Non-residents can apply for a refund of property tax

According to a recent ruling by the Supreme Court of the Balearic Islands, non-resident taxpayers have the possibility to obtain a refund of wealth tax (IP) from the Spanish tax authorities.
As a general rule, Spanish resident individuals are taxed on their worldwide net wealth under the wealth tax (IP), while non-residents are taxed only on assets or rights located in Spanish territory.
However, there are differences in the payment of the tax, as Spanish resident taxpayers can reduce their wealth tax liability by applying the “common limit” with personal income tax. This limit states that the sum of IRPF and wealth tax payments may not exceed 60% of the taxpayer’s total income. If this limit is exceeded, the IP tax liability can be reduced by up to 80%. The purpose of this common limit is that the lower the income of a resident taxpayer, the lower the wealth tax (IP) payable.
However, not all taxpayers can apply the common limit and thus reduce their IP tax liability. Under the current regime, non-resident taxpayers cannot benefit from the common limit, so their IP tax liability cannot be reduced according to the taxpayer’s income in their country of residence.
This difference in treatment means that non-residents pay more wealth tax (IP) than residents in Spain, simply because the latter pay their IRPF to the Spanish government, while the former pay their IRPF to a third country (EU or non-EU member or not).
The courts have confirmed that this situation is arbitrary, discriminatory and contrary to the fundamental principles of the European Union, and have consequently declared that non-residents may also avail themselves of the aforementioned limit, which can only be applied to residents, considering it unreasonable and disproportionate not to apply the regime provided for in Article 31 of the Income Tax Law to non-residents, since their residence outside Spain “cannot justify the income tax on them taking on confiscatory proportions”.
This ruling shows once again that the Spanish tax system still contains numerous discriminatory and anti-EU rules. It is encouraging to note that our legal system is taking steps to correct these situations and we trust that it will continue to make progress in addressing the shortcomings in our system.
It is advisable to conduct a tax analysis at an early stage in view of this new approach. In this context, it is advisable to seek advice from tax experts who are able to assess each case individually and determine whether there are possibilities to claim refunds from the tax authorities.

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