Spain’s proposed 100% tax on non-EUs

Raymundo Larraín Nesbitt, February, 12. 2025

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12^th of February 2025
By Raymundo Larrain

Introduction
The political reasons behind this announcement
The real reasons behind Spain’s rising rental and housing prices
Negligible impact on the real estate market
Negative effects of the proposed 100% tax on non-EUs
Domestic challenges: difficult and lengthy implementation
Foreign challenges: EU legal and technical constraints
The principle of primacy of EU law
A practical solution to circumvent the 100% tax
Conclusion

Introduction

On Monday the 13th of January 2025, Spain’s president floated the idea to levy a tax of 100% on home purchases by all non-EU nationals (e.g. American and British citizens). This highly controversial announcement warrants a closer examination of its political motives, practical implications, negative effects, and legal feasibility.

The political reasons behind this announcement

To better understand the motives behind the proposal, we must place it within the broader context of Spain’s politics. The acting president, and his administration, are embroiled in high-profile court cases. The ongoing turmoil has politically undermined the Spanish government, leading to legislative stagnation over the past year due to a lack of political support.

Beleaguered by domestic political challenges, the president is allegedly mulling the idea of advancing the general election to summer in a bid to shore up his political support. The 100% tax proposal should be viewed through the lens of electoral strategy. It is a politically motivated announcement aimed at assuaging his disgruntled domestic audience rather than a serious policy initiative.

In Spanish politics, such proclamations often serve as “political bravado” rather than actionable measures. On Sunday 19^th of January, in a political rally in Extremadura, Mr. Sanchez claimed he wanted to “outright ban home purchases by non-resident buyers from outside the EU” on the grounds “they are all (property) speculators.”

Spain’s president has irresponsibly pinned the blame on the unbridled rise of housing and rental prices on property speculation fuelled by non-resident non-EU nationals. Non-EUs have been publicly singled out by the president as being singlehandedly responsible for Spain’s dramatic rise in housing and rental prices!

In plain English, non-EUs are being used by the Spanish president as a scapegoat to elude political responsibility for his own administration's failings. He is following a tactic of denial and deflecting the blame on foreigners (who do not get to cast a ballot, so there is no political cost in blaming them).

This is a ludicrous statement, and I explain in the points below why it is unfounded and untrue.

I will also care to explain the negligible effect the proposed tax rise will have on rising house prices, but it will however impact severely on local businesses and employment if it comes to fruition.

The real reasons behind Spain’s rising rental and housing prices

Spain has experienced a sharp demand for housing accommodation over the last few years.

Demand has outstripped the supply of new homes by a long shot which led to higher house prices. In some Spanish cities, and selected coastal areas, this translates into a two-digit growth year-on-year.

This dramatic rise in house prices has closed the doors to buying property by a great segment of the native population. This has sowed a growing discontent amid the president’s electoral base which demands energic and resolute measures from him to counter or even turn it around. This is what prompted Monday’s announcement.

However, despite the president’s claims in a political rally that house and rental price rises are fuelled by non-residents speculating with Spanish property, the real reasons are quite different as I care to explain below.

Rental prices.

As highlighted in multiple articles in the past, the misguided government’s housing policy and rental legislative initiatives, which are ideologically driven, have greatly backfired, driving rental prices sharply up over the years.

In effect, they have fuelled and exacerbated the unabated rise of rental prices nationwide (as landlords have massively pulled out of the property market, afraid of these new rental measures which go out of their way to protect tenants at the expense of landlords). Following the laws of demand and supply, these counterproductive laws passed by the Spanish government have led to higher rental prices as fewer units were on offer. Although the Spanish government pursued what I view as lofty goals (to assist vulnerable collectives to gain access to housing at affordable pricing) it did so by steamrolling landlords’ rights.

Spain has adopted and pursued social housing policies at the expense of owner’s private property. By completely ignoring the plight of landlords, and only focusing on tenants, the government forced scores of owners to withdraw en masse their properties from the rental market. It is estimated that, in the last 5 years, over 250,000 properties pulled away from the rental market. This property shortage impacts on housing supply which, following the laws of demand and supply, leads to a sharp rise in rental prices. This market imbalance creates a vicious spiral that feeds upon itself, perpetuating and exacerbating the housing problem as fewer and fewer properties are made available to rent, driving rental prices up. The government, in view of higher rental prices, then enacts even more draconian rental laws with huge fines associated making the situation even more unbearable.

Moreover, the very vulnerable collectives the government vowed to protect by enacting these new rental policies are shunned by landlords which has exacerbated further their plight as they are now openly discriminated against in the rental market. New rental laws are completely biased towards tenants which makes landlords reluctant to rent as they stand to lose a great deal in the event their tenants fall into arrears.

In short, Spain’s lopsided housing policy has backfired, making it even more challenging for vulnerable social collectives to access affordable rental prices. In effect, the clumsy rental policies followed by the government have made it (much) worse for vulnerable tenants.

