A recent decision by Spain’s National Court has marked an important shift for foreign property owners. Until now, non-EU residents renting out homes in Spain were required to declare their full rental income without being able to offset related costs—something EU citizens could do.
The Court has ruled this practice discriminatory, confirming that it breaches Article 63 of the Treaty on the Functioning of the European Union, which safeguards the free movement of capital.
What Changed?
Previously:
EU landlords → Could deduct expenses such as cleaning, utilities, insurance, or advertising when declaring rental income.
Non-EU landlords → Could not deduct these costs and paid tax on gross income.
On top of that, the tax rate still differs: 19% for EU residents versus 24% for those outside the EU. While this rate disparity remains, the ruling opens the door for non-EU owners to claim deductions on necessary rental expenses.
The Case That Sparked It
The challenge came from a U.S. citizen with property in Barcelona. Spain’s tax authority had insisted deductions were off-limits for non-EU owners. The National Court disagreed, referencing prior rulings from both the European Court of Justice and Spain’s Supreme Court, and highlighted that similar discrimination has already been rejected in inheritance and donation tax cases.
Broader Implications
This judgment doesn’t just impact rental taxation. It also casts doubt on Prime Minister Pedro Sánchez’s proposed “Complementary State Tax,” which would impose an extra 100% levy on property purchases by non-EU buyers. The Court’s stance suggests such measures would almost certainly be deemed unlawful, as they directly contradict EU principles of equal treatment and free capital movement.
Why This Matters
For international investors and foreign homeowners, the ruling provides reassurance: Spain cannot enforce tax rules that unfairly penalize non-EU residents. It strengthens legal certainty and makes the Spanish property market more accessible and attractive to global buyers.