30%
Filming in Hungary
Tax Incentive for Film Productions
How does the Tax Rebate System Work for Film Productions in Hungary?
Last updated on July 26th, 2021
Last updated on July 26th, 2021
Ever since 2004, Hungary has a leading role in Europe regarding the support of international productions by creating a uniquely simple tax rebate system. Although other countries also had tax rebate systems, the Hungarian government legalised one unparalleled in simplicity and with a high rate of 20%. Over the years European countries such as Ireland, Belgium and the United Kingdom have followed this model, leading to Hungary to raise its rate to 25% and then in 2018 to 30% for productions. The tax rebate can be maximized if at least 80% of a production’s budget is spent in Hungary.
In the last 15 years, Hungary provided tax rebates for international productions enabling it to become a globally well-known film producing destination. This has provided valuable experience for local professionals and capital for local production companies and studios to develop and reach a global level of expertise. These are extremely important and slowly evolving factors key for productions searching for a country to produce in. Due to this even though some countries like Poland, Croatia and Serbia provide even higher percentages of tax rebate, their infrastructures can not cater sufficiently for global standards, unlike Hungary.
Ever since 2004, Hungary has a leading role in Europe regarding the support of international productions by creating a uniquely simple tax rebate system. Although other countries also had tax rebate systems, the Hungarian government legalised one unparalleled in simplicity and with a high rate of 20%. Over the years European countries such as Ireland, Belgium and the United Kingdom have followed this model, leading to Hungary to raise its rate to 25% and then in 2018 to 30% for productions. The tax rebate can be maximized if at least 80% of a production’s budget is spent in Hungary.
In the last 15 years, Hungary provided tax rebates for international productions enabling it to become a globally well-known film producing destination. This has provided valuable experience for local professionals and capital for local production companies and studios to develop and reach a global level of expertise. These are extremely important and slowly evolving factors key for productions searching for a country to produce in. Due to this even though some countries like Poland, Croatia and Serbia provide even higher percentages of tax rebate, their infrastructures can not cater sufficiently for global standards, unlike Hungary.
Advantages Recognised by the Government
The Hungarian Parliament not only passed the film law defining the tax rebate system but acknowledged the wider and more complex benefits of a flourishing film industry. The generous 30% is provided thanks to their belief that film productions have a wider spanning positive effect of the country’s GDP and due to the legal administration needed to gain the rebate, unreported employment also minimised. Luckily for international productions, Hungary’s low rates are not rising due to its popularity, but on the contrary, are actually getting even cheaper due to the inflation of the forint compared to the US dollar or the euro.
The high marketing value in providing visibility in international productions was also acknowledged since it attracts a large number of tourists and further film productions. As Hungary’s and Budapest’s good name for both the film industry and an ideal holiday destination strengthens, many productions prioritise to shoot in Hungary and many even set their films’ stories in Budapest, instead of using it only as a location double for other famous European cities, as used to be the case.
Thanks to the late Andy Vajna, the Hungarian film industry and legislation was rethought to fit the simpler American model, regarding the process of gaining location permits for example. To ensure a budget that is stable and can be quickly mobilized for the payment of the tax rebates, a central deposit account was created in collaboration with the Hungarian Film Fund and the National Tax Administration. Decades of experience was needed to be able to develop such a stable and reliable system, which is especially important due to a large number of productions and support given since Hungary spends the highest percentage of its GDP on the film industry in Europe.
For example in 2019, 110 billion forints (USD 373 million) was spent on the production of 333 films in Hungary, 84% of which were international productions. Hungary has become a favourite location for American production companies such as NBC or Netflix. Thanks to the dynamic development of the Hungarian film industry and the film-friendly support given by the government, today Hungary is the second most significant film production hub in Europe next to London, UK. Since the nature of what these two countries provide for productions differ highly, so Hungary leads when it comes to on-location production and London regarding post-production and special production services.