The road to hell is paved with good intentions.

Housing prices

There are several factors underlying a sharp rise in house prices over the last years, some domestic and others foreign. To simplify, I will only brush on what I believe are the main two culprits.

The combination of both points below led Spain to build 70% fewer houses than only a two decades ago which again, following the laws of demand and supply, severely impacts house prices driving them sharply up. If property demand remains steady, whilst supply is greatly reduced, property prices greatly appreciate. It’s not rocket science.

The main reasons behind Spain’s shortage of new homes (tight supply) are as follows:

Post-Covid-19, the world faced a supply chain disruption on several fronts. This resulted in long delays and increased costs. As a result, building materials employed by property developers in new builds skyrocketed, which greatly impacted the final sales price. This led to significant parts of the Spanish population being priced out of the market.
In addition, Spain amended its planning laws forcing developers to allocate 40% of their plots as earmarked for social housing. Again, the lofty idea behind this policy was to provide affordable housing to vulnerable social collectives. However, developers were not given the freedom to concentrate all the social housing within one space to avoid the remainder of the units being affected commercially. There is no point in building if you cannot sell the units. This change translated into property developers building properties abroad, or reducing the number of new builds, where planning regulations are more simpatico to them.

Negligible impact on the property market

Despite its provocative nature, the proposed policy would have a minimal impact on Spain’s overall property market. Of the approximately 587,000 annual property transactions in Spain during 2023, only 18,648 involved non-EU nationals. In other words, non-EU buyers accounted for 3% of the overall 2023 property sales following the official statistics supplied by the Notaries Association of Spain.

Give me a break, hardly a drop in a wide ocean.

Even if enacted, this tax would scarcely dent rising house prices or the broader real estate landscape. In short, the policy lacks practical significance and serves more as a grandiose rhetorical gesture than a meaningful solution to Spain’s unbridled rise in housing and rental prices, which is indeed a legitimate concern.

Negative effects of the proposed 100% tax on non-EUs

Foreigners, and in particular non-resident non-EU nationals, tend to concentrate in Spain’s beautiful coastal areas, Balearic and Canary Islands. These foreigners do not normally buy property in large Spanish cities such as Madrid, Barcelona, Valencia and Malaga with the notable exception of South American immigrants because of their cultural and linguistic affinity.

As a result of where these foreigners like to settle down, thousands of local businesses (private schools, real estate agencies, international supermarkets, interior and home decoration, restaurants, etc) may find themselves in dire straits after this announcement. All these people, all these companies, are heavily reliant on non-EU’s to conduct their daily business. The lion’s share, with a great difference, are British nationals who would be gravely affected by the new tax proposal. British nationals account for almost 20% of Spain’s Tourism, giving them de facto great leverage.

Make no mistake, this policy would also impact tourism, as some people may take to boycott the country. Tourism accounts directly for 12% of Spain’s GDP, and a further 6% indirectly. In plain English, Tourism moves one-fifth of Spain’s economy. The Achilles heel of Spain, besides its underwhelming political class, is its undiversified economy, excessively focussed on tourism. This unhealthy dependency on tourism was made apparent during the Covid-19 outbreak, which severed all tourism income and forced Spain to become even more reliant on issuing public debt to balance its bloated finances.

Moreover, property owners who are heavily dependent on foreigners to sell their high-end properties (as their price range is well out of reach of Spanish nationals) may be forced to a sharp drop in sale prices as their pool of prospective international buyers would dry up overnight, at least until the dust settles.

All these companies that dot Spain’s coastlines, which heavily rely on non-EUs, may face the hardship of this foolish decision jeopardising their financial viability. The livelihood of thousands of people is at stake.

Domestic challenges: difficult and lengthy implementation

Spain is divided administratively into 17 autonomous regions which have devolved competencies on tax matters (within limits). Each of these regions has their own regional parliaments to enact laws. It would take a very long time, even years, in some regions to coordinate and enact such laws.

Moreover, some regions are politically opposed to Spain’s ruling party and may reject, if not outright challenge, the proposed 100% tax on non-EU buyers which would judicially bog down its implementation pushing it back several years. Examples of these regions are Andalusia, the Balearic Islands, Madrid, and Valencia.

In short, it would be a protracted and time-consuming procedure which, in the best case scenario, will take years to implement.

Foreign challenges: EU legal and technical constraints

More critically, the proposal faces severe legal barriers. As a member of the European Union, Spain is bound by core tenets that include the free movement of goods, services, and capital. These principles, enshrined in foundational treaties, such as the Treaty of Rome from 1957, forbid Member States from enacting policies that restrict in any way the flow of investment, including from non-EU countries.

These guiding EU principles undergird the Union and cannot be undermined by any of its members, including Spain. In plain English, Member countries cannot enact laws which impede in any way, shape or manner investments, even if they are of non-EU origin i.e. American or British.

