Spanish IRNR tax under scrutiny by the European Commission – what does this mean for EU citizens who own property in Spain?

In recent weeks, the real estate market in Spain has been abuzz. The European Commission has officially called on the Spanish government to amend the regulations regarding the IRNR tax, which for years has been a source of controversy among foreign owners of houses and apartments on the Iberian Peninsula. For thousands of EU citizens investing in Spanish real estate, this is potentially groundbreaking news—not only could additional tax burdens disappear, but there is also a real chance of recovering amounts already paid.

What is the IRNR tax and who does it apply to?

IRNR, or Impuesto sobre la Renta de no Residentes, is the Spanish income tax for non-residents. It applies to all foreigners who own property in Spain but do not have tax residency there (i.e., they do not stay in the country for at least 183 days a year). Importantly, this tax is charged regardless of whether the property is rented out or used exclusively for personal purposes.

Rental versus… deemed (fictitious) rental

In the case of rental, the owner must pay tax on the income earned, after deducting expenses. However, the greatest controversy surrounds the taxation of so-called “deemed income” – that is, situations where the owner does not derive any actual profit from the property, yet still has to pay tax simply for owning it.

The tax rate for residents of European Union countries and the European Economic Area is 19%, while for individuals from outside these areas it is as high as 24%. The tax base is the cadastral value of the property, which in Andalusia usually amounts to between 20% and 50% of the market value. For example, a house with a market value of 2 million euros may have a cadastral value of 400,000 euros. If the cadastral value was last updated within the past 10 years, the taxable rate is 1.1%; otherwise, it is 2%. In practice, this means that the owner of such a property will pay around 836 euros in tax per year, even if they do not earn any income from it.

European Commission versus the Spanish government

On June 18, 2025, the European Commission launched official proceedings against Spain, accusing it of violating EU rules on the free movement of capital and workers. The Commission found that the current regulations discriminate against non-residents by requiring them to pay tax on deemed income, while residents are exempt from this obligation. Such actions are inconsistent with Articles 45 and 63 of the Treaty on the Functioning of the EU and Articles 28 and 40 of the EEA Agreement.

Brussels has given Madrid two months to respond and take corrective action. If Spain does not amend the regulations, the case will be brought before the Court of Justice of the EU, which could have serious financial consequences for the Spanish budget.

What does this mean for EU citizens?

EU citizens who own property in Spain are required to settle accounts with the Spanish tax authorities. In the case of rental, they must declare the income and pay tax at a rate of 19%. Additionally, according to the double taxation agreement between your country and Spain, rental income must also be reported in your annual tax return, using the proportional deduction method—meaning the tax paid in Spain can be deducted from your tax.

The biggest change that the European Commission’s intervention could bring is the abolition of the obligation to pay tax on deemed income. This would mean real savings for property owners who do not derive any current profits from their properties. Moreover, those who have paid this tax in recent years may have the right to apply for a refund of amounts unduly collected – according to estimates, this could amount to over 137 million euros per year.

Prospects for change and impact on the market

The change in regulations will most likely apply only to the taxation of deemed income, not the entire IRNR system. However, the mere abolition of this levy could significantly increase the attractiveness of investing in Spanish real estate for foreigners. For EU citizens, this means not only lower costs of maintaining a house or apartment in Spain, but also a simplification of tax obligations.

It is worth noting that the IRNR tax is particularly burdensome for citizens of countries outside the EU and EEA, who pay a higher rate of 24%. A good example is the British, who lost preferential tax conditions after Brexit.

What’s next?

Spain has a few weeks to implement changes or present its position. If it fails to do so, the case will go to the EU court, which could mean lengthy proceedings and continued uncertainty for property owners. Regardless of how the situation develops, all EU citizens who own houses or apartments in Spain are advised to keep track of changes in the regulations and consult with tax advisors.

Summary

In summary, the IRNR tax issue is an example of how EU law can protect citizens’ interests against discriminatory national regulations. For EU investors in Spain, this is an opportunity for real savings and greater transparency in tax settlements. It is worth staying up to date and seeking expert advice to avoid missing the chance to recover money that was wrongly paid.