Changes in non resident income tax for rental of Spanish properties

On 28 July 2025, the Spanish National Court (Administrative Chamber, Section 2) issued Judgment SAN 3630/2025.

The case concerned whether a U.S. resident who owns and rents out real estate in Spain could deduct necessary expenses (property tax, community charges, depreciation, maintenance) when calculating Non-Resident Income Tax (IRNR). 

Under the current wording of the IRNR Spanish Law, only EU residents are allowed to deduct such expenses. Non-EU/EEA residents (e.g. from the U.S., UK, Latin America, Asia, etc.) are expressly excluded. Both the Spanish Tax Agency (AEAT) and the Central Economic-Administrative Court (TEAC) had rejected the taxpayer’s request to deduct those costs.

The taxpayer’s arguments
The taxpayer argued that:

• The exclusion of non-EU residents violates the principle of free movement of capital under Article 63 of the Treaty on the Functioning of the EU (TFEU).
• The Spain–U.S. Double Tax Treaty prohibits discriminatory tax treatment between Spanish and U.S. nationals.
• Previous case law from both the Court of Justice of the European Union (CJEU) and the Spanish Supreme Court has already extended EU freedoms to third-country residents in other tax contexts (for example, inheritance and gift tax).
   

The Court’s decision
The National Court ruled in favour of the taxpayer. Its key findings were:

• The free movement of capital applies not only within the EU, but also between EU Member States and third countries.
• The Spain–U.S. tax treaty expressly prohibits discrimination.
• Therefore, non-EU residents should be entitled to deduct expenses linked to Spanish rental income on the same terms as EU/EEA residents.
   

The Court annulled the TEAC’s decision and recognised the taxpayer’s right to amend her Spanish tax returns (Form 210) and obtain a refund.

What this means in practice
This ruling is undoubtedly positive for non-EU property owners in Spain. However, it is very important to underline:

1. Not binding on AEAT – The Spanish legal system does not operate under binding precedent in the same way as, for example, the U.S. or U.K. A single judgment of the National Court applies only to the specific case it decides. It does not oblige the Spanish Tax Agency (AEAT) or other administrative bodies to change their practice. The AEAT can (and usually will) continue applying the restrictive rule until either:

• the Spanish Supreme Court confirms the interpretation and establishes binding case law, or
• the law itself is amended by Parliament.

In fact, there have already been situations where some courts issued favourable rulings correcting the AEAT’s restrictive interpretation — for example, concerning the special regime for non-residents and the taxation of their habitual residence.

However, later decisions by other courts confirmed instead the stricter AEAT position. This shows that early favourable rulings may later be contradicted, and therefore we cannot assume that this latest judgment will automatically consolidate into a stable right.

2. Possible appeal – The State Attorney is likely to appeal this case before the Supreme Court. The final outcome is therefore not yet settled.

3. Risk of inconsistent case law – Other courts could reach different conclusions in similar disputes, creating conflicting interpretations until the Supreme Court or the CJEU resolves the issue.
4. Current position of AEAT – For now, the AEAT will probably continue to apply the strict rule: only EU/EEA residents can deduct. Claims by non-EU residents may still be rejected at the administrative stage.

Baker Tilly’s recommendation

• Stay informed, avoid sensational headlines: Some publications may suggest that non-EU residents can now freely deduct expenses. This is not correct. The ruling is an important step forward, but does not yet create an automatic right.
• Consider possible claims: Non-EU clients who have paid IRNR on rental income without deducting expenses may consider filing protective claims for refund of undue payments. Each case should be analyzed individually, particularly with regard to the 4-year statute of limitations, since filing a claim could already suspend or interrupt the running of that period.
• Future tax filings: For upcoming returns, we recommend a prudent approach until stronger jurisprudence emerges. Once the Supreme Court or further rulings confirm this interpretation, a clearer and safer path will be available.
• Ongoing monitoring: We will analyse this judgment in depth, monitor the reactions of the AEAT, and track new cases and appeals. You will be promptly informed of any development so that decisions can be taken with full clarity and confidence.

Conclusión 

The July 2025 ruling is a promising development in the fight against discriminatory tax treatment of non-EU landlords in Spain. However, it does not yet change the law or administrative practice. Past experience shows that early favorable rulings in the area of non-resident taxation can later be overturned, with courts siding again with the stricter AEAT interpretation.

For this reason, a cautious, well-planned strategy is advisable. Baker Tilly will continue to study this case carefully, follow the AEAT’s position and future rulings and provide you with timely updates on the safest and most efficient way forward.