Spanish court rules against the fiscal tax discrimination of non-resident taxpayers

Raymundo Larraín Nesbitt, November, 3. 2025

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By Raymundo Larraín Nesbitt
3^rd of November 2025

Introduction

Lately, there has been a lot of talk and hype in the media regarding a Spanish ruling that opens the way to end tax discrimination against non-residents on filing the annual Non-Resident Imputed Income Tax (NRIIT).

I’m going to start by explaining a bit the ruling, without going into much detail, and its legal impact, but more fundamentally, why people need to hold back their horses and not open a champagne bottle, at least yet.

Last 28^th of July 2025, a Spanish high court ruled against the tax discrimination of non-residents on filing the Non-Resident Imputed Income Tax Returns. A disgruntled US taxpayer filed a case against Spain on grounds that Spanish nationals can offset their maintenance expenses, slashing their tax bill by 70%, or more, on filing income tax returns, whereas non-residents are barred from doing so. This, in effect, creates an unfair tax discrimination against non-residents which is incompatible with the tenets enshrined in the EU’s Foundational Treaty of Rome, and others, on which the whole Union is grounded. Concretely, it goes against Art. 63 of the TFEU (which prohibits restrictions on the free flow of capital between EU Member States and between Member States and non-EU countries). The Union (or The United States of Europe, as Churchill fondly called it), at its core, is a supranational entity that was devised to mimic the successful US model, which in effect allows the unrestricted movement of capital within the member states of the Republic (E pluribus unum). From union comes strength.

I really don't fancy overextending myself explaining the core EU Principles and how they shape Spanish taxes, as I have already covered them extensively in previous articles:

In plain English, what this ruling means is that non-residents may now offset maintenance expenses (not improvements, which are offset on selling the property against their Capital Gains Tax) on equal footing with Spanish nationals, significantly bringing down their tax bill.

However, whilst all this sounds hunky-dory, in practice it makes no difference. I’m sorry to throw a spanner in the works.

The reason is because the court that issued the ruling is not the highest in the land, and the Spanish government can and will appeal said ruling. Until we have a final ruling, which cannot be appealed, and which foreseeably will take several years from now, all this talk is just wishful thinking with no practical impact on non-residents’ tax returns.

Ultimately, the Spanish government can and will file an appeal before Spain’s Supreme Court, which is the highest court in the land. The Supreme Court, mercifully, is not under government control and is fairly unbiased. I honestly cannot see any other way out for this court other than to uphold the ruling by a lower court unless they fancy the public ridicule of being overruled – yet again – by the European Court of Justice. I honestly hope our high magistrates spare us the opprobrium of being shamed, time and time again, by the ECJ for not knowing, or more likely blatantly disregarding, the core European principles on which the whole Union is built. Moreover, Spain’s Supreme Court has extensive jurisprudence on this matter, and the ruling from the lower court falls neatly in line with said line of jurisprudence.

So, in practice, in the short term, this ruling changes nada. Because you can bet your bottom dollar that the Spanish Tax Office will not change its tax returns one iota this year, or even the following years, until we have a final ruling. It will not accept non-resident taxpayers offsetting expenses on filing their end-of-year non-resident tax returns.

However, in the long run, many years from now, the significance of this ruling cannot be understated and will indeed leave a mark. Once Spain’s Supreme Court has its arm twisted to uphold it, the Spanish Tax Office will reluctantly be forced to accept non-residents claiming maintenance expenses to mitigate their property tax bills, thus significantly slashing their end-of-year tax returns. But, as I write, we are still several years away from this happening, so hold your horses.

Another matter, which this ruling does not address directly, is the discrimination on the tax rate; 19% for all EU nationals and 24% for the rest of the world. I’m aware there is another ruling in the works that will rule on this point, and will most likely leave a single flat tax rate of 19% for both EU and non-EU nationals alike, ending the fiscal discrimination for good.

In a nutshell, although July’s ruling is good news and a positive step in the right direction, it must be tempered by the knowledge that we need to wait many years from now for this tax change to come to fruition. Once this landmark ruling is upheld by Spain’s Supreme Court and becomes firm, it will be binding, and the Spanish Tax Office will be forced to abide it, even retroactively, which will open a new can of worms; meaning taxpayers will be able to file tax rebates, plus legal interest on top, on the overpaid tax of the previous 4 tax years (the statute of limitations does not allow to go back on tax claims further than four years). It will indeed save thousands of euros for American, Australian, British, Canadian, New Zealanders and all other non-EU property owners in Spain.

But right now, you can ignore all the hype around it and watch the grass grow.

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