The European Commission has increased pressure on Spain over what it describes as discriminatory tax rules of foreign property owners who earn rental income from homes in the country.
Brussels announced this week that it has sent Spain a new formal notice after concluding that changes made by the government have failed to resolve concerns first raised several years ago.
The dispute centres on tax advantages available to Spanish residents but not to many non-resident property owners.
Why is the EU concerned?
Under current Spanish tax rules, residents who rent out property can benefit from reductions of up to 60% on their taxable rental income.
However, the European Commission says these tax benefits are not available to non-residents in the same way.
According to Brussels, this creates unequal treatment between resident and non-resident property owners and may breach European Union rules on the free movement of capital.
The Commission says Spain has not done enough to remove these differences despite ongoing discussions dating back to 2019.
What happens next?
The latest move forms part of the EU’s infringement procedure.
Spain must now respond to the Commission’s concerns and explain how it plans to address the issues raised.
If Brussels remains dissatisfied with Spain’s response, the case could progress to the next stage of the legal process and potentially end up before the Court of Justice of the European Union.
Other tax disputes under investigation
The rental income issue is not the only area attracting European scrutiny.
The Commission is also examining Spain’s imputed income tax on properties owned by non-residents.
This tax applies even when a property is not rented out and is calculated using the property’s cadastral value.
Spanish tax residents do not face the same charge on their primary homes, which has led Brussels to question whether the system treats non-residents fairly.
Separate legal action over capital gains tax
In a separate dispute, the European Commission has already referred Spain to the Court of Justice of the European Union over capital gains tax rules.
The Commission argues that non-residents who sell property in Spain do not receive the same treatment as residents when payments are made in instalments over several years.
Under current rules, Spanish residents can defer capital gains tax payments in certain circumstances. According to Brussels, non-residents do not have access to the same option.
What could this mean for Costa Blanca homeowners?
The Costa Blanca is home to thousands of foreign property owners, many of whom rent out their homes either permanently or for part of the year.
Any future changes to Spanish tax rules could therefore affect a large number of expats and overseas investors with property in Alicante Province.
For now, the existing rules remain in place.
However, the European Commission’s latest intervention suggests the dispute is far from over and that Spain could face further legal pressure if changes are not made.
A long-running disagreement
The Commission’s latest action highlights an issue that has been under discussion for several years.
While Spain insists it has already introduced reforms, Brussels believes those changes have not gone far enough to guarantee equal treatment for resident and non-resident taxpayers.
As a result, foreign property owners across Spain will be watching closely to see whether further changes to the tax system are on the horizon.
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