In an International Context
By 2020, all of the European Union’s countries have tax rebate systems, all of which support feature films and TV productions with varying rates and caps. Denmark is the only exception, which does not have a tax rebate system. Commercials and music videos are not supported. The support of other production types vary by country. Each of the countries’ applicants have to face a cultural test, which evaluates whether the production is worthy of state support. The most important criteria is for it not to be pornographic or extremely violent. Furthermore, it is important to feature European and preferably the specific country’s culture in a favourable and respectable light.
Eligible Production Types in the EU
Offering tax rebate systems: Every EU country apart from Denmark
Accepting feature films and TV productions: Every EU country apart from Denmark
Accepting commercials or music videos: None of the EU countries
Accepting reality TV (while others do not): Cyprus, Malta
Accepting video games (while others do not): UK, Greece
Not accepting documentaries (while others do): France, Iceland, Italy, Sweden
Not accepting animation (while others do): Germany, Iceland, Italy, Sweden
As stated previously, all tax rebates support films and TV productions, but when it comes to documentaries, animation films, reality television and video games the regulations vary significantly. One of the most relevant questions nowadays regards the production of streaming films and TV shows. While many states of the US offer tax rebate systems that support webisodes, generally the EU has not developed such a support system yet even though many productions have been brought to Europe by American online streaming companies such as Netflix or HBO. Hungary is a country leading in changing its regulations to support this new trend of film distribution since it no longer has requirements regarding theatrical screening. Europe’s other two exceptions are Romania and Italy, which both provide such tax rebate systems, that also support internet movies and shows.
Tax Rebate Rates in the EU
20-25%: Croatia, Czech Republic, Finland, Macedonia, Spain, UK
25-30%: Belgium, Estonia, France, Germany, Hungary, Italy, Lithuania, Poland, Portugal, Slovenia, Sweden
30-40%: Cyprus, Greece, Ireland, Netherlands, Romania, Slovakia,
40+%: Latvia, Malta
Compared to other European countries Germany, Greece, Italy and Ireland have tax rebate systems that seem similar to the Hungarian, so here we provide an in-depth analysis of how they compare to Hungary and each other. Among these only Greece has a minimum set for the budgets of the productions, but on the other hand, it is the only not to have a cap for the amount of tax rebates a production can be given. Greece exceptionally offers its 35% tax rebate to video games, animation films and documentaries as well. Although Germany has the lowest tax rebate percentage (20-30%), it does have the largest annual budget of €140 million. The second-largest annual budget is Italy’s €115 million, which also has a generous cap per production of €70 million, but Italy excludes all commercials, reality TV, animations, documentaries and video games, leaving only feature films and TV productions being eligible. Ireland’s annual budget of €45 million does not specify the size of a production to be able to be worthy of its 32% tax rebate but does have a €5 million cap per project. In comparison to these countries, Hungary’s tax rebate can easily complete, both regarding the diversity of genres supported and the percentage of the rebate, as well as the lack of capping.
The Hungarian System
The amount of the available subsidy is 30%, which can be applied to the film production’s total costs in Hungary. In terms of genre, the following are eligible: feature films, short films, documentaries, nature films, animated films, made-for-TV movies and TV series. Not eligible for subsidy are commercials, reality shows, and those mundane fiction series that do not create any cultural value.
Although there is no budget limit that would draw a line in terms of what size budget qualifies for a subsidy, there is, however a so-called production test that must be passed. This examines the proportion of Hungarian crewmembers in a given production. According to this, a production that is shot only to a lesser extent in Hungary but employs many Hungarian film crewmembers may still be eligible for a subsidy.
Another important condition that must be met is a cultural test. Practically this means that a subsidy cannot be granted to a film production that features a Hungarian shooting location that does not portray, to at least some extent, a European location; and/ or a production that is purely about violence or any other content that is severely detrimental to minors (adult movies.)
