Taxpayers in the Non-Habitual Resident (NHR) tax regime who choose to be taxed at the special 20% IRS rate cannot use education or health expenses (tax deductions) to lower the tax they have to pay.
A taxpayer who has had NHR status since 2017 asked the Tax and Customs Authority (AT) about the possibility of using tax-deductible expenses for IRS collection while also having NHR status.
AT’s answer to this binding information request says that expenses can be deducted only when taxpayers’ declared income is subject to the tax’s general and progressive rates. But in this case, “the taxpayer opted for autonomous taxation of income at the special rates provided (…) by the Personal Income Tax Code (proportional rates) because he is registered in the NHR regime,” and the tax was calculated by using the provisions set out under the NHR rules, given this there is no right to deductions from the collection.
The AT says that only when the general and progressive IRS rates are used to tax income can taxpayers use education, health, and housing costs, among other things, to pay less tax. When opting for the exemptions under NHR, said expenses are not deductible.
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