Spanish Court Rules: Non-EU Property Owners Can Deduct Rental Costs in Spain
Spanish court has declared that non-European owners of Spanish property can deduct the costs of any rental and declares the Spanish property tax discriminatory.
The Spanish National Court has issued a landmark ruling that changes the way non-resident property owners are taxed in Spain. Until now, citizens living outside the European Union were not allowed to deduct necessary expenses related to rental income in Spain, while EU residents could.
The Court has now declared this limitation unlawful, stressing that it violates European Union law and, in particular, Article 63 of the Treaty on the Functioning of the European Union, which guarantees the free movement of capital.
What is this about?
Essentially non-Europeans who rent out their Spanish property were not able to deduct the costs of rental and European could. Also Non-Europeans have been paying 24% tax and Europeans 19%. The difference in tax rates remains the same.
This decision overturns the position of Spain’s Central Economic-Administrative Tribunal (TEAC) and opens the door for thousands of non-EU property owners to claim deductions, aligning their tax treatment with that of EU residents.
The case was brought by a U.S. citizen who owned property in Barcelona. Spain’s tax authority had argued that the law did not explicitly allow deductions for non-EU residents, and therefore these taxpayers had to declare their rental income in full. However, the Court found that such discrimination against non-EU residents is incompatible with EU law, citing both the case law of the European Court of Justice and rulings from Spain’s own Supreme Court.
Importantly, the judges highlighted that if it is unlawful to apply a heavier tax burden on non-EU property owners in inheritance and donations cases, the same principle must apply to rental income. Equality of treatment is the rule, and nationality or residence cannot justify a harsher tax regime. Oddly deductions for expenses such as cleaning, marketing, water, electric, insurance etc are allowed but the difference in tax rates of 24% & 19% remains, for the moment.
What this means for Sánchez’s housing tax proposal?
This ruling goes far beyond rental taxation. It also sends a clear message regarding recent political tax proposals on non-Europeans. Spain’s President, Pedro Sánchez, has proposed to introduce a new “Complementary State Tax” of 100% on property purchases made by non-EU residents. The National Court’s decision sends a clear message that such a measure would be contrary to law. A punitive tax of this kind would amount to discrimination, violate the free movement of capital, and almost certainly be struck down by both Spanish and European courts.
A step toward fairness and legal certainty
For international investors and individuals considering buying or renting out property in Spain, the decision is reassuring. It confirms that Spain cannot create arbitrary fiscal barriers for foreigners and must respect the principles of fairness and non-discrimination.
At My Lawyer in Spain, we welcome this ruling as a step forward for equality and legal certainty. If you are a non-resident who owns, or plans to purchase property in Spain, our team can guide you through the legal and tax implications to ensure you are protected.
Contact My Lawyer in Spain today to learn how we can help you with your property and tax matters.
