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Non-EU property owners in Spain can now deduct rental expenses and receive tax rebates

Spain’s National Court has ruled that preventing non-EU property owners from deducting rental expenses violates EU law, a decision which allows non-EU investors to claim substantial tax refunds and reduce future liabilities

Until recently, non-EU property owners renting out homes in Spain faced a strict rule that prevented them from deducting everyday expenses. EU residents could claim for costs such as cleaning, maintenance, utilities, repairs, insurance and marketing, but non-EU residents had to declare rental income in full, taxed at 24% with no deductions. By contrast, EU owners paid 19% on their net rental income after expenses.

The system was long criticised as unfair, and the Spanish National Court has now confirmed it was discriminatory. The judgment held that blocking non-EU taxpayers from deducting expenses breached EU law and the principle of free movement of capital.

The case that changed the rules

This ruling follows a challenge brought by a US citizen with a rental property in Barcelona. Spain’s tax authority had argued that non-EU residents should not benefit from deductions, but the Court rejected this position.

In its reasoning, it drew on rulings from the European Court of Justice and Spain’s Supreme Court, both of which had previously ruled against discriminatory fiscal treatment based on nationality or residence.

The National Court concluded that the unequal system placed an unlawful burden on non-EU investors. The decision establishes that residence cannot be used as grounds for imposing harsher tax rules.

What changes for non-EU owners

From now on, non-EU property owners can deduct legitimate expenses when declaring Spanish rental income, aligning their treatment with that of EU residents. Although the tax rates remain different – 19% for EU citizens and 24% for non-EU citizens – the ability to deduct expenses will significantly reduce the overall tax burden.

For many non-EU owners, this ruling opens the door to claiming refunds on past payments where expenses were unfairly excluded. It also means future rental income declarations will be calculated more fairly.

The judgment may influence broader tax debates. Spain’s President, Pedro Sánchez, has previously suggested the introduction of a “Complementary State Tax”, a surcharge on property purchases by non-EU residents. The Court’s latest decision signals that such proposals could face legal challenges for being discriminatory and contrary to EU law.

For property owners and prospective investors, the outcome offers greater legal certainty and protection. It is likely to boost confidence in the Spanish property market among non-EU buyers, particularly British and American investors who were most affected by the previous rules.

How to claim your tax refund, step-by-step

Gather documentation: Get together your rental income records and all prior filings of form Modelo 210. This includes all official invoices (‘facturas’) for deductible expenses such as repairs, utilities, insurance, IBI, community fees, mortgage interest, agency fees, etc, as well as proof of tax payments and bank statements.
Prepare rectifying tax returns: Submit the amended Modelo 210 returns (rectifying returns) for each year affected (typically the past 4 years: 2021–2024) to recalculate your tax based on net rental income (gross minus allowable expenses). It’s also a good idea to attach a written explanation referencing the National Court ruling (August 20, 2025) and applicable legal principles, such as Article 63 TFEU (free movement of capital) and non-discrimination, as grounds for your claim.
Submit your application to Hacienda: File the revised Modelo 210 returns via the Spanish tax agency’s online system or through a tax representative. You should ensure your submissions clearly note the court ruling and include the recalculations of deductible expenses.
Retain all records and track the progress of your application: Keep all documentation on file for at least four years as the Spanish tax authorities may audit or request further evidence. Do also stay alert for any State appeal (likely to the Supreme Court) as this may affect timelines.
Consider professional assistance: While not mandatory, legal or tax representation can ensure accuracy and strengthen your submission. Abad Abogados themselves recommend attaching a legal brief in support and can assist with filings.

To get in touch with Abad Abogados, use the contact details below:

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