On 28 July 2025, the Spanish National Court (Audiencia Nacional, henceforward, “the Court”) determined that a United States resident who earns rental income from property located in Spain may deduct expenses related to the rental activity, despite not being a resident of the European Union (EU) or European Economic Area (EEA).1
The ruling, Decision SAN 3630/2025 (ECLI:ES:AN:2025:3630), may be appealed to the Supreme Court (Tribunal Supremo).
This ruling is significant for non-EU/EEA residents who own rental property in Spain, as it potentially broadens the scope of deductible expenses for third-country taxpayers. Financial outcomes could be impacted by the decision. As it stands, taxpayers could benefit from a reduction in the effective tax burden on their rental income.
Entities and individuals affected by Spanish Non-Resident Income Tax (IRNR) rules may wish to consider the possibility of revisiting prior tax filings and consider whether to submit rectifications or claims for expense deductions previously denied.
Tax compliance processes may need adjustment to reflect this change, and organisations should monitor further developments.
This decision concerns a taxpayer who owned and rented out Spanish property during the tax years 2016, 2017, and 2018, and had previously been denied expense deductions under IRNR rules, which restrict such deductions to EU/EEA residents. The taxpayer argued that this limitation was discriminatory and violated both the principle of free movement of capital under EU law and the non-discrimination clause in the Spain-United States Income Tax Treaty.
At the heart of the case was whether non-EU/EEA residents are entitled to deduct rental-related expenses under IRNR, similar to EU/EEA residents.
The Court ruled in favour of the taxpayer, arguing that exclusion of third-country residents from deductions is contrary to EU law and aligning its decision with the non-discrimination provisions in the Spain-U.S. tax treaty.
As noted above, the decision may be appealed.
The Court’s ruling clarifies that Spanish tax law cannot restrict deductions for expenses tied to qualifying rental property activities solely based on the taxpayer's residence (in this case, the taxpayer who was an EU/EEA nonresident). The decision underscores the primacy of EU principles and international treaty obligations in cross-border tax matters. There seems to be an attempt to bring greater clarity around introducing more equitable treatment in line with EU law and international treaty obligations.
If upheld, the decision could set a precedent for broader application of expense deductions to other third-country residents with Spanish-source income. Moreover, further appeals or legislative changes may clarify or expand the scope of deductible expenses for non-residents. Tax advisers should monitor the outcome of any Supreme Court appeal and be prepared to adjust advice based on further judicial clarification.
If assignees wish to assess their rental property expense situation and determine what is feasible at this point – or possible under different eventual appeal outcome scenarios – they should consult with their qualified tax professional or a member of the GMS tax team with KPMG in Spain (see the Contacts section).
FOOTNOTE:
1 Consejo General del Poder Judicial, SAN 3630/2025 - ECLI:ES:AN:2025:3630, published on 28/07/2025 (in Spanish).
The information contained in this newsletter was submitted by the KPMG International member firm in Spain.
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