In March, as reported by the Majorca Daily Bulletin, the European Commission referred Spain to the European Court of Justice for discriminatory tax treatment of non-residents. The Commission said Spain had infringed the free movement of capital by allowing residents a choice when to pay taxes over a transfer of assets with a deferred payment, while non-residents always have to pay the tax at the time of the transfer of the assets.
And now, as part of its October 2025 Infringement Package, the European Commission has initiated infringement proceedings against Spain, concerning its income tax rules for non-residents.
Under current Spanish law, non-resident individuals who own property in Spain and use it as a habitual residence are subject to a tax on notional rental income, calculated at two percent of the property’s cadastral value.
Spain has had this coming for many years. On 2 December 2021, the Commission sent Spain a letter of formal notice followed by a reasoned opinion on 23 May 2024. In its formal replies, and in subsequent technical exchanges with national authorities, Spain has maintained that its tax legislation is in line with EU law. The Commission considers that efforts by the national authorities have, to date, been insufficient and is therefore referring Spain to the Court of Justice of the European Union.
Background
Under Spanish tax law, resident taxpayers can choose to defer capital gains tax when the payment for the transfer of assets is deferred for more than one year or paid in instalments over a period exceeding a year. In this case, the tax is paid proportionally as each instalment of the price is received. This allows for a cash flow benefit, as tax is only paid on the portion of the capital gain corresponding to the payments made.
However, for non-resident taxpayers, the situation is different. Capital gains are taxed on an accrual basis, meaning that the tax is levied in full at the time the asset is transferred, even if the payment is made over an extended period. This means that non-resident taxpayers cannot benefit from the option to defer tax payments, even if they receive the payment in instalments over time. As a result, non-residents face a significant cash flow disadvantage compared to their resident counterparts.
This difference of treatment between residents and non-residents infringes upon the principle of free movement of capital, as outlined in Article 63 TFEU. By imposing a more burdensome tax structure on non-residents, Spanish tax law creates an unjustified barrier to cross-border transactions, which is contrary to the European Union’s objective of promoting the free movement of capital within its internal market.