Non-residents' income tax in Spain: tax authorities refuse income tax exemption for non-resident property owners!

Despite the European Commission's concerns, the tax authorities in Spain will continue to reject applications by non-resident taxpayers seeking tax reductions.  villa

Both non-residents owning land in Spain are required to pay the Income Tax (IRNR) of non-residents once a year. Article 24.1 of the Non-Residents' Income Tax Act states however specifically that the 60% decrease in income from rented housing in Spain cannot be applied to these people and is only applicable to Spanish residents. The European Commission has already called on the relevant national institutions to justify themselves and to stop this practice, which is contrary to European law as it discriminates against the residents.

José María Salcedo, a law firm partner for Ático Jurídico, helps us clarify this situation concerning the complaint of the European Commission, the role of the Treasury and the manner in which non-resident citizens can take action in resolving this situation.

Current law in Spain

European Commission complaints

The actual location of the Spanish Treasury

What do taxpayers who are not residents do?

Current law in Spain

In Spain, the Personal Revenue Tax Act, known as the "Ley del IRPF," provides for a 60% reduction in income from house rental (real estate capital). However, in accordance with Article 24.1 of the IRNR Law, this reduction does not extend to non-residents. "In sum, resident taxpayers will apply a 60% reduction by getting the same income from property capital from renting homes, but non-residents are denied this option," stresses José Maria Salcedo.

European Commission complaints

The European Commission has already said that the divergence of the treatment in question unreasonably limits the freedom of movement of capital, which is guaranteed by Article 63 of the Treaty on the Functioning of the European Union (TFEU).

"This law is very likely to be declared contrary to EU law. This is because it gives preferential tax status to Spanish residents who earn income from house rents compared with non-residents who receive the same income ", clarifies the Ático Jurídico specialist.

To date, the process launched by the European authorities consisted of submitting a letter of formal notice granting a two-month duration to the European Commission to provide a comprehensive reply to the violation. "If Spain's reply is not met by the Commission, it will give a reasoned opinion. In this opinion, it will clarify why it believes that the Spanish rules violate EU law. It will also formally request that EU law be complied with. To this end, a period (usually 2 months) will be given to Spain to report on the steps taken "Salcedo explains.

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

The actual location of the Spanish Treasury

In the meantime, the Spanish Treasury continues to claim that nothing occurs with the alleged breach of EU law of which it has been accused. "On the one hand, the legislation was not changed to enable the 60 per cent reduction available to taxpayers living in Spain to be applied by non-residents. On the other hand, the Authorities reject requests from non-resident taxpayers for this tax cut ", Salcedo remarks.

What do taxpayers who are not residents do?

It is well recognized that the European Commission's procedures and formalities are sluggish. The most important thing, however, is that taxpayers would not let the option of seeking to correct the self-report, as detailed in the 210 form filed in previous years, expire even though they did not apply for a 60% reduction in the rented housing capital gains.

In these cases, the limitation period is four years, starting on the last day the self-declaration can be presented. 'If the Spanish regulations are eventually declared to be contrary to EU law, recovery of overpaid products will always be much easier if we have already made a claim and above all if there is no time restriction on our right to request this rectification' points out the expert.

"If you have therefore been taxed on rental incomes without filing for the reduction as a non-resident, the time has come to seek rectification for previous years and thus disrupt the restriction status," concludes José María Salcedo, lawyer with the company Ático Jurídico.