In a landmark decision, Spain’s National Court (Audiencia Nacional) has applied CJEU case law on the free movement of capital to conclude that non-EU/EEA taxpayers subject to the Non-Resident Income Tax (NRIT) are entitled to deduct expenses directly related to their Spanish gross rental income. Under the current NRIT regulations, this right is reserved exclusively to EU and EEA residents. The decision opens the possibility for many non-EU taxpayers earning taxable Spanish source income, including landlords, to claim tax refunds. The State Attorney’s Office is expected to appeal the ruling to the Supreme Court, which may in turn refer a preliminary question to the CJEU.

In more detail…

Article 24.1 of the NRIT Law provides that residents in EU or EEA Member States can deduct expenses directly related to their Spanish-source income, including real estate income, while non-EU taxpayers have to pay tax on their gross income, with no possibility of deducting related expenses.

In its judgment dated 28 July 2025 (appeal 636/2021), the National Court finds this treatment discriminatory, citing CJEU case law on the free movement of capital. In particular, the National Court relies on the CJEU’s ruling of 12 October 2023 (C-670/21) on Inheritance and Gift Tax, which held that any national legislation that unjustifiably differentiates between EU/EEA taxpayers and those of third countries breaches EU law.

Spain’s Supreme Court has also recognised the right of non-EU taxpayers to apply the rules of the autonomous region with which they have a connecting factor in matters of Inheritance and Gift Tax, also on the basis of the free movement of capital enshrined in EU law.

The National Court concludes that limiting the deduction of expenses to EU/EEA residents violates Article 63 of the TFEU, which establishes the free movement of capital as one of the fundamental pillars of the internal market.

Implications

This decision carries important practical implications: non-EU taxpayers would then be entitled to deduct expenses directly connected to their Spanish-source rental income (e.g. repairs, insurance, depreciation). Most relevantly, the decision’s findings are applicable to any type of Spanish source income. 

However, the decision’ scope is limited to those cases where Article 63 of the TFEU, free movement of capital, applies, namely cases where the Spanish source income results from a passive investment made by the taxpayer. By contrast, when the investment amounts to the pursuit of an economic activity, then Article 49, freedom of establishment, will apply. In the context of equity investments, Article 49 applies when the shareholder exercises a “definite influence” over the participated entity. Unfortunately, the protection of Article 49 cannot be invoked by persons established outside the EU or EEA member States.

It remains to be seen whether the Supreme Court – and, if that is the case, the CJEU – will uphold this interpretation (which we believe they should). As of today, the judgment represents a further alignment of Spanish tax rules with EU freedoms and the elimination of discriminatory treatment by way of the Spanish courts’ rulings. Indeed, this trend has already been reflected in several rulings of the Supreme Court, for example in cases concerning the taxation of EU (and non-EU) pension funds and sovereign wealth funds.

Pending a final decision on the matter by the Supreme Court, non-EU taxpayers affected by this decision should therefore consider requesting the rectification of self-assessments filed within the last four years to recover unduly paid taxes linked to their Spanish-source income.