Hungarian Tax Rebate for Film Productions

N O T E - UPDATE July 2018

Hungary’s Rebate Scheme Raised from 25% to 30%

Initiated by the Hungarian National Film Fund, the European Commission has approved the raise of Hungary’s tax incentive to 30%. The tax incentive is available for film productions shooting in Hungary. The film support scheme is extended until the end of 2024.

Except for the increased rate of the available rebate, other regulations relating to the tax rebate rules (e.g. scope and limitations on qualifying production spend) will not change now (certain changes in the film support mechanism may, however be expected in the autumn this year). Accordingly, thanks to the increase of the tax rebate from 25% to 30%, the effective benefit on Hungarian local eligible spend increases from 31.25% to 37.25% (since the Hungarian local spend not only entitles the production for the 25% tax rebate, but also increases the potential amount of eligible foreign spend). In the case of foreign cast and crew cost (which is subject to 50% limitation) the overall gain increases from 15.625% to 18.75%.

In order not to cause adverse effect on those film productions the applications of which are not yet assessed by the National Film Office (NFO), and to apply the increased level of support as widely as possible, the 30% tax rebate will be applicable in the case of those film productions that submits their request for entitlement to film support to the NFO on or after June 11, 2018 (i.e. 30 days before the decision of the European Commission).

Films (for cinema and television) produced in Hungary are eligible for a 25% (30% after June 11 2018) rebate based on their expenditure (all the direct film production costs) emerged in the country.

The scheme is part of the film support programme approved by the European Commission until 31st of December 2019 with a budget of EUR 402 million. The incentive is available through local business companies who receive tax relief after their support of films or through the Collection Account operated by the Hungarian National Film Fund. The incentive is guaranteed by the Hungarian state through the Collection Account.The financial support is provided in the form of a cash refund (post-financing).The incentive is up to 25% of the eligible production expense (Hungarian or not-Hungarian). The non-Hungarian eligible spend is capped at 25% of the Hungarian eligible spend. 

What productions can benefit?
- Films of all genres made for cinema release
- Feature films, series, documentaries and animations made for televisions or other distribution platforms
- Porn and extreme violent films, commercials, reality shows and daily soap operas are excluded

Cultural test
- Films applying for the incentive have to be submitted to a cultural test
- Films must contain European content or cultural values and additional points are granted if EU nationals are either making or financing the movie (point system)
- 16 points has to be earned to pass

Registration of company and production
- Hungarian companies, registered with the National Film Office (NFO) are eligible to apply
- Foreign companies should conclude coproduction or service agreements with Hungarian registered company
- Production has to be registered at NFO
- Start of filming has to be reported to NFO

Who provides the financial support?
- Corporate-tax-paying domestic companies that may reduce their tax payable and tax base by the financial support they provide (double write-off) - a maximum of 7,5% incentive available
- The financial support is provided in the form of a cash refund (post-financing)
- Film producing companies can request the support from the custody account of the Hungarian National Film Fund (it may charge a maximum administration fee equal to 2.5% of the subsidy granted)

Eligible expenses
- All the direct film production costs are eligible except those excluded by the film law; other costs are limited by the law (see below)
- The producer is free to spend 20% of the budget outside Hungary without suffering a reduction in the amount of the incentive. 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 (consequently 31,25% of the Hungarian spend will be refunded)

Excluded or limited costs
- Part of copyright costs over 4% of the budget
- Travel costs are limited to trips from and to Hungary, stopover possible
- P&A is limited up to 2% of the budget (but max 10m HUF)
- Cost of services delivered by non-Hungarian sub-contractors limited up to 25% of eligible Hungarian spend.
- Producersʼ fee maximum up to 4%

How much is the incentive?
- Up to 25% of the eligible production expense (Hungarian or not-Hungarian)
- The non-Hungarian eligible spend is capped at 25% of the Hungarian eligible spend

Aid intensity provisions to take into account
- Total state subsidies shall not exceed 50% of the production budget, or
    -in case of co-productions 50% of the Hungarian contribution or 60% of the Hungarian contribution if the co-production involves a co-producer from another EEA Member State too
    -in case of low-budget films, “difficult” audiovisual works and films produced in Hungarian language the extent of subsidies is 100% of the budget or the Hungarian contribution
    -in case of documentaries, animation, shorts, experimental films etc. - 100% of the budget or the Hungarian contribution

Other advantages
- Experienced crews
- Multiple languages spoken
- Well equipped new studios – sound stages
- Variety of filming locations
- Post-production facilities and expertise

- Up to 16 hours of sunlight during the day in summer

- No unions and a 12 hour workday

Is pre-financing possible?
- Certain banks are willing to pre-finance state subsidies and VAT
- Depending on the bank and the individual contract they keep a percentage from the 25% (meaning the actual rebate will be about 20%)
- Deal with NFO for monthly or quarterly accounting