The principle of primacy of EU law

The supremacy of EU law over national legislation is a well-established principle. When conflicts arise between EU and national laws, the former prevails. National laws that clash against EU laws may be challenged and EU law will prevail, always.

For instance, the Spanish government previously attempted to restrict lenient tax breaks on inheritance passed by regional authorities so they only benefitted Spanish nationals. This policy was challenged in Brussels on grounds of fiscal discrimination against fellow EU citizens and was ultimately overturned by the European Court of Justice (ECJ) in a landmark ruling of the 3rd of September 2014. The ECJ’s decision forced Spain to backpedal on its fiscal policy and extend the tax benefits, not only to all EU nationals, albeit to all non-EU nationals. This quaint example proves the limitations of adopting unilateral national policies that blatantly disregard, or even clash, with the Union's interests as a whole.

The Union is a supranational construct that aims to unify European countries within a single political and economic block (mirroring the successful US model) to avoid wars that have historically ravaged the European continent. On joining the Union, Spain ceded sovereignty on certain matters which affect the Union as a whole. Spain is not at liberty to adopt rash policies, such as applying a 100% tax rate on non-EU nationals, as this would have a broader impact on the Union, even affecting its foreign policy.

Even if Spain were to ignore all the obstacles collated above and decided to foolishly plough ahead and implement a 100% tax on non-EU property purchases, it would almost certainly face legal challenges at the EU level. The European Court of Justice, which routinely overrules Spain’s Supreme Court, would likely nullify such a measure for violating core EU principles. Moreover, Spain’s membership in the EU entails a mutual commitment to adhere to shared beliefs, laws and regulations. Unilateral actions that contravene these agreements are neither feasible nor enforceable.

The bottom line is that when you are a Member State of the Union, it is a two-way street; you don’t get to do what you want unchecked. EU legislation is the coup de grace of the proposed new 100% tax.

A practical solution to circumvent the 100% tax

The Spanish president stated his government would enact a 100% tax on all non-resident non-EU buyers.

Surprisingly, circumventing his restriction couldn’t be easier.

All you need to do is stop being a non-resident on buying property. If you first attain Spanish residency, you bypass the new 100% tax!

Our law firm has assisted over 1,000 non-EU visa applicants, and their families, over the last decade.

You can read one of our detailed immigration articles on how to attain Spanish residency: Moving to Spain in 2025? Spanish visa overview.

Conclusion: much ado about nothing

The proposed 100% tax on non-EU property purchases is a prime example of political posturing.

While it may generate sensational headlines, and temporarily deter investment, it is unlikely to materialise due to its negligible market impact and clear legal incompatibilities, both at a national and EU level.

For Spain, as an EU member, such policies are not only impractical but also legally untenable. Wayward Member States may not adopt policies contrary to the Union’s best interests, undermining it and even jeopardising its long-term survival prospects for the sake of a career politician's short-term political gain.

Ultimately, this irresponsible announcement should be seen for what it is; an electoral tactic designed to capture domestic attention rather than a genuine policy initiative. It is unlikely this proposal will come to pass. There is no need to lose sleep over it.

“A house divided against itself cannot stand.” – Abraham Lincoln

Abraham Lincoln (1809 – 1865). From an impoverished humble background of corn farmers, this self-taught American lawyer, strategist, and politician would rise to serve as the 16th US President. He resolutely ensured a pro-Union victory, strengthened the federal government, modernized the economy, brought about the emancipation of slaves and preserved the Union. During his tenure, he held presidential elections in 1864 to be re-elected, amid a devastating Civil War that threatened to tear his country apart and engulf it in a sea of darkness; yet he gave example in the face of adversity, holding steadfast to his ideals, steering the ship safely into port and acting as a beacon of Democracy which light shone with a fierce intensity the likes of which the world has never witnessed, before or since. Never again would a country hold presidential elections amidst a bloody civil war in what constitutes one of History’s greatest democratic feats to date. But most importantly, he went to great lengths to ensure the festering wounds left open during the fratricidal Civil War were healed; generously reconciling both sides in equal terms, as one nation, indivisible, under God. Through his courage and sacrifice, which ultimately would claim his own life, Lincoln laid the groundwork of what was to become the greatest and most powerful nation on earth over the next two centuries. A true statesman that would always put ahead of any consideration the best interests of his people, by tearing down divisive walls and fostering at every opportunity union. It is for this very reason, that more than two centuries on, he is widely regarded as the greatest American President to grace the White House. Likely, the greatest American of all time, towering above the rest.

At Larrain Nesbitt Abogados (LNA) we have over 22 years’ experience assisting clients buying, selling, or renting properties. We can also offer you a competitively priced accounting service to file your landlord taxes every tax quarter nationwide. We are also specialized in immigration & residency visas. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on our UK line (+44) 07543 838 218, Spanish line (+34) 952 19 22 88, or by completing our contact form to book an appointment.

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