Last year we wrote about a landmark ruling by Spain's National Court that recognised, for the first time, the right of non-EU owners to deduct rental expenses when paying Spanish non-resident income tax (IRNR). For British owners after Brexit, and for owners in the United States, Switzerland and other third countries, it was potentially the most significant tax development in a decade.
Eleven months on, this is an honest update on where things stand, because the picture is encouraging but not yet settled.
The State Attorney's Office has taken the case to the Supreme Court. Until the Supreme Court rules, the National Court judgment does not create binding precedent, and the tax agency has not changed its position. In practical terms, the official rule on paper is still the old one: non-EU owners are taxed at 24 percent on gross rental income, with no deductions, while EU and EEA residents pay 19 percent on net income after expenses.
There are solid reasons for optimism. In late 2025 the Supreme Court itself struck down a Wealth Tax rule that discriminated against non-residents, using the same legal foundation that underpins the rental case: the free movement of capital, which European law extends to third countries. Most tax advisers we work with expect the rental criterion to be confirmed. But expected is not the same as decided.
Meanwhile, life goes on and tax returns fall due. Non-resident owners declaring rental income face a genuine choice, and the professional community has split into two approaches.
The assertive route is to file already applying the deductions, taxing the net income. The tax agency's online form does not make this easy, since selecting a non-EU country of residence blocks the expense fields, and owners taking this route must be ready to defend the position if reviewed. Advisers who favour it argue that any reassessment would be very hard for the administration to sustain against the National Court's reasoning.
The cautious route is to keep filing at 24 percent on gross income, and then formally request a refund of the overpaid tax, with documentary evidence of the expenses. These requests will initially be rejected and will need to be pursued, but they carry no penalty risk, they stop the clock on the limitation period, and refunds accrue interest in the owner's favour, currently a little over 4 percent per year.
Which route suits a particular owner is a decision for their tax adviser. What is not in doubt is that doing nothing has a cost: rectifications can only reach back four years, so every year that passes without a claim is a year that may become unrecoverable.
The ruling does not open the door to deducting everything. The courts require a direct and demonstrable link between the expense and the rental income. In a typical holiday rental, that points to costs such as property management and cleaning services, repairs and maintenance, IBI and local taxes, community fees, insurance, utilities during the rental period, and depreciation. Good record keeping is now worth real money: every invoice kept is potentially 24 percent of its value recovered.
For the owners whose properties we manage, our monthly settlement statements already itemise every figure in the chain, from the guest's payment to the owner's net, and we encourage owners to keep the same discipline with the costs they pay directly. If the Supreme Court confirms the criterion, owners with organised paperwork will be able to claim quickly, for current years and for the open years behind them.
If you own a rental property in Mallorca and are unsure how this affects you, speak to your tax adviser, and feel free to contact us. We are not tax advisers and this article is general information rather than advice, but we follow this closely because it matters to the people we work for, and we are happy to share what we know and put you in touch with professionals who handle these claims every week.
Prestige Villas has managed holiday rentals in Pollença and Port de Pollença since 1984.