New Ruling Opens Up Cost Deductions for Property Owners Outside the EU/EEA

Update August 2026: Agencia Tributaria's official guidance has not yet been adapted to the ruling. Therefore, property owners outside the EU/EEA should not assume that cost deductions will be automatically accepted. However, the ruling may support requests for corrections and refunds in individual cases.

A ruling from the Audiencia Nacional on July 28, 2025, could have significant implications for property owners who are tax residents outside the EU/EEA. The court granted a person residing in the USA the right to deduct costs directly related to the rental of a property in Spain. The ruling challenges current rules, under which persons outside the EU/EEA are normally taxed at 24 percent on rental income without cost deductions. However, it does not yet mean that the right to deductions can be generally and risk-free applied by all property owners outside the EU/EEA.

Background to the Ruling

Previously, the right to deductions only applied to property owners within the EU/EEA. The decision now overturns the previous stance of the central economic-administrative court and is based on the principle of free movement of capital (Article 63 of the TFEU).

The case was based on a property owner in the USA with a rented property in Barcelona, but the ruling has broader implications for all non-resident property owners outside the EU.

Immediate Consequences

• Possibility to correct previous IRNR declarations to include costs.
• Refunds can be requested if the statute of limitations allows.
• Approved costs include, among other things, maintenance, community fees, insurance, and management costs.

What Does Not Change

• The tax rate for non-residents outside the EU remains at 24%, compared to 19% for EU/EEA residents.
• The special reduction for renting a permanent residence in Spanish income tax (IRPF) still does not apply to IRNR.

Tax and Market Impact

The ruling may provide economic relief and improved legal certainty for non-resident owners.

In the market, a more harmonized regulatory framework could affect investment willingness and the supply of rental properties, especially in areas where many foreign owners are present.

A Political Message

The ruling coincides with an ongoing political discussion about special taxes for property purchases by non-residents from third countries, with proposals for up to 100% extra taxation.

Although this case does not directly address that issue, it sends a signal that EU freedoms set limits on discriminatory measures based on residence or nationality.

At Estity, we see the ruling as an important step towards increased clarity and fairness. For property owners, it means new opportunities to optimize their rentals and enhance the value of their investments.