Spain’s National Court has rocked the world of Spanish real estate taxation with a decision that stands to benefit thousands of non-EU landlords and international investors. In July 2025, the court extended a vital right, previously reserved for EU/EEA taxpayers, to non-EU residents, allowing them to deduct expenses directly tied to their Spanish rental income for the first time. Here’s what you need to know.
What Changed? The Old System vs. The New Ruling
For years, Spain’s Non-Resident Income Tax (NRIT or IRNR) regime imposed a stark difference:
- EU/EEA landlords: Could deduct rental-related expenses (repairs, mortgage interest, management fees, property taxes) from their gross Spanish income and be taxed only on net profits at 19%.
- Non-EU landlords (e.g., UK, US, Canada, Australia): Paid a flat 24% tax on gross Spanish rental income with no deductions allowed.
This left non-EU property owners at a serious disadvantage and, for many, meant overpaying taxes each year compared to EU/EEA counterparts.
The Legal Breakthrough: Article 63 TFEU and CJEU Influence
The July 2025 National Court ruling (Appeal 636/2021) upended this regime. The court found that the restriction on deductions was discriminatory and violated Article 63 of the Treaty on the Functioning of the European Union (TFEU), which protects the free movement of capital.
The decision relied heavily on CJEU (Court of Justice of the European Union) case law, particularly case C-670/21 of October 2023 regarding Spanish Inheritance and Gift Tax. That case set the precedent that it’s unlawful for national law to favor EU/EEA taxpayers over those from other countries, when it comes to the movement of capital and fiscal advantages.
Key legal points from the ruling:
- The expense deduction restriction for non-EU residents was deemed unjustifiable discrimination.
- Spanish law must align with EU principles, extending these rights to all global investors in comparable circumstances.
- Other rulings, including Spain’s Supreme Court, have acknowledged the same principles for other taxes, e.g., on pensions and sovereign wealth funds.
Who Can Benefit? Criteria and Scope
Does this apply to all non-residents?
The right to deduct is granted for income resulting from passive investments, typically rental or similar passive sources, where Article 63 TFEU applies.
- If the income is from passive ownership (like a buy-to-let flat), you’re covered.
- If your activity amounts to running a Spanish business (where Article 49, freedom of establishment, is in play), and you’re not EU/EEA-based, the deduction rights do not extend to you.
So, for most private landlords, family offices, and property investors from outside the EU/EEA, this ruling is good news. But commercial operators with a degree of “definitive influence” over a Spanish company may not benefit.
What Expenses Are Deductible?
Thanks to this judgment, non-EU landlords can deduct the same eligible expenses as their EU counterparts. Allowable deductions include:
- Mortgage interest paid on the property
- Property insurance premiums
- Repairs and maintenance costs (e.g., fixing leaks, repainting)
- Property tax (IBI) and municipal taxes/fees
- Community (HOA) fees and service charges
- Utilities (electricity, water, gas)
- Management and letting agent fees
- Depreciation of the property (according to Spanish law)
- Cleaning and laundry for short-term lets
- Advertising and legal expenses related to the rental activity
These deductions can significantly reduce your Spanish tax bill. Instead of paying tax on 24% of the gross rental income, your tax would be calculated on a significantly smaller net profit figure.
How to Claim Tax Refunds: Act Fast
One of the most compelling outcomes is the right to claim refunds for any overpaid tax on Spanish rental income during the previous four tax years.
Practical steps:
- Review your Spanish IRNR (form 210) returns for the past four years.
- Calculate the deductible expenses for each year (as you would if you were an EU landlord).
- Request rectification and refund from the Agencia Tributaria (Spanish tax agency) for the overpaid tax, within the four-year statute of limitations.
- Work with a cross-border tax adviser (such as Del Canto Chambers) to prepare the calculations and formal requests in Spanish.
If you’re in this position, swift action is advised to meet any procedural deadlines and maximise your recovery.
What Happens Next? Appeals and Long-Term Impact
The decision is expected to be appealed by the State Attorney’s Office to the Spanish Supreme Court. It’s also possible that the Supreme Court could refer a preliminary question to the CJEU for confirmation.
Until a further appeal is resolved:
- The judgment stands as a binding precedent at the National Court level.
- The Spanish tax agency may resist some refund claims pending a final decision.
- However, multiple Supreme Court and CJEU decisions suggest strong legal grounds for this new interpretation.
Key message: Don’t wait for the final word. Even during the appeal process, affected landlords should proactively claim due refunds and adjust their tax planning for 2025 onwards.
Bigger Picture: Non-Discrimination for International Investors
This case continues a judicial trend toward aligning Spain’s tax rules with EU freedoms and ending discrimination against non-EU investors. Similar advances have already been made with inheritance/gift taxes and pensions.
Benefits of this shift:
- Level playing field for all foreign landlords and passive investors in Spain.
- Greater legal certainty and attractiveness of Spain as a destination for global property investment.
- Boost for British, American, and other international owners of Spanish property after Brexit.
Should You Take Action Now?
If you are a non-EU/EEA landlord or investor with Spanish rental income, here’s a checklist:
- Reassess your recent Spanish tax filings
- Calculate qualifying deductible expenses for up to four years retroactively
- Prepare refund claim documentation
- Get legal/tax support for rectifying your position
The landscape has changed, and there’s now an open window for fair treatment under Spanish law.
Want more tailored guidance? Visit Del Canto Chambers Spanish Tax or Real Estate resource hubs, or contact us for a confidential review of your cross-border tax affairs
