Good news if you’re a non-EU citizen buying property in Spain to rent out: the Spanish court has ruled that non-EU landlords can now deduct rental costs and has declared the Spanish non-EU property tax ‘discriminatory’. This is a landmark decision that demonstrates a fairer approach, making renting out a Spanish property more cost-effective and investing in Spain more attractive. Here’s what it all means:
Spain Non-EU Property Tax: Owners Can Now Deduct Rental
For years, the Spain non-EU property tax required non-EU owners who let out homes to pay 24% tax on the full rent without any deductions for the costs involved in running a tenancy like repairs, cleaning, insurance, utilities, agency fees and marketing. In comparison, EU residents paid 19% on their net income while also deducting rental costs. Now, however, judges have ruled this system ‘unlawful’ relying on Article 63 of the Treaty on the Functioning of the EU which guarantees free movement of capital.
The case was brought by a US citizen who owned a property in Barcelona. Spain tax authorities claimed rental cost deductions to non-EU citizens weren’t explicitly allowed by law, however the judges ruled you can’t burden someone with a higher tax rate simply because of where they live.
How the Court Ruling Impacts the Proposed Spain 100 Percent Property Tax
Earlier this year, the Spanish president Pedro Sánchez suggested a so-called ‘Complementary State Tax,’ essentially a 100 percent charge on Spanish property purchased by non-EU residents. The decision made by the national Court on rental taxation, however, sends a clear message to lawmakers that a measure such as this one would be contrary to the exact legislation judges have just relied on. Keeping this in mind, it’s highly likely that the Spain 100 percent property tax would be struck down by Spanish and EU courts as punitive and discriminatory.
What This Means for Non-EU Citizens Buying Property in Spain
If you’re a non EU citizen buying property in Spain, the recent Court ruling is great news, whether you’re planning on purchasing property to rent out or for your own use.
For those planning on renting out a home, the ruling means that you should be able to deduct legitimate rental costs just like an EU landlord. Despite EU residents remaining at 19 percent tax while non-EU owners being at 24 percent, the ruling can still make a big difference, especially if you’re planning any major refurbishments or in case you incur agency commissions, for example.
The decision, however, goes beyond rental taxation. Even if you’re looking to purchase a home in Spain for your own use and rental taxes wouldn’t apply to you, the Court ruling is still very likely to affect future decisions of lawmakers that would be relevant to you, including reducing the likelihood of the Spain 100 percent property tax proposed earlier this year. The decision creates a base for a fairer tax landscape with a lot more legal certainty for non EU citizens buying property in Spain.
Investing in Spanish Property With Confidence
The recent easing of rental taxation rules has made investing in Spanish property even more attractive than it already was. If you’re looking to purchase property in Spain, whether as a holiday home or as an investment, Welcome Estates can help. Over our 25 years of experience on the Spanish Real Estate market, we’ve become experts in helping UK individuals and families find the perfect property for their needs.
Get in touch with our friendly team today and we’ll be happy to answer any questions you may have!
Disclaimer: Please keep in mind that the above is provided as general information and is not intended as official taxation/legal advice.
