Spanish Court ruling on IRNR impacting Non-EU residents
January 20, 2026
Kreston Iberaudit, a member of the Kreston network, shares an article on a recent ruling by the Spanish National Court, issued on 28 July 2025. The ruling opens the door for property owners in Spain who reside outside the European Union (EU) or the European Economic Area (EEA) to claim refunds for overpayments under the Non-Resident Income Tax (IRNR) for the past 4 fiscal years.
Fiscal discrimination and breach of EU Law
Current Spanish legislation (Article 24.6 of the Revised Text of the IRNR Law) allows taxpayers residing in the EU or EEA to deduct certain expenses related to property rental, such as property tax (IBI), community fees, or property depreciation. However, this option is not available to non-EU residents, who must pay tax on the total gross rental income at a fixed rate of 24%, compared to 19% for EU residents.
The National Court considers that this exclusion breaches the principle of non-discrimination enshrined in Article 63 of the Treaty on the Functioning of the European Union (TFEU), which guarantees the free movement of capital both between member states and with third countries. Judge Martínez Tristán, reporting on the ruling, bases his decision on the jurisprudence of the Court of Justice of the European Union (CJEU), particularly the judgments of 3 September 2014 (Case C-127/12) and 12 October 2023 (Case C-646/20), which extend the effects of EU freedoms to non-EU taxpayers.
In this case, the non-discrimination clause in the Double Taxation Agreement between Spain and the United States is also invoked, further reinforcing the legal argument.
Annulment of administrative decisions and practical implications
The ruling annuls both the administrative decision of the National Tax Management Office and that of the Central Economic-Administrative Tribunal (TEAC), which had rejected the taxpayer’s request for rectification of her self-assessment. The court concludes that Spanish legislation, by not allowing non-EU residents to deduct expenses, infringes European Union law.
This ruling enables affected taxpayers to request rectification of their self-assessments and the refund of overpaid taxes, together with interest, provided that the fiscal years are not statute-barred.
Economic impact of the deduction
Illustrative comparison of the fiscal effect of applying or not applying expense deductions under the IRNR.
| Concept | Without expense deductions | With expense deductions | Difference |
|---|---|---|---|
| Rental income (annual) | 14,400€ | 14,400€ | – |
| Deductible expenses: | |||
| Property tax (IBI) | – | 200€ | 200€ |
| Community fees | – | 1,800€ | 1,800€ |
| Property depreciation (1.1%) | – | 1,400€ | 1,400€ |
| Total deductible expenses | – | 3,400€ | 3,400€ |
| Taxable base | 14,400€ | 11,000€ | -3,400€ |
| IRNR tax rate | 24% | 24% | – |
| Tax payable | 3,456€ | 2,640€ | -816€ |
This example shows how applying deductions can reduce the tax burden by over €800 per year, with the possibility of claiming refunds for up to 4 previous years.
Kreston Iberaudit recommends initiating procedures to rectify and recover undue payments. However, it is important to note that the National Court does not create binding precedent, and the ruling has not yet become final, as the State Attorney’s Office may file an appeal to the Supreme Court. Should the Supreme Court issue a ruling in line with the National Court and it becomes final, the tax authorities would be obliged to comply and refund any amounts overpaid, including interest.
At Kreston Iberaudit, we have professionals specialised in international taxation and tax procedures, capable of assisting with the preparation of rectification requests, calculation of undue payments, and representation before the Spanish tax authorities.
Explanatory notes for international clients:
- National Court (Audiencia Nacional): Spanish national-level court responsible for, among other matters, resolving tax-related appeals.
- TEAC (Central Economic-Administrative Tribunal): Administrative body that resolves economic-administrative claims against the Spanish tax authorities.
- IRNR (Non-Resident Income Tax): Spanish tax levied on income obtained in Spain by individuals or entities not resident in Spain.
- TFEU (Treaty on the Functioning of the European Union): Legal framework governing fundamental freedoms within the EU, including the free movement of capital.
- Spain–US Double Taxation Agreement: Bilateral agreement establishing how income of taxpayers resident in one country earning income in the other is taxed, preventing double taxation.
