Spain scraps penalty for foreigners paying wealth tax

In two rulings on December 18th , Spain's Central Economic-Administrative Court (TEAC) concluded that non-resident taxpayers can apply the tax reduction when the sum of what they pay in income tax, wealth tax and the tax on large fortunes exceeds 60 percent of their income tax base. 

In this case, the tax liability may be adjusted up to this threshold, with a maximum reduction limit of 80 percent.

READ ALSO: Everything you need to know about Spain's wealth tax

This mechanism, known in Spanish as the escudo fiscal (tax shield), seeks to prevent wealth taxes from consuming all of the taxpayer's income for the year. Until now, its application was restricted to tax residents in Spain.

The tax on large fortunes was created as a state tax that largely replicated the structure of the pre-existing wealth tax, traditionally managed by the regions. It was designed to incorporate the same 60 percent limit but maintained the exclusion of non-residents, which led to unequal treatment.

This was challenged in the Supreme Court, which in two rulings handed down at the end of 2025 declared the restriction of the tax shield in the Wealth Tax to be discriminatory because it violated the free movement of capital. 

Although these rulings did not expressly refer to the tax on large fortunes, the TEAC has now decided to extend this doctrine.

Until now, the Treasury argued that it could not adequately verify the income of non-residents as they do not pay income tax in Spain. 

However, the Supreme Court made it clear that the tax officials have the means to demand the necessary documentation proving the taxes paid in other countries. The TEAC now accepts this approach and has ruled as such.

The change in criteria is not insignificant. In one case analysed, a non-resident taxpayer is claiming a refund of more than €600,000 after having paid the tax on large fortunes without being able to apply the joint limit.

This follows another recent ruling that means foreigners don't have to pay wealth tax according to the region where they live, but where they have the majority of their assets.