The Hungarian Tax Credit System
Tax rebate is 25% of the eligible Hungarian spend. Up to 25% of the eligible spend can be non-Hungarian spend which also qualifies for the 25% tax rebate.
- The tax rebate – as an indirect subsidy – is non-recourse, non-repayable and non-recoupable cash rebate provided by local corporate taxpayers.
- Local and Foreign Spend can be in any currency (USD, EUR, GBP, HUF) and can also be spent outside of Hungary,
- No minimum spend and no cap per project.
- No annual fiscal budget cap
What types of productions can recieve the rebate?
- SERVICE WORKS with the involvement of a registered Hungarian film production service company
- CO-PRODUCTIONS, either European or other international with financial and/or creative participation of a Hungarian co-producer
- HUNGARIAN FILMS
All films shall meet the cultural test criteria (cultural test) which follows the usual European cultural tests.
All film categories qualify – feature, animation, documentary, experimental, tv-film, mini-series, etc.
No minimum cost, no theatrical screening, no completion or delivery requirements.
Porn & extremely violent films are excluded, as well as commercials, TV sitcoms, reality shows and daily soaps.
ORIGO can provide all the administration and legal framework as well as providing an empty Special Purpose Vehicle (SPV) company for the production to take place in.
- Hungarian companies, registered with the National Film Office (NFO) are eligible to apply
- Foreign companies and/or producers should conclude co-production or service agreements with a Hungarian registered company
- Production has to registered at the National Film Office (NFO)
- Start of filming has to be registered at the National Film Office (NFO)
ORIGO Film Group provides:
- identifying the amount of tax credit
- administration related to the tax credit
- financing options
Maximizing the tax incentive
The Hungarian tax incentive is quite unique as it allows foreign spend to also qualify.
If we want to maximize the Hungarian tax incentive then it is optimal to spend the whole budget in a way that qualifies. The optimal ratio is to maximize the foreign qualifying amount and spend 25% of the Hungarian Budget abroad, or 80% of the Budget in Hungary and 20% of the Budget abroad.
Budget of 10M
80% or 8M is spent in Hungary and the maximum 8M*0.25 = 2M or 20% is spent abroad.
As we can see the actual rebate amount in relation to the Hungarian spend is:
If HungarianSpend = 8 Million then a further 25% of that (0.25*8M) = 2M can be spent outside of Hungary. 8M+2M = 10M qualify for the tax rebate, giving the rebate of: (10M * 0.25) = 2.5M.
Alternatively (0.3125*HungarianSpend) = (0.3125 * 8M) = 2.5M
Therefore the rebate amount in relation to the Hungarian Spend amount is actually 31.25%, however of course this includes rebate on spend that has been spent outside of Hungary.
What types of spending qualify?
Definition of eligible Hungarian Spend
Production expenditure as per the film’s registered budget. Spent by the Hungarian Production Company registered by the NMHH Film Office (“National Film Office”) and accounted for in its statutory tax books. Paid to Hungarian tax registered subcontractors (both companies and individuals).
Definition of eligible non-Hungarian Spend
Same as above with the exception that it can be paid to any foreign (non-Hungarian) entity for costs material to the completion of the production. It is capped at 25% of the eligible Hungarian Spend.
The qualifying non-Hungarian expenses can be incurred in any country, any location. The non-Hungarian expenses are subject to the same qualifying rules as the Hungarian expenses.
- Direct production expenses paid during pre-production, production, and post-production
- Accommodation and living expenses within Hungary and travel to a Hungarian destination (stopover possible)
- Wages: above- and below-the-line, when paid by the qualified Hungarian production
- All kinds of financing, legal and administration costs: insurance, completion bond, bank fees, interest charges etc.
What are excluded from the local spending?
- Costs incurred after the master print, i.e. distribution
- Travel fare without a Hungarian destination
- Foreign crew per diem
- Part of fees for copyright (royalties) over 4% of the budget are excluded
- Total producers’ fees are limited to 4% of the Hungarian budget of the film
- P&A is limited up to 2% of the budget (but max 5 million HUF)
Paying Crew and Talent
There are two ways a foreigner working in Hungary can be paid to accommodate the tax rebate. In either case the 25% tax rebate applies.
As a Hungarian Spend
- Include their wages under the Hungarian Spending.
- In this case a personal income tax is paid under the flat 16% tax rate
- The tax paid in Hungary can be credited in the home country by the individual, i.e. in general, paying tax in Hungary would not mean an effective increase in the overall tax liability of the foreign cast and crew members.
As a Non-Hungarian Spend
- In this case the wages are included within the qualifying non-Hungarian spend
- A Non-Hungarian company invoices the wages and other additional costs associated (e.g. fringes) of the foreign crew and talent
- The invoices are paid from the Hungarian production account
- Cast and Crew working in Hungary for fewer than 183 days, will not be taxed, provided that it can be proved that they are paying national contributions in some other country. No withholding tax contributions, national tax contributions or social security tax contributions have to be paid.
- VAT currently applicable is 27% on most goods and services.
- VAT is fully recoverable on all goods and services of the production.
- However restaurant bills, fuel and taxis are excluded.
- No taxes or fringes have to be paid on Hungarian crew, talent or extras – each individual is responsible for adhering to the relevant tax law.
Compatibility with tax incentives of other countries
Based on several years experience the Hungarian model can very effectively can work together with other countries’ tax credit, therefore the total benefit raised from the participating countries can reach a higher cash-back of the total budget.
Where do the funds come from?
The funds come from corporate sponsors, typically large companies with a significant Hungarian corporate income tax base, who are motivated by the tax incentives. Corporate sponsorship takes the form of a tax credit with a parallel tax base deduction.
The Hungarian National Film Fund pools these amounts together into their accounts. The production can directly contract with the National Film Fund to receive the rebate from them, for this they take a 2.5% fee of the rebate amount.
The Full Procedure
The film needs to be registered at the Film Office. The registered Hungarian production company (can be an SPV) files the application at the Film Office and liaises with the authority.
To register the film 100% financing of the local (and in case of co-productions also the foreign) costs as detailed in the budget needs to be verified, apart from filing the script (Hungarian translation), the production schedule, financing plan, documentation on tax credit, PSA or co-production agreement. Documentation shall be filed within 30 days before the first shooting day in Hungary.
The NFO identifies the amount of tax credit based on the budget submitted the amount of tax credit the production will be able to receive.
Upon completion of the production or after having finished a certain part of the production (either quarterly or monthly) an application for Tax Certificate is to be filed with the Film Office. The application needs to include the ledgers and other relating lists obtained from the accounting books of the applicant(s) and the supporting documents (eg.: contracts, bank statements, etc.). The audit is solely performed by the NFO based on the ledgers and books provided by the production company.
After the NFO has concluded an audit of the submitted documentation, the final amount of the eligible Hungarian, and non-Hungarian spend is calculated and the rebate confirmed. NFO issues the Tax Certificate on the basis of the confirmed rebate amount.
On average the whole procedure from filing the application for the Tax Certificate until receiving fund from the tax payer sponsor takes approximately 50-90 days.