The National Court Recognizes the Right of Non-EU taxpayers to Pay Tax on their Net Rental Income
Until now, the Spanish authorities, relying on the literal wording of Article 24.1 of the Non-Resident Income Tax Law (IRNR), established differentiated tax treatment between taxpayers residing in EU and EEA Member States (the European Economic Area, an area that includes the 27 countries of the European Union and Iceland, Liechtenstein, and Norway) and those residing in third countries. This differentiation resulted in the latter's inability to deduct expenses related to income obtained from the leasing of properties owned in Spanish territory (such as insurance, maintenance, depreciation, etc.), a prerogative that was granted to EU residents.
Following an administrative appeal filed by a taxpayer residing in the US, the National Court examined the legality of a previous ruling issued by the Central Economic-Administrative Court (TEAC) that prevented the deduction of expenses to calculate the tax base for a property lease.
Thus, in its ruling of July 28, 2025 (rec. 636/2021), applying by analogy the consolidated case law of the Court of Justice of the European Union (CJEU), also recognized by the Spanish Supreme Court in matters of inheritance and donations, it annulled the TEAC ruling, recognizing the existence of discrimination that is contrary to Article 63 of the Treaty on the Functioning of the European Union (TFEU) in relation to the principle of the free movement of capital in the aforementioned Article 24.1 of the LIRNR. Likewise, the National Court clarifies that its elimination would not affect compliance with the Double Taxation Agreement between Spain and the US.
The consequence of the ruling is therefore to validate the deductibility of any property expenses incurred by the landlord, equating the tax treatment of residents of third countries to that of residents of the EU or the EEA.
Although the ruling is not final and can be appealed before the Spanish Supreme Court, it already has significant consequences that should give reflection to those potentially affected, that is, landlords from third countries with properties in Spain, because:
It allows taxpayers from outside the EU and EEA (for example, Andorran and American citizens) with rented properties in Spain to request a refund of excess amounts paid in the last four years (those not yet statute-barred) for not being able to deduct any expenses from their rented properties to calculate their income tax base.
It allows these taxpayers not to pay, or to pay and request an immediate refund for undue income for future taxes, in the event that the judgment is appealed and the final ruling is delayed.
All this because, as previously indicated, both European and national case law indicates a very high probability that future rulings will follow the same line already established by the National Court.
In short: non-EU taxpayers affected by this doctrine should assess, without further delay, the actions to be taken to recover the amounts they paid in excess during the last four years and subsequent years.
