Tax equality for non-EU taxpayers: deduction of expenses in the non-resident income tax (IRNR) on Spanish rental income
Non-EU taxpayers who earn income from renting property in Spain have been at a disadvantage for years compared to EU residents. While the latter could deduct expenses related to the lease—such as mortgage interest, property tax, or repairs—non-EU residents were required to pay tax on gross income under the Non-Resident Income Tax (IRNR).
This situation changes with ruling 636/2021 of the National Court, dated 28 July 2025, which recognises the right of non-EU taxpayers to deduct expenses related to the leasing of properties in Spanish territory. This is a milestone in international taxation that opens the door to tax equality.
Previous tax position of non-EU taxpayers
For years, non-EU taxpayers earning rental income from property in Spain have been at a clear disadvantage compared with EU/EEA residents. While EU/EEA residents could deduct expenses related to the property — such as mortgage interest, local property tax (IBI) or repairs — non-EU taxpayers were required to pay Non-Resident Income Tax (IRNR) on gross income, with no deductions.
Under the IRNR regime, individuals resident outside the EU/EEA pay a fixed 24% rate on gross rental income.
By contrast, EU/EEA residents in countries with a tax information exchange agreement may deduct expenses, pay tax only on net rental income, and benefit from a reduced 19% rate.
This unequal treatment placed non-EU taxpayers at a disadvantage, particularly those owning rental properties in high-demand areas such as Madrid, Barcelona or the Costa del Sol.
Origin of the ruling on non-EU taxpayers
The case arose from a US-resident taxpayer who had been declaring rental income from a property in Barcelona under the IRNR.
She sought rectification of self-assessments (2016–2018), arguing that Spanish law unlawfully prevented her from deducting rental expenses.
The Spanish Tax Agency (AEAT) rejected her request, leading to an appeal before the Central Economic-Administrative Court (TEAC). TEAC dismissed the claim, citing Article 24 of the IRNR Law (Royal Legislative Decree 5/2004), which limits expense deductions to EU/EEA residents.
It also reasoned that, under the Spain–US Double Tax Treaty (DTT), she could offset Spanish taxes in the US, supposedly avoiding any fiscal disadvantage.
Decision of the National High Court and implications
In judgment 636/2021 of 28 July 2025, the National High Court (Audiencia Nacional) held that denying expense deductions to non-EEA residents amounts to unjustified discrimination contrary to Article 63 TFEU (free movement of capital).
It ruled that the Tax Agency may no longer automatically refuse deductions to non-EU taxpayers.
Practical implications:
Deduction of expenses in the IRNR return (Form 210), including community fees, mortgage interest, repairs, IBI, municipal charges, insurance and utilities.
Right to claim refunds of undue payments for non-prescribed years (within 4 years).
Use of this case law as a legal basis for rectification claims.
Favourable case law for non-EU taxpayers
Although the State Attorney’s Office may still appeal to the Supreme Court, this ruling is a significant milestone.
The Supreme Court has already aligned with CJEU case law in related areas, such as Inheritance and Gift Tax and foreign investment funds, extending the principle of free movement of capital to third-country relations.
Currently, further appeals are pending on:
Application of the reduced 19% rate (instead of 24%) to non-EU taxpayers.
Extension of the rental income reduction (60% until 2023, 50–90% from 2024) to non-residents.
This ruling marks a crucial step towards tax equality for non-EU taxpayers, opening new opportunities for thousands of foreign property owners with rental income in Spain.
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