Order of the Spanish Supreme Court of 15 July 2026 · Appeal in cassation No. 6741/2025
Non-resident owners who rent out a property in Spain are taxed on the income obtained through the Spanish Non-Resident Income Tax (Impuesto sobre la Renta de no Residentes – IRNR). However, the possibility of deducting expenses related to the property currently depends on the owner’s country of residence.
The Spanish Supreme Court will have to determine whether this difference in treatment is compatible with European Union law, following an appeal lodged by the State Attorney’s Office against a judgment of the National Court that was favourable to a taxpayer resident in the United States.
Background to the case
The taxpayer, who owns a property rented out in Barcelona, reported the income obtained for the 2016 to 2018 tax years through Form 210 on a gross basis. She subsequently requested the correction of the tax returns in order to deduct the expenses related to the property.
The Spanish Tax Administration and the TEAC (Central Economic-Administrative Court) rejected the request. However, the National Court considered that this difference in treatment could infringe the free movement of capital, one of the fundamental freedoms of the European Union which, among other things, protects investments and movements of capital between countries.
The State Attorney’s Office appealed this decision, and the Spanish Supreme Court will now determine whether the Spanish tax regime is compatible with this fundamental freedom.
What does the current legislation provide?
Article 24 of the Spanish Non-Resident Income Tax Law provides that non-resident taxpayers without a permanent establishment are generally taxed on the full amount of the income obtained in Spain.
However, the legislation allows individuals resident in another European Union Member State and, subject to certain conditions, in the European Economic Area, to deduct certain expenses directly related to the income obtained. Where the relevant requirements are met, these may include expenses such as local property tax (IBI), repair and maintenance costs, community fees or financing interest.
This possibility does not currently apply, as a general rule, to residents of third countries such as the United States, the United Kingdom or Switzerland.
The key issue: the standstill clause
One of the issues that the Spanish Supreme Court will have to examine is the so-called standstill clause under Article 64.1 of the Treaty on the Functioning of the European Union (TFEU).
This provision allows, under certain circumstances, restrictions on capital movements involving third countries to be maintained where such restrictions were already in place on 31 December 1993.
The Supreme Court will have to determine whether the tax regime applicable in Spain at that date to income from real estate earned by non-residents allows the current difference in treatment to be maintained. It will also have to assess whether such a restriction can be justified under Article 65 TFEU.
Specifically, the Supreme Court will have to answer the following two questions:
- Does Article 24 of the Spanish Non-Resident Income Tax Law constitute a restriction on the free movement of capital?
- If so, can that restriction be maintained under the standstill clause in Article 64.1 TFEU or justified under Article 65 TFEU?
What does this mean for property owners?
The future judgment could have implications for property owners resident in the United States, the United Kingdom, Switzerland and other third countries who have rental properties in Spain.
If the Supreme Court upholds the approach taken by the National Court, taxpayers could potentially submit requests for the correction of tax returns and refunds in respect of tax years that are not yet time-barred. As a general rule, the limitation period for claiming a refund of undue payments is four years.
Affected property owners should therefore review their IRNR tax returns and the expenses associated with their properties, particularly where these expenses are significant, in order to assess any potential action while the Supreme Court’s decision is still pending.