Gecko Towers
The British may still be among the largest groups of property buyers in the Marbella region but the impact of Brexit, rendering Brits as non-EU residents, had posed a hurdle to the full realization of opportunities to rent out their properties. The Spanish tax authorities had insisted that they pay tax on their gross rental incomes, whereas EU and EEA nationals were permitted to take deductions of property costs against their income. Well that has been judged unfair by Spain’s National Court.
For those Brits, who have the benefit of a Tourist Licence, and are able to rent their properties for short term – AirBnB type – rentals, this is a huge win!
The National Court has issued a ruling that represents a significant change in the tax treatment of non-residents: non-EU citizens will be able to deduct expenses associated with their properties in Spain from their non-resident income tax return under the same conditions as EU citizens, thus eliminating a difference that until now had been detrimental to them.
The ruling responds to an appeal filed by taxpayers from non-EU countries who alleged discriminatory treatment compared to residents from the European Union and the European Economic Area. Until now, Spanish regulations only allowed the latter to deduct certain expenses—such as maintenance, repairs, or local taxes—on their non-resident income tax returns, while non-EU citizens were required to pay tax on the full income from their rentals.
The court considered that this differentiation violated the principles of equal treatment and the free movement of capital enshrined in the EU treaties, as well as in the case law of the Court of Justice of the European Union. The decision therefore expands the tax rights of non-EU citizens with property in Spain, who will be able to benefit from the same tax deduction regime as EU citizens.
Beyond its individual impact, the ruling sets a significant precedent for the Spanish Tax Office, which will be forced to adapt its administrative practice and could face a flood of claims from non-EU citizens who have paid taxes in recent years without being able to apply these deductions. The ruling also consolidates the line of equal treatment between EU and third-country taxpayers in tax matters, at a time when globalization and foreign direct investment place tax neutrality at the center of the debate.
We will keep you updated as to what solutions will be offered by the Tax Office, for British and non-EU property owners who have already overpaid unnecessary amounts tax which are quashed by this ruling?
I have had early indications from my Tax Accountant colleague, Fuli Salas, has indicated that refunds in such circumstances may be possible for the last four tax years prior to the ruling. So if we can be of help in checking your position please just ask.
Please remember – solely for the purposes of this post – the expression “Brits” includes all those non-resident property owners from the USA, Canada, Middle and Far East, Central and South America, Australia and New Zealand – in fact from anywhere that is not a member of the EU or EEA!
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Please note that our posts are for general interest. There is no substitute for proper advice tailored to your specific circumstances as provided by a qualified Abogado who is experienced in the application of the Spanish Law. Nothing contained in this article should be seen or taken as legal, tax or financial advice and cannot be relied upon as such. Neither the writer nor the publisher accepts any responsibility for liabilities arising as a result of reliance upon the information given. All details have been reasonably fact-checked and all efforts have been taken to ensure that facts are accurate as at the date of publication.
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