On July 28, 2025, the Spanish National Court issued a landmark ruling (appeal 636/2021) that significantly changes the taxation of non-residents in Spain. Until now, taxpayers residing outside the European Union or the European Economic Area who earned income from renting properties in Spain were required to pay the Non- Resident Income Tax (NRIT) without being allowed to deduct expenses related to those properties. In contrast, EU or EEA residents did enjoy this benefit. This difference in treatment has been considered discriminatory. The National Court has ruled that citizens of third countries—such as the United States, the United Kingdom, Canada, or any other non-EU/EEA country—have the same right to deduct expenses directly linked to the rental activity (for example, repairs, community fees, utilities, or mortgage interest).
Legal Grounds of the Decision
The court’s reasoning is mainly based on:
- Article 63 of the Treaty on the Functioning of the European Union, which establishes the free movement of capital.
- The case law of the Court of Justice of the European Union, which had already extended this principle to residents of third countries.
- The non-discrimination clause of the tax treaty between Spain and the United States, also applicable in similar cases with other countries with which Spain has bilateral treaties.
Practical Relevance
This ruling creates a completely new scenario for thousands of non-EU taxpayers who own properties in Spain:
- They will be able to deduct the actual expenses associated with their rentals, resulting in a substantial reduction of the taxable base and, consequently, of the tax due.
- Legal certainty and equal treatment are reinforced, increasing the attractiveness of real estate investment in Spain for non-residents.
- Real estate professionals and tax advisors will need to take this change into account when dealing with foreign clients.
Next Steps
Although the ruling can still be appealed before the Supreme Court, it constitutes a highly important precedent. Non-resident taxpayers who in the past were forced to pay tax without deductions now have the possibility to request the rectification of non-expired tax returns and claim the refund of undue payments. For future returns, residents of third countries will be entitled to apply these deductions, provided that the expenses are duly substantiated and directly related to the rented property in Spain.
Conclusion
The decision of the National Court represents a step forward in achieving tax equality for foreign taxpayers in Spain, eliminating a discriminatory treatment that had been affecting non-EU residents. This ruling not only has a direct financial impact on property owners but also strengthens confidence in the Spanish legal framework, something particularly relevant in the current debate on the taxation of foreign investment in the real estate sector.
