In more detail
Background
The Non-Resident Income Tax (NRIT), regulated by Royal Legislative Decree 5/2004, has long been a source of controversy regarding the tax treatment of nonresidents. Article 24.1 establishes that nonresidents without a permanent establishment in Spain must pay tax on the full amount of income obtained, without the possibility of deducting expenses or applying reductions. In contrast, Article 24.6 allows EU/EEA residents to deduct expenses directly related to the income obtained, resulting in discriminatory treatment of third-country residents.
The case law of the Court of Justice of the European Union has been instrumental in interpreting this regulation within the framework of the principle of free movement of capital (Article 63 of the Treaty on the Functioning of the European Union). For example, the ruling of 3 September 2014, which addressed fiscal discrimination in inheritance and gift tax, concluded that there must be no difference in treatment between residents and nonresidents, and that the free movement of capital must also apply to third-country residents.
Accordingly, the National Court's resolution of 28 July 2025 (SAN 636/2025) applies this doctrine and concludes that excluding non-EU/EEA nonresidents from the right to deduct expenses violates the principle of nondiscrimination and the free movement of capital.
In depth
The recent resolution marks a substantial shift in the tax regime applicable to non-EU/EEA nonresidents obtaining rental income from real estate in Spain. Previously, these taxpayers were required to pay tax on the full rental income obtained, without the possibility to deduct necessary expenses incurred in generating that income. The new doctrine expressly recognizes the right to deduct all essential expenses directly linked to the rented property.
Among the expenses now eligible for deduction are interest payments on mortgage loans, if the loan was used to acquire the property. Similarly, repair and maintenance costs are considered deductible, covering all actions required to keep the property in optimal condition for use and rental. The IBI and community fees are also included, as they are inherent obligations of property ownership and management. Additionally, insurance premiums, management and administration fees, and utility costs — such as water, electricity or cleaning services — may be deducted, if they are properly justified, directly related to the rental activity and supported by the landlord.
To ensure these expenses are accepted by the Tax Authorities, taxpayers must demonstrate their nature and direct connection to the rented property. Proper documentation — such as invoices, receipts and contracts — is essential to avoid disputes in the event of a tax audit. These deductions must be applied in the NRIT tax return corresponding to the fiscal year in which the rental income was generated, or within a maximum of four subsequent fiscal years if there was insufficient gross income to apply them.
It is important to note that this new interpretation affects not only future tax returns but also allows taxpayers to request the rectification of previously filed self-assessments and claim refunds for undue payments (including delayed interests). Therefore, affected taxpayers are advised to review their previously filed tax returns and, if they paid tax on gross rental income without deductions, initiate the rectification process with the Spanish tax authorities.
This doctrine has significant implications for international property owners, enabling tax optimization of real estate investments in Spain by reducing the tax burden and improving asset profitability.
Conclusions
In conclusion, the recent doctrine established by the National Court marks a milestone in the tax equalization of non-EU/EEA nonresidents in Spain. It allows them to deduct expenses associated with the rental of their properties, correcting long-standing discrimination. This measure enhances legal certainty and strengthens the competitiveness of the Spanish real estate market, opening new opportunities for international investment and optimizing the tax planning of foreign property owners.
