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Tax benefits

What does the system of tax benefits offer to filmmakers?

The purpose of the new system is to increase the number of films produced in Hungary in whole or in part, thereby strengthening the domestic audiovisual industry, increasing the country’s production capacities as well as the number of professionals employed in the sector, exerting a positive impact on the entire economy.

The system of tax benefits achieves this by

  • encouraging foreign film producers to come and make films in Hungary by offering refund and investment possibilities, as this way they are able to reduce the production costs for their films,
  • raising additional funds for co-productions and national films by promoting Hungarian businesses to invest into capital expenditure projects for film production purposes.

The amount of refund / investment available in Hungary with the help of the tax benefit system:20% of the local (Hungarian) film production costs.

The source of refunds and investments is the pre-tax profit of Hungarian business companies that wish to reduce their tax liabilities by offering support / investments for the purposes of Hungarian film production.

Why are businesses paying corporate tax interested in investing into film production?

These businesses

  • are able to reduce their tax base with the amount of their support/investment,
  • and are able to reduce their tax liability payable with the amount of their support/investment,

thereby realising a considerable amount of tax savings.

The following table illustrates the benefits of support/investment for tax saving purposes using the example of two imaginary businesses. In both examples, the company produced a profit before taxes of 1,000 units, but the first one makes an investment for film production purposes and the second does not.

 

Taxpayer providing support for film production purposes

Taxpayer not providing support for film production purposes

Profit before taxes of the taxpayer

1,000

1,000

Amount of support for film production purposes

100

0

Tax base

900

1,000

Tax liability payable

(900 x 0.16) - 100 = 44

1,000 x 0.16 = 160

Amount of payments made

144

160

Savings

16

 

 

(If, in exchange for the investment, the taxpayer gets a share of the film’s revenue, the tax base may be reduced by 50 % of the invested amount.)

What productions are eligible for support subject to the tax benefit?

For the purposes of the tax benefit, the Motion Picture Act distinguishes between two types of productions:

  1. films made on order (production services): productions made in Hungary by international film producing companies, made with the participation of a Hungarian film producing business assigned to the task.
  2. films not made on order (co-productions or Hungarian films): production produced by Hungarian film producing companies or co-producers, with the financial participation of Hungarian investors

The first model serves to support films for which the total budget of the film is provided (typically by the international film producing company), but the objective is for the international film producing company to reduce the Hungarian production costs by obtaining the tax benefit.

In this case, the refund goes directly to the international film producing company, which it receives from the Hungarian tax paying business. The taxpayer provides the refund to the film producing company for the sole purpose of tax reduction.

The second model serves to support films for which producers are not able to provide the total budget of the film, so they wish to involve external private financiers.

In this case, the investment is received by the Hungarian film producing company (co-producer) of the production from the domestic taxpayer business. In exchange for its investment, this taxpayer not only enjoys a tax benefit but also gets a share of the film’s revenue (the minimum of which is not specified).