On 28 July 2025, the Spanish National Court (Audiencia Nacional) issued an important ruling (case no. 636/2021, ECLI:ES:AN:2025:3630) concerning the taxation of non-residents in Spain. The Court recognised that a taxpayer resident in the United States may deduct, in the Non-Resident Income Tax (NRIT/IRNR), the expenses provided for under the Spanish Personal Income Tax (IRPF) rules, insofar as they are linked to the rental of a property located in Spain.
This decision has major implications for non-EU property owners with homes in Ibiza and Formentera, since until now the deduction of expenses had only been clearly recognised for residents of the European Union and the European Economic Area.
The case: rental of a property in Spain by a U.S. resident
The taxpayer, resident in the United States and owner of a property in Spain, declared her rental income under the NRIT and sought to deduct the expenses permitted by the IRPF, such as loan interest, repairs, amortisation, insurance and local taxes.
The Central Economic-Administrative Tribunal (TEAC) rejected her claim, arguing that the NRIT Act only allows such deductions for residents of the EU or EEA with an effective exchange of tax information.
The National Court overturned this reasoning, extending the right to deduct expenses to taxpayers from third countries, such as the United States, based on the principle of non-discrimination.
The National Court’s reasoning
- Article 24 of the NRIT Act refers to the IRPF rules to calculate the taxable base of rental income.
- The Court of Justice of the European Union (CJEU), under Article 63 TFEU (free movement of capital), has established that limiting the deduction to EU residents amounts to discrimination.
- The Double Taxation Treaty (DTT) between Spain and the United States includes a non-discrimination clause which reinforces the right to apply these deductions.
Consequently, the National Court concluded that denying the deduction of expenses to U.S. residents infringes both EU law and the DTT, and ordered the rectification of the taxpayer’s self-assessments.
Which expenses may be deducted in the NRIT?
Non-EU residents with properties in Ibiza or anywhere in Spain may deduct, among others:
- Loan interest and financial expenses associated with the acquisition of the property.
- Repair and maintenance costs.
- Local taxes and fees (property tax, waste collection, etc.).
- Homeowners’ association fees.
- Property insurance.
- Depreciation of the property and of movable goods leased with it.
These expenses must be directly related to the income obtained in Spain and clearly linked to the rental activity.
Is this ruling final?
While this judgment is a key development for non-EU property owners with homes in Ibiza, it is important to note:
- The NRIT Act still expressly recognises the deduction of expenses only for EU/EEA residents.
- The National Court extended the application to non-EU residents on the basis of the non-discrimination principle of EU law and the DTT with the U.S.
- This is not yet Supreme Court case law, meaning further rulings may follow.
- The Spanish Tax Agency (AEAT) may continue to deny these deductions at the administrative stage, forcing taxpayers to defend their rights in court.
👉 Nonetheless, the trend is clear: to extend the right to deduct expenses in the NRIT to non-EU residents from countries with double taxation treaties containing a non-discrimination clause.
Implications for foreign property owners in Ibiza and Formentera
This judgment has significant consequences for foreign investors and homeowners in the Balearic Islands:
- Tax optimisation of income from long-term or holiday rentals in Ibiza.
- Possibility of claiming refunds by rectifying previous self-assessments (within the four-year statute of limitations).
- Growing legal certainty for non-EU investors acquiring real estate in Spain.
- Increased attractiveness of the Balearic real estate market for citizens of the U.S., Switzerland, the UK, Canada, Latin America and other countries with tax treaties.
Conclusion
The National Court has opened the door for non-EU property owners in Ibiza to deduct rental-related expenses in the NRIT, provided that the legal requirements are met.
This development strengthens legal certainty for international investors in the Balearic Islands and improves the profitability of their properties.
👉 At Roig Ruiz Abogados y Asesores, based in Ibiza, we assist non-resident property owners and investors in optimising their taxation, applying deductions correctly and reclaiming refunds where appropriate.
