Sean Woolley is the founder and director of real estate agency Cloud Nine Spain.
The low down on the new court ruling re Non-EU property owners being able to deduct short term rental expenses from the income earned on their property in Spain.
There has been a recent court ruling in Spain to allow non-EU (non-EEA) property owners to deduct expenses from their rental income — effectively allowing taxation on net income rather than gross — where previously that was disallowed.
What was the old regime for owners of properties in Spain from outside the EU, who are not residents?
Under Spain’s rules regarding income for non-residents (IRNR, declared via Modelo 210), the usual approach was:
- If you are a non-resident and are not an EU/EEA resident, your rental income from Spanish property was taxed at a flat rate of 24% on gross rental income (i.e. before expenses).
- You were not permitted to deduct expenses (repairs, insurance, mortgage interest, management fees, etc.) against that rental income.
- By contrast, EU/EEA resident non-residents (i.e. EU/EEA nationals living outside Spain) were taxed at 19% on rental income, and were allowed deductions for expenses attributable to the rental.
Thus, non-EU owners faced a less favourable treatment (higher rate, no deductions) compared to EU/EEA owners, which many viewed as discriminatory.
What is the recent change (court ruling) and what does it allow?
In August 2025, Spain’s Audiencia Nacional (National Court) issued a key ruling (Case 636/2021, 28 July 2025) that challenges the older practice of denying expense deductions to non-EU owners.
The Court held that denying non-EU landlords from deducting real, necessary expenses is discriminatory and violates EU law, in particular Article 63 of the Treaty on the Functioning of the European Union (TFEU), which prohibits obstacles to free movement of capital.
They stated that as a result, non-EU property owners in Spain should be allowed to deduct the same kinds of expenses that EU/EEA non-residents can (maintenance, repairs, property taxes, insurance, mortgage interest, management fees, utilities tied to the rental, etc.) when filing Modelo 210.
Therefore, taxation should be (or at least can be) on net income (gross minus allowable expenses) rather than on gross income alone.
The ruling also opens the door for claiming refunds (rectification) for overpaid taxes in prior years (typically up to 4 years back, depending on statute of limitations) where a non-EU owner paid tax on gross income without deductions.
What the ruling does not (yet) change:
It does not (yet) change the flat 24% rate for non-EU non-residents. So, even with deductions, a non-EU owner may still be taxed at 24% on net income (i.e. you subtract expenses, then apply 24%).
Nor does it mandate that non-EU owners be taxed at 19%, which remains the rate for EU/EEA non-residents. Some commentators expect that to be challenged in future cases.
It is important to note that this is a judicial decision, not a legislative change. The Spanish tax authorities (Agencia Tributaria) would need to adjust their practices and administrative rules over time. The ruling’s scope and interpretation may have limitations (e.g. what constitutes permissible expenses, documentation, etc.). So, it isn’t a new law passed by Parliament, but a powerful court precedent that forces (or encourages) the tax authorities to change their treatment, especially for disputes and refund claims.
Implications & practical steps for property owners
Given this ruling, here’s what non-EU property owners should know and consider:
File future returns
When you file your Modelo 210 for upcoming years, include deductions for all legitimate rental expenses (with proper invoices) rather than declaring gross income only.
Document thoroughly
Make sure you have full records: invoices, contracts, receipts, proof of payments, documentation tying the expense to the rental usage. The tax authorities will scrutinize them.
Apply for refunds / rectify prior years
You can request “rectification” of past Modelo 210 returns (up to 4 years, subject to statute of limitations) to claim refunds for deductions that were wrongly denied.
Monitor administrative response
If the tax authority resists applying deductions for non-EU owners or rejects refund claims, further legal challenge or appeal may be needed.
Check your country treaty
In some cases, a double taxation treaty with your country of residence may affect how much tax is ultimately owed or creditable.
Seek tax & legal advice
Because this is a relatively new development and implementation may vary, professional advice from a Spanish tax lawyer or advisor is highly recommended.