Spain’s Non-Resident Income Tax: Extending Deductibility Rights to All Third-Country Residents

By Corelex Global – Legal Advisors for International Investors

A Landmark Judgment in Favor of Non-Resident Taxpayers

Spain’s National High Court (Audiencia Nacional) has recently issued a groundbreaking ruling that could transform the tax treatment of real estate income earned in Spain by non-resident taxpayers from outside the European Union (EU) and the European Economic Area (EEA).

The Court held that it is discriminatory to deny non-EU residents the right to deduct expenses related to rental income—such as maintenance, mortgage interest, property taxes, and community fees—when the same deductions are allowed for EU and EEA residents. This decision opens the door for thousands of international investors to claim refunds for overpaid taxes and aligns Spain’s tax regime more closely with EU principles of non-discrimination and free movement of capital.

The National High Court’s judgment of 28 July 2025 (Case No. 636/2021) has already prompted thousands of non-resident property owners to seek refunds from the Spanish Tax Agency. After years of being denied the same deductions granted to EU taxpayers, many foreign investors are now pursuing reimbursement for the excess taxes paid, relying on the court’s clear acknowledgment that such unequal treatment lacks legal justification.

Legal Foundations: Free Movement of Capital and Non-Discrimination

The Court’s reasoning rests primarily on Article 63 of the Treaty on the Functioning of the European Union (TFEU), which protects the free movement of capital between Member States and third countries. The Court of Justice of the European Union (CJEU) has repeatedly confirmed that this freedom extends beyond the EU and EEA, requiring equal treatment for investors and residents in countries such as the United States, the United Kingdom, Switzerland, and Canada.

While the Spain–U.S. Double Taxation Agreement (Article 25) also prohibits tax discrimination between residents of the two countries, the Audiencia Nacional’s decision relies mainly on EU law, using international conventions as additional interpretative support. Together, these legal principles reinforce the case for extending expense deductions to all non-resident taxpayers, regardless of nationality.

The Court concluded that excluding third-country residents from expense deductions violates both EU law and the spirit of international agreements, annulling the Spanish Tax Agency’s restrictive interpretation.

Practical Implications: Deductions Allowed, Rate Still at 24%

It is important to note that this ruling concerns the right to deduct expenses, not the applicable tax rate.

Under the current Non-Resident Income Tax Law (IRNR), non-EU/EEA residents remain subject to a 24% tax rate on gross rental income, while EU and EEA residents enjoy a 19% rate and may deduct related expenses.

Following this new judgment, non-EU residents may now claim similar deductions, but the 24% rate still applies until the Supreme Court or the Spanish legislature formally modifies the regulation. Another pending case before the National High Court may soon determine whether applying different rates (24% vs. 19%) also constitutes discrimination under EU law.

The Growing Impact on International Property Owners

The implications of this case are significant. Thousands of non-EU investors, particularly U.S., U.K., and Swiss citizens, who own rental properties in Spain could be entitled to file rectification claims and request refunds of undue income for the past four fiscal years.

The Spanish Tax Agency is now expected to face a surge of refund claims from foreign property owners seeking equal treatment under Spanish tax law. Legal professionals anticipate that the Agency will soon need to revise its administrative practice to align with the growing body of jurisprudence confirming that differential treatment based on residence status breaches the EU principle of non-discrimination. This shift signals a potential turning point for non-resident taxation in Spain, with thousands of affected property owners expected to take action over the coming months.

Corelex Global’s Perspective

At Corelex Global, we closely follow these developments to help international clients navigate Spain’s evolving tax landscape with clarity and precision. Our legal and tax teams assist non-resident investors in evaluating the potential impact of these rulings, filing Form 210 with the most strategic approach, and pursuing refund claims where applicable.

We combine legal expertise in taxation, property law, and international conventions to ensure that our clients benefit from every available right under Spanish and EU law.

Conclusion

The 2025 Audiencia Nacional ruling represents a decisive turning point in Spain’s ongoing effort to eliminate long-standing tax disparities affecting non-EU investors. Although the applicable rate for non-EU residents formally remains at 24%, the court’s recognition of the right to deduct legitimate expenses establishes a critical precedent for greater equality and coherence in the treatment of foreign taxpayers.

This development goes beyond a technical adjustment. It reflects a broader shift toward harmonization with the European legal framework and reinforces the principle that similar situations should be subject to similar tax conditions, regardless of nationality or residence. The decision also paves the way for further judicial clarification on the applicable tax rate, which could ultimately lead to the full alignment of non-EU taxpayers with their EU counterparts.

For Spain, the implications are significant. As one of Europe’s leading destinations for global real estate investment, ensuring transparency, fairness, and legal certainty in its tax regime is essential to maintaining investor confidence. By modernizing the interpretation of the Non-Resident Income Tax Law (IRNR) and bringing it closer to EU principles, Spain strengthens both its competitiveness and its credibility as a jurisdiction committed to equal treatment under the law.

Media and Sources:

– Vozpópuli, “Miles de extranjeros reclaman a Hacienda devoluciones por discriminarles en el alquiler de inmuebles” (October 2025)
– Vozpópuli, “La Audiencia Nacional veta la discriminación de Hacienda a extranjeros que alquilan vivienda” (October 2025)
– Audiencia Nacional, Judgment 28 July 2025, Case No. 636/2021
– Treaty on the Functioning of the European Union (TFEU), Articles 63–65
– Spain–United States Double Taxation Agreement, Article 25