Traditionally, non-spanish resident heirs receiving goods located in Spain or owed by a spanish resident testator were subject to spanish inheritance tax, according to the national law, which is particularly disadvantageous, with tax rates up to 34% and no significant tax incentives.

Meanwhile, heirs that were resident in Spain are able to apply certain tax breaks and reductions approved by their autonomous community of residence, that considerably reduce their tax burden. For instance, Madrid allows their residents to apply a 99% reduction on their tax liability.

On 2014, the European Court of Justice ruled that such treatment was an unjustified discriminatory treatment and therefore, in breach of the EU principle of free movement of capitals.

Consequently, the government amended the law in order to allow EU resident to apply the tax incentives approved by the autonomous community of residence of the testator.

On its recent judgement, the Spanish Supreme Court ruled that the harmful treatment that is given to non-EU resident taxpayers is also contrary to the principle of free movement of capitals and therefore in breach of EU law and ECJ’s case law. The court allowed the appellant to apply the tax breaks approved by the autonomous community where the inheritance has a substantial link.

Nonetheless, the said judgement does not constitutes case law, and neither the law has been amended yet, so currently non-EU heirs still must pay Spanish inheritance tax according to the national law, without prejudice of their right to reclaim the refund on the excess of taxation suffered, based on the said judgment.

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