The National High Court fully accepts the application of the principle of free movement of capital to third countries for income from real estate leases, although there is no case law of the CJEU for the specific case of this type of income.
Tax payers resident in Spain determine the income from real estate capital by deducting, from gross income, the expenses necessary to obtain the income and the amounts allocated to the depreciation of the properties.
Besides, Article 24 of the Consolidated Text of the Non-Resident Income Tax Law (NRITL) allows, in section 6, taxpayers resident in another Member State of the European Union (EU) or the European Economic Area -EEA- (with effective exchange of information) to determine their taxable base by deducting the expenses provided for in the Personal Income Tax regulations, provided that they prove that they are directly related to the income obtained in Spain and that they have a direct and inseparable economic link with the activity carried out in our country.
This legal provision, however, does not extend to non-EU residents.
In its judgment of 28 July 2025, the National Court has admitted that these residents of third countries can benefit from this deduction of expenses.
The court has specifically upheld the claim of a taxpayer resident in the United States, owner of a property leased in Spain, who claimed the possibility of deducting the expenses linked to that lease. The Central Economic-Administrative Court had rejected this deduction, arguing that the regulations only allow such deduction for residents in the EU or the EEA and that there is no European jurisprudence specifically referring to the deductibility of expenses in real estate leases by non-EU nationals.
The appellant maintained, on the other hand, that said interpretation infringed both the Convention for the Avoidance of Double Taxation (DTA) between Spain and the United States (articles 1 and 25 of which establish a principle of non-discrimination between nationals of the contracting states) and article 63 of the Treaty on the Functioning of the European Union (TFEU), relating to the free movement of capital, which the Court of Justice of the European Union (CJEU) has recognized as also applicable to residents of third countries.
The National Court supports these arguments of the taxpayer.
On the one hand, it recalls that the CJEU, in various judgments (including those of 3 September 2014, in case C-127/12 and of 12 October 2023, in case C-670/21), has extended the effects of the free movement of capital to taxpayers resident in third countries. Therefore, the absence of specific pronouncements on the deductibility of expenses in real estate leases cannot justify the exclusion of non-EU expenses.
On the other hand, it observes that the evolution of Article 24.6 of the NRITL reveals a legislative effort to adapt the rule to EU law, progressively expanding the subjective and material scope of deductions, but without extending it normatively to residents in third countries, which is incompatible with the requirements derived from the TFEU and with the jurisprudence of the CJEU.
Finally, it stresses that, in addition, denying US residents tax treatment equivalent to that given to EU and EEE residents is contrary to the commitments made in the DTA between Spain and the US.
In accordance with all of the above, the Court declares that it is contrary to EU law and Article 63 TFEU to limit the deductibility of the expenses necessary to obtain the income from the rental of the property to residents of the EU or the EEA, without recognizing that same right to residents of third countries.
The judgment does not address the issue of the disparity in tax rates (24% for non-EU nationals, compared to 19% for EU and EEE resident taxpayers), nor the possibility of applying the reduction on the net income from renting housing established in the Personal Income Tax regulations (as a general rule, the Personal Income Tax reductions cannot be applied to non-residents, although this limitation also applies to residents of the EU or the EEA).
Although the judgment does not establish jurisprudence, it constitutes an important milestone in the equalization of the tax treatment of residents in third countries with respect to residents in Spain, the EU or the EEA and opens the door to the rectification of non-prescribed self-assessments and the request for refunds of undue income.
