The Commission has drawn attention to Spain for not according equal treatment to resident and non-resident individuals regarding their rental income

On 7 March 2019, the European Commission (“Commission”) published its infringement package, indicating those Member States that are not in compliance with European Union (EU) law, and setting out the precise circumstances of this. In this communication, the Commission expressed its concern regarding Spain's treatment of rental income of immovable property from Spanish resident and non-resident individuals.

Spanish Personal Income Tax (PIT) law grants a reduction to landlords when they rent their properties to tenants that use these properties as their main residence. This reduction is equivalent to 60% of the income arising from the rent and is only applicable if this income qualifies as income from immovable property

Spain, as stated in the double tax treaties that it has concluded with other EU Member States, normally has the right to tax income from immovable property when the real estate asset is located in Spain. However, the 60% reduction is not available in the non-resident law and thus non-resident individuals having real estate properties in Spain are not eligible for this reduction.

To this end, the Commission considers that the fact of treating Spanish resident individuals differently from EU resident individuals constitutes a restriction on the free movement of capital enshrined in Article 63 TFEU.

Hence, Spain is now required to take steps to modify its non-resident legislation and to allow EU residents to benefit from the reduction. If Spain does not take such steps, the Commission will seek to bring Spain before the Court of Justice of the EU with a view to obtaining a decision requiring Spain to undertake the necessary legislative modifications.

The discussion between Spain and the EU in terms of non-compliance with the principle of free movement of capital within the EU is once again open and now regarding individuals. It will be necessary to closely monitor how this discussion progresses in future

By Rubén Lago and Marta Ramos (Barcelona)

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