Change in the recognition of adult education costs

From 1 September 2020, the Adult Education Act will change, thus new rules will apply to institutions organizing training-like courses, which will force the companies that invest in the education of their employees to reconsider training costs, as well as to review the existence of training documentation.

The Corporate Tax Act has so far considered the training cost borne by the payer as a recognized expense, as long as it could be classified as a form of training that the business can benefit from. In the future, however, the qualification of these costs will be subject to an additional criteria and the Corporate Tax Act will qualify the expense paid for the training as one that incurred for the benefit of the company only if the following conditions are met:

• The main activity of the organization carrying out the course has to be, as defined by law, training or registered adult training activity.
   
• The organization providing the training course has to declare that it had fulfilled his reporting obligations in this regard to the payer. Furthermore, the organization providing adult training is also obliged to indicate its registration number in the training documentation, contract, invoices and any other accounting documents that were issued.
   
• In addition, in the case of a licensed training, a written adult education contract is required for the accounting.

In light of the above, it is an important change during the year that the corporation is obliged to check the compliance with the conditions in regard to the accounted training costs. It is also the company’s responsibility to request the missing documentation from the institutions and the people providing the training. If one of these conditions are not fulfilled, training costs do not qualify as recognized costs for corporate tax purposes, hence it is necessary to increase the tax base of the company with those values.

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Should you have any further questions regarding the review of training costs discussed in this publication, the tax and accounting experts at VGD Hungary will be pleased to assist you.