On June 18, 2025, the European Commission announced it had opened a formal infringement procedure against Spain. The issue concerns a special tax applied to non-residents who own property in Spain. According to Brussels, Spain taxes these foreign owners unfairly by charging them personal income tax (under the non-resident income tax regime, IRNR) on a “theoretical rental income”, even when their properties are unused. The tax is set at 2% of the property’s cadastral value, reduced to 1.1% if the property’s value has been updated recently.
Under Spanish law, if someone owns a second or holiday home—even if they don’t rent it out or don’t live there full‑time—the tax office assumes the property generates income. As a result, property owners must pay tax on that assumed income. While this also applies to Spanish residents with a secondary home, Spain treats non-residents differently. Spanish residents only pay this imputed income tax if they own extra homes not used as their main residence. Non-residents face the charge on ANY property they own in Spain—even if it's their primary residence during short visits.
Why Brussels says this is discriminatory
Brussels deems the practice discriminatory because it imposes the imputed income tax only on non-residents, treating foreign owners less favorably than Spanish citizens. This conflicts with two fundamental EU principles:
- Free movement of workers (Article 45 of the Treaty on the Functioning of the EU)
- Free movement of capital (Article 63 of the TFEU)
Similar protection also applies under the European Economic Area agreement, which covers countries like Norway and Iceland.
The Commission warns that this tax could deter non-residents — both EU and non‑EU — from investing or staying in Spain temporarily, as they could face a hidden fiscal burden simply for owning property.
What happens next under EU procedure
Brussels has formally sent Spain a “letter of formal notice”, the first stage of an infringement process. Spain has two months to respond, either by explaining why the tax is justified or by amending its legislation. If the response is unsatisfactory, the Commission may issue a reasoned opinion in phase two. After that, if Spain still hasn’t corrected the issue, the case may go to the Court of Justice of the EU .
Spanish domestic debate on second‑home taxation
The news comes amid Spain’s internal discussions on the taxation of second homes and holiday properties. The ruling PSOE government has recently introduced a legislative proposal to tax foreign buyers more harshly — potentially imposing a 100% tax on certain property purchases by non‑EU citizens.
This initiative aims to curb speculation and encourage more rental homes, but it could clash with EU rules on equal treatment of foreign and Spanish buyers.
There’s also growing pressure to discourage leaving homes empty — especially in high‑demand areas—by implementing higher taxes for unoccupied homes.
Why this matters
- For property owners, especially foreigners: they may lose the imputed 2% tax, which is effectively a charge on unused properties.
- For lawmakers in Spain: they’ll need to align domestic rules with EU treaties—ensuring both residents and non-residents are treated equally.
- For EU integration: the case reinforces the strength of EU protections on free movement and fair treatment.
Conclusion
To summarise:
- Spain taxes non-residents on an assumed 2% rental income from all properties — even unused ones.
- Spain treats its own residents more leniently in similar situations.
- The European Commission says this split treatment discriminates against foreign owners and contravenes EU freedoms.
- Spain has until mid-August 2025 to respond and adjust its laws or face escalation to the Court of Justice.
This process of formal notice signals growing scrutiny over property and tax rules in Spain. The outcome may reshape how owners — domestic and foreign — are taxed on second homes or holiday properties.
