Tax incentives for films in Hungary

Hungary introduced a simple and transparent tax incentive mechanism in 2003 to stimulate local film production activities. The results speak for themselves: the overall spending on film productions have increased significantly and now Hungary is among the top countries in Central Europe to host international and Hungarian film productions.

The system involves practically two players: a company producing a film in Hungary and a Hungarian sponsor providing financial support to the film up to 20% of the eligible production expenses ("20% support").

The benefit to the production company is achieved through the 20% support received from the sponsor, while the sponsors are motivated by the tax incentives.

The tax relief utilized by corporate sponsors takes the form of a tax credit with a parallel tax base deduction. In effect, the tax credit serves as compensation for financial support, and the tax base deduction represents the return on the "investment".

It is the role of the National Film Office to verify the production's invoices and afterwards issue the tax credit certificates to the sponsoring company. Once the certification is issued, the sponsoring company transfers the money to the production. Currently, this can be done quarterly.

 

Changes from 2008

 

The Hungarian Parliament passed the amendment of the Act on Motion Picture on 9 June 2008 to implement certain changes requested by the European Commission as well as to extend the availability of the regime until 31 December 2013. The new law takes effect on July 31st, 15 days following the approval by the European Commission.

 

Basically, the changes relate to two important areas:

 

1. From 2008, every production must be subject to a cultural test in order to qualify for the 20% tax rebate. The productions have to achieve minimum 16 points from 32, as well as they have to meet at least two of the eight cultural criteria. We note that the latter is not a requirement for European co-productions. For details, please download the cultural test below.
2. The scope of eligible production expenses has been extended to consider the ‘territorialisation rule' of the European Union. In other words, the producer is free to spend 20% of the budget outside Hungary without suffering a reduction in the amount of state aid. In practice, this means that not only the spend made to Hungarian taxpayers will qualify, but also some of the services provided by foreign taxpayers - up to 20% of the total production budget. Or in other words, 25% of the Hungarian spend will be refunded.

Downloads: Hungarian Cultural test National Film Office info