The End of a Longstanding Tax Discrimination
For years, non-EU/EEA taxpayers renting out property in Spain were subject to a blatantly discriminatory tax regime. They were required to pay Non-Resident Income Tax (IRNR) at a flat rate of 24% on gross rental income, with no possibility of deducting expenses.
By contrast, EU/EEA residents benefited from a more balanced system: they could deduct ordinary and necessary expenses (mortgage interest, property tax, insurance premiums, community charges, repairs, etc.) and were taxed at 19% on net rental income.
This disparity disproportionately affected nationals of countries such as the United Kingdom (post-Brexit), the United States, Canada, Switzerland, Andorra, and most Latin American jurisdictions.
The Landmark Judgment of 28 July 2025
On 28 July 2025, the Audiencia Nacional delivered a groundbreaking ruling that unequivocally rejects this unequal treatment, holding that non-EU/EEA taxpayers are also entitled to deduct expenses under the IRNR.
The Court’s reasoning rests on several pillars:
- Article 63 of the Treaty on the Functioning of the European Union (TFEU), which prohibits restrictions on the free movement of capital — a principle that extends to relations with third countries.
- CJEU jurisprudence, including rulings that explicitly extend the protection of capital movements beyond EU/EEA borders.
- Non-discrimination clauses in bilateral double taxation treaties, such as the Spain–U.S. convention (article 24), which prohibit less favorable treatment of foreign nationals when comparable circumstances exist, literally says:
“Article 24 – Non-Discrimination: Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected.”
Practical Consequences of the Ruling:
- Deductibility of Expenses: Non-EU/EEA landlords in Spain will no longer be taxed on gross rental income. They may deduct legitimate expenses in the same manner as EU/EEA taxpayers, resulting in taxation based on net income.
- Rectification of Past Self-Assessments: Affected taxpayers may seek to rectify previously filed Form 210 (IRNR returns) for the last four non-prescribed tax years, claiming refunds for overpaid tax.
- Potential Appeal: While the State Attorney’s Office may lodge an appeal (recurso de casación) before the Supreme Court, the decision represents a strong precedent that is already shaping tax practice.
- Unresolved Issues: Importantly, the ruling did not address two further areas of potential inequality:
- The application of the reduced 19% rate, as opposed to the current 24% for non-EU/EEA taxpayers.
- The availability of the 60% (now 50% and more) reduction applicable to rental income under the Spanish Personal Income Tax (IRPF).
These matters remain open for future litigation and clarification.
Strategic Recommendations:
- Review past returns: Identify whether expenses disallowed in previous years can now be deducted.
- Quantify potential refunds: Compare actual tax paid with recalculated net-income taxation.
- Act promptly: File rectification claims within the four-year limitation period to preserve rights.
- Seek tailored advice: Complexities may arise in cases where foreign tax credits have already been applied in the taxpayer’s country of residence.
What had long been criticized as an unjustifiable fiscal discrimination has finally been addressed. By extending the deductibility of expenses to non-EU/EEA taxpayers, the Audiencia Nacional has not only ensured compliance with EU law and international treaty obligations but has also opened the door for thousands of taxpayers to recover undue payments and benefit from a more equitable tax framework.
Spain can no longer justify differential treatment of non-resident landlords simply on the basis of their country of residence.
