The Hungarian tax relief system in the film industry
I. What does the Hungarian National Film Office do?
The National Film Office (NFO) operates within the National Media and Infocommunications Authority.
The NFO is subject to the general rules of public administration and the Motion Picture Act. The NFO is an institution discharging national administrative and controlling duties in relation to films. Among many other tasks, the NFO is responsible for issuing tax certificates proving eligibility for tax benefits, examining and certifying production costs and registering Hungarian production companies.
II. What does the tax relief system offer to the film producers?
The objective of the system is to increase the number of films produced partly or entirely in Hungary to support the Hungarian audiovisual industry and the production capacity of the country, while increasing the number of experts employed in the film industry. The tax relief system achieves such goals by
- allowing foreign film producers to reduce the production costs, and
- providing additional resources for Hungarian films and co-productions by encouraging Hungarian companies to invest in film production.
The source of the tax relief is the profit before taxation of Hungarian companies. Practically speaking, this is a great source of money, as most companies want the tax write-off.
III. What types of productions may be eligible for the tax relief?
- Films produced on order – production services:
productions carried out by foreign film producers with the involvement of an assigned Hungarian film production company;
- Films not produced on order - Co-productions or Hungarian films
: productions made by a Hungarian producer or co-producer.
IV. What kinds of films may be subject to the tax relief?
All films made in Hungary, produced either or not on order by a registered Hungarian film production company may be eligible for the tax relief. All films shot in Hungary have to pass a cultural test accordingly to European cultural standards and film-industrial criteria.
Films that are not in the scope of the tax relief system and therefore excluded by law are the following:
V. What are the direct film production costs incurred in Hungary?
- extremely violent and/or porn movies,
- reality shows,
- scripted reality shows,
- soap operas,
- advertisements, commercials.
All payments listed in the budget that were paid to Hungarian taxpayers. Direct expenses paid by the qualified Hungarian production (pre-production, production /shooting time/, and post-production.):
Wages, above- and below-the-line, all kinds of production costs, financing costs, administration, insurance, etc. costs.
Items excluded by the law:
- indirect costs (advertising, promotion),
- costs incurred following the master print (distribution),
- royalties are limited to 4% of the Hungarian budget of the film,
- the sum of the producers’ fees are limited to 4% of the Hungarian budget of the film.
The qualifying non-Hungarian expenses can be incurred in any country and such expenses may be granted to be subject to the tax relief system up to 20% of Hungarian production costs.
VI. Description of the procedure
1. Registration procedure
- registration of the Hungarian film production company at the NFO.
This is only mandatory for companies that are not registered by the NFO.
(It usually takes 60 days at most and the decision-making is automatical, impartial and only those companies will be denied registration that have any unpaid debts to the public sponsors or the government)
- registration / qualification of the film
The following must be submitted to the NFO: production schedule, company documents, the production service agreement or co-production agreement, the cultural test (mentioned above) and statement declaring frequency according to which the production company wishes to receive the tax relief. (On a one-time basis, monthly or quarterly.)
2. Financial audit procedure
Following the completion of production in Hungary (or during the production) and the settlement of all bills and production costs the film production company can apply for the tax certificate. Upon request the NFO reviews the accounting documentation submitted by the Hungarian film production company (by Hungarian law this process usually cannot take longer than 60 days)
3. Issuance of the tax certificate/resolution and the payment of support
After the audit phase, the NFO calculates and certifies the amount of direct film production costs in Hungary and stipulates the amount of the direct film production costs in its final resolution which shall be the basis for the 25% of the tax relief at most or issues a tax certificate with eligibility for tax benefits up to the maximum of 25% of the direct production costs.
Generally taxpaying companies pay the amount of support upon receiving the tax certificate. In such case, producers must seek pre-financing to bridge the deficit between pre-production and post production stages.