Good news for foreign property owners In Spain. The European Commission has once again called on Spain regarding the tax treatment of non-resident landlords. According to Brussels, foreign owners who rent out their property have been fiscally disadvantaged for years compared to Spanish taxpayers.
Aangezien Spanje de regelgeving moet aanpassen, kan dit voor duizenden buitenlandse eigenaren leiden tot een significant tax saving.
What's going on?
When a resident of Spain lets out a property for permanent occupation, they are eligible for attractive tax relief. Depending on the circumstances, the taxable rental income can be reduced by up to 90%.
It's different for non-residents.
Foreign owners who rent out a property in Spain and pay tax via the Non-Resident Income Tax (IRNR)), can this do not currently apply these reductions. As a result, they often pay significantly more tax on the same rental income than a landlord who lives in Spain.
According to the European Commission, this is in contravention of the European principle of free movement of capital.
Why is the European Commission intervening?
The European Commission believes that Spain is discriminating against foreign landlords by excluding them from tax benefits that are available to Spanish residents.
It is worth noting that Brussels had already drawn Spain’s attention to this issue back in 2019. As no solution has been found since then, the Commission has now issued a new formal warning.
Spain has two months to adapt its legislation or provide a convincing response. If this does not happen, the case can ultimately be referred to the Court of Justice of the European Union.
What does this mean concrete for foreign owners?
The financial impact could be significant.
Take, for example, a non-European owner who receives €15,000 in rental income each year from a property in Spain.
Under the current rules, he pays around €3,600 in tax per year. If the same tax reliefs applied as for Spanish residents, that amount could fall to just a few hundred euros.
Any change in the law could also result in significant savings for European owners.
There are further proceedings pending
This case is not an isolated one. Spanish courts are currently hearing several cases concerning the tax status of non-residents.
Legal proceedings are also being brought in relation to:
- the deductibility of costs such as maintenance, insurance and financing costs;
- the different tax rates for European and non-European owners;
- the application of European legislation to foreign property owners.
In this regard, non-residents are increasingly receiving support from both Spanish courts and European institutions.
What can landlords do now?
For foreign owners of Spanish property, this is a development that should be closely monitored.
Although the regulations have not yet been amended, a future ruling by the Court of Justice or an amendment to Spanish legislation could have significant implications for the tax burden on rental income.
Landlords who are currently receiving rental income would be well advised to have their tax returns and any potential appeals or refund options reviewed by a specialist.
Conclusion
Pressure from Brussels on Spain is mounting. If the European Commission gets its way, the unequal tax treatment of foreign landlords could come to an end.
For many owners of Spanish property, this would not only be a matter of equal treatment, but also of significant tax savings.
DACASAS REAL ESTATE is keeping a close eye on these developments and will keep you informed via our website of any significant changes affecting foreign property owners in Spain.
