Many employers invest in the additional education of their employees, considering that such investment is the development of their own company. However, what is the actual tax treatment of such expenses you can read in today’s CONFIDA Croatia article.
Employees’ education and training costs from a tax point of view
Education and training costs of the employees are considered a tax-deductible expense, provided that the employee has a valid employment contract with the company and that education or training is closely related to the company’s activities, current or future. In accordance with the Ordinance on Profit Tax, the employer acquires the right to an additional reduction of the profit tax base in case of paid education and training costs of the employees. However, the percentage of reduction depends on the type of education and the size of the company.
General and special education of the employees
Based on the Law on State Support for Education and Training, education is divided into general and special education for employees.
The general education of the employees includes the acquisition of qualifications that are mostly transferable to other entrepreneurs or to other work areas, thus significantly improving the employee’s opportunity for employment.
The justified costs of general education of the employees include:
- tuition fees for educational institutions (including postgraduate and doctoral studies);
- fees for participation in seminars, courses and congresses, costs of specializations and other forms of education at home and abroad;
- fees for lecturers and instructors and consulting costs related to education and training projects;
- professional literature in paper or electronic form; and
- cost of write-off (amortization) devices, aids and equipment used in education.
The special education of the employees includes education that is primarily dedicated to the current or future workplace at the employer that uses a tax relief for special education and enables the acquisition of qualifications that are not transferable to other entrepreneurs or to other workplaces, or that are partially transferable.
Among the justified costs of the employees’ special education, all costs for general education are included, except tuition fees for educational institutions which are not included in the costs of special education.
According to the Law on State Support for Education and Training, a beneficiary of state support who is considered a micro, small, medium or large entrepreneur can reduce the base for calculating profit tax by up to 60% of justified expenses in case of general education and training of the employees and up to 25% of the justified expenses in case of special education and training of the employees.
Exceptionally, a beneficiary of state support who is considered a micro, small and medium-sized entrepreneur can reduce the base for calculating profit tax by up to 80% of justified expenses in such a way that the reduction of the tax base is increased by:
- 20 percentage points if considered a micro or small entrepreneur; and
- 10 percentage points if considered a medium-sized entrepreneur.
In order to justify the costs of education and training of the employees, it is necessary to have a valid document (a contract or an invoice) from which it is evident which service is in question, when the service was performed and to whom the service refers.
