Non-Residents' Income Tax in Spain: tax authorities deny non-resident landlords income tax relief

All non-residents who own property in Spain are obliged to pay Non-Residents' Income Tax (IRNR) once a year. However, article 24.1 of the Law on Non-Residents' Income Tax expressly stipulates that these citizens cannot apply the 60% reduction on income obtained from renting housing in Spain and that this reduction only applies to residents in Spain. The European Commission has already called on the competent national bodies to explain themselves and put an end to this activity, which is contrary to European legislation as it discriminates against its resident citizens.

José María Salcedo, a partner at the law firm Ático Jurídico, helps us to clarifiy this situation regarding the European Commission's complaint, the Treasury's position and how non-resident citizens should proceed while this situation is being resolved. 

Current legislation in Spain

The Personal Income Tax Law in Spain, known as "la Ley del IRPF" provides for a 60% reduction on income obtained from the rental of housing (real estate capital). However, this reduction does not apply to non-residents according to article 24.1 of the IRNR Law. "In short, by obtaining identical income from real estate capital derived from the rental of housing, resident taxpayers can apply the 60% reduction, but non-residents are denied this possibility", stresses José Maria Salcedo.

Complaints from the European Commission

The European Commission has already expressed its dissatisfaction to Spain, stating that the difference in treatment in question unduly restricts the free movement of capital, which is protected by Article 63 of the Treaty on the Functioning of the European Union (TFEU).

"This legislation is very likely to be declared contrary to European Union law. This is because it grants better tax treatment to residents in Spain who obtain income from the rental of housing, compared to non-residents who receive the same income", clarifies the expert from Ático Jurídico.

The procedure initiated by the European authorities has consisted, to date, of sending a letter of formal notice, in which the European Commission grants a period of two months to provide a detailed response on the infringement. "If the Commission is not satisfied with Spain's reply, it will send a reasoned opinion. In this opinion, it will explain why it considers that the Spanish rules are in breach of EU law. It will also make a formal request for compliance with EU law. To this end, Spain will be granted a period of time (normally two months) to report on the measures adopted," explains Salcedo.

In the event that Spain fails to comply and continues to refuse these tax reductions to non-residents, the European Commission could bring the matter before the Court of Justice of the European Union (CJEU).

The Spanish Treasury's current position

In the meantime, the Treasury in Spain continues to somewhat pretend that nothing is happening with the possible violation of EU law that it has been accused of. "On the one hand, the law has not been amended to allow non-residents to apply the 60% reduction, which is applicable to taxpayers resident in Spain. On the other hand, the Authoities are refusing applications for this tax reduction coming from non-resident taxpayers", Salcedo comments.

What should non-resident taxpayers do?

It is well known that the procedures and formalities at the European Commission are slow. Therefore, the most important thing is that taxpayers do not let the possibility of requesting the rectification of the self-declaration detailed in form 210, filed in previous years, lapse, even when they did not apply for the 60% reduction on capital yields obtained from renting housing.

In these cases, the statute of limitations is four years, counting from the last day on which the self-declaration could be submitted. "If it is finally declared that the Spanish regulations are contrary to EU law, it will always be much easier to recover what has been overpaid, if we have already initiated a claim, and, above all, if the right to request such a rectification is not time-barred", the expert points out.

"Therefore, if you were taxed as a non-resident for the rental income obtained without applying the reduction, now is the time to request the rectification for previous years, and thus interrupt the statute of limitations," concludes José María Salcedo, partner and lawyer at the Ático Jurídico law firm.