The "New Deal" in the Film Industry of Hungary

The law (Act II of 2004 on the Motion Picture) regulates the classification of films according to their origin in three categories (Hungarian films, co-productions with Hungarian participation, other Hungarian-participated films), and declares that the first two are entitled to the same state sources, while films falling into the third type can gain revenues due to the tax incentives (mainly service productions). The categories are differentiated with a point system (on the basis of the European convention however in a more detailed way), which evaluates the various contributors of the films according to their nationality.

The primal body of allocating the state support according to the law is the Hungarian Motion Picture Foundation founded by the government and a number of professional film organizations. The Foundation works out its own Support Regulations according to the provisions of the law which determines the main types of subsidies, such as selective (granted by the board of the Foundation), normative and structural support. The normative support includes the reference support given after attendance and festival prizes, the automatic support of distribution of art-films and the operation of art-cinemas. The supports are available in production, distribution, development, archiving, training, research, publishing and infrastructure development.

The law establishes the National Film Office, which registers and classifies the films according to the recommended age of the viewers (rating system), according to its cultural value (so called “art” classification) and grants national or co-production status to the newly produced films. Persons and companies wishing to apply for state support in the film sector need to be registered by the Office, plus the Office maintains a registry also for the films that were granted state support and all the films being distributed in Hungary. It helps the market players make co-productions, gives them legal assistance in film matters, gives advice to the minister in cinematographic strategic questions.

One of the key roles of the Office is issuing the certificates, which entitle the companies giving support to or invest in film productions togaintax incentives. The new tax incentive regime introduced by the film law is based on two models. The models rely exclusively on contributions and investments made by companies. The main difference between the two models is the method of financing.


• Production Model (MODEL 1 - Productions made to order)
The incentives are provided to Hungarian sponsors involved in the financing of films to be produced in Hungary. According to the legislation, maximum 20% of the certified Hungarian production expenditures can be collected from Hungarian sponsors. The Hungarian sponsors expect their contribution to be covered exclusively by the tax incentives. They are not investors and will not participate in the production. The Hungarian sponsors can exercise 100% tax credit of their contributions, as well as the cost of the contribution will not increase the tax base, resulting in 16% profit (equivalent with the corporate income tax rate of 16% from 1 January 2004.) The Hungarian sponsors can apply tax allowance from the tax liability of the tax year of providing the contribution and the three subsequent tax years.

• Co-Production Model (MODEL 2 - Productions not made to order)
Films not produced to order are funded from investments. The incentives are provided to Hungarian investors, who will be considered to be co-producers of the Hungarian film productions. The Hungarian investors will be co-owners of the production and not only financing parties. 20% of the certified Hungarian production expenditures can be collected from Hungarian investors. These investors, being the co-producers of the production, should also retain certain rights relating to the film. Similarly to the production model, the Hungarian investors can exercise 100% tax credit on their investment and they can exercise 50% tax base deduction, resulting in 8% profit. The Hungarian investors can apply tax allowance from the tax liability of the tax year of making the investment and the three subsequent tax years.


Other Aspects

Hungary is a party to the European Treaty on Cinematographic Co-Production. With respect to the European co-production with Hungarian participation at least 20%, the co-production may also obtain grants from other foreign sources. Moreover, the investment to the Hungarian film industry is supported by additional Hungarian tax incentives. Based on the legislation, the taxpayers can apply for a development tax allowances if the investment to the Hungarian film industry exceeds at least HUF 100 million. Furthermore, the taxpayers can use the accelerated depreciation (real estates and equipments 50% per year).