Spain’s National Court has struck down discriminatory tax treatment for non-EU property owners, giving them the right to deduct rental expenses in the same way as EU residents.
Ending discrimination in rental taxation
Until now, Spain’s rules on the Non-Resident Income Tax (IRNR) created a two-tier system. EU and EEA residents renting out Spanish property could deduct costs such as cleaning, utilities, repairs, or marketing before calculating their taxable rental income, while non-EU owners had to declare gross income with no deductions. On top of that, non-EU landlords still face a higher flat tax rate of 24%, compared with 19% for EU citizens.
A ruling by the Audiencia Nacional, published on 28 July, has now declared the blanket exclusion of non-EU owners unlawful. The Court found it breached EU law, particularly Article 63 of the Treaty on the Functioning of the European Union, which protects the free movement of capital, and also violated Spain’s treaty obligations, in this case with the United States.
A case with wider consequences
The dispute that triggered the decision involved an American citizen who owned rental property in Barcelona. Spain’s tax authorities had denied them the right to deduct expenses, a stance backed by the Central Economic-Administrative Tribunal (TEAC). The National Court overruled both, stressing that European Court of Justice jurisprudence is binding and must be fully applied in Spain.
This follows earlier case law on inheritance and donations tax, where discriminatory treatment of non-EU nationals was struck down by both the European and Spanish Supreme Courts. Those rulings led to successful refund claims by non-EU taxpayers forced to overpay under the old rules, and this new decision opens the door to similar claims in the rental field.
Implications for policy
The ruling also sends a strong signal about future tax policy. The government has recently floated the idea of imposing an additional “Complementary State Tax” of 100% on property purchases by non-EU residents. Based on this latest judgment, such a measure would almost certainly breach EU principles of non-discrimination and would struggle to survive legal challenge.
A fairer playing field
For international investors outside the EU, this decision brings greater certainty and reassurance. It confirms that Spain must treat all non-resident owners on an equal footing when it comes to deducting legitimate expenses, and it strengthens the broader principle that tax policy cannot unfairly penalise people simply because of where they live.
