movement of capital, the WHT recovery should also be possible to third countries pension funds.