Act II of 2004 on Motion Picture, Article 12/B
A film shall meet cultural requirements if it scores at least 16 points based on the criteria established in the table below, in such a way that it scores points in at least four out of categories a)-n), and a) shall be considered a European co-production film, as determined in a separate law, if the co-production is made with Hungarian participation, or b) fulfils at least 2 of the criteria listed in Points a)-h):
a) the topic of the film or the work that serves as the basis for the film is based on a story (event) that is part of Hungarian or European culture, or is related to the presentation or reworking of a story (event) that is significant from a historical, mythological or religious aspect; Awardable points: 1
b) the topic of the film or the work that serves as basis for the film features persons or characters who are related to Hungarian or European culture, or are significant due to their relation to history, society or religion; Awardable points: 1
c) the film presents Hungarian or European traditions and lifestyles or promotes certain elements of these traditions and lifestyles; Awardable points: 1
d) the film is set at a Hungarian location or (an)other European location(s) or a related cultural setting, or its imagery presents a Hungarian location or (an)other European location(s) (city, region) or presents typical Hungarian or European cultural motifs; Awardable points: 1
e) the script of the film or the work that serves as basis for the film is based on the adaptation of a literary or other work of cultural value (works of applied and fine art, musical composition, etc.); Awardable points: 1
f) the topic of the film or the material that serves as basis for the film is focused on an issue that is relevant to Hungarian society or other European societies from a cultural, sociological or political aspect; Awardable points: 1
g) the film reflects or presents certain significant Hungarian or European values—in particular: cultural diversity, respect for cultural traditions, respect for the institution of the family, solidarity, equality, protection of minorities, tolerance, environmental protection; Awardable points: 1
h) the film serves the better understanding of and familiarity with Hungarian and European culture and identity. Awardable points: 1
i) a film creating cultural value based on its genre; Awardable points: 4
j) contributors to the film include Hungarian citizens or citizens of other EEA States, or citizens of non-EEA States who won awards at international film festivals in their capacity as a: director, producer, director of photography, script writer, leading and supporting actors, composer, production designer, costume designer, editor, make-up artist, senior production manager/production manager or post-production manager (audio/visual/digital); Awardable points: 1 point for each 2 categories fulfilled, maximum 6 points
k) the final version of the film is produced in the language of an EEA State; Awardable points: 4
l) At least 51% of the participants of the film — with the exception of contributors who scored points in accordance with Point j) — are citizens of an EEA State or the film in question is a co-production that does not qualify as a European co-production film; Awardable points: 4
m) The shooting location is in Hungary; Awardable points: 3
n) The preparation of film production or the post-production takes place in Hungary. Awardable points: 3
A further condition is that the production company must agree to properly list the Hungarian state as a sponsor in the closing credits of the film.
What Expenses Can Be Included?
All qualified production costs. This essentially includes most below-the-line items (technical and crew production, expenditures for facilities, props, makeup, wardrobe, set construction, background talent etc.), but only to a certain extent, and under certain conditions, several above-the-line items qualify as well (directors, producers, performers.)
After completing the production budget, Progressive Productions will prepare a statement for the subsidies that can be applied for based on the items in the budget. Following that, Progressive Productions will register the production at the National Film Office (submitting the screenplay, budget). This organization then will review the budget proposal and will provide an official opinion. Registration must be done at least 30 days prior to shooting. This of course does not mean that no changes can be made to the budget after the registration, major modifications, however should be avoided.
After the start of shooting, the budget will be fine-tuned based on the actual services performed, which will also determine the final amount of the subsidy requested. Progressive Productions will be responsible for drawing these funds and transferring them to our partner’s account. After that, all expenses (based on actual receipts/invoices) will be reviewed once more by the National Film Office. After the audit, the office will issue the certificate for the subsidy.
When are the Subsidy Funds Transferred?
Subsidy funds are always transferred posteriorly. This means that before shooting begins, our partners must have the full amount of shooting funds at their disposal. This amount must be listed as an obligation in the Production Service Agreement that will be presented at the film office. (An entirely different regulation applies to those films, in which we participate as a co production partner and not as a service production company; in this case, the subsidy funds can be embedded in the production budget.)
The Hungarian state provides subsidy indirectly, through successful large corporations; it provides tax incentives to large companies that sponsor film productions. This way, at the end of the year during corporate tax filing time, a sponsor corporation is able to lower its basis of assessment for tax by an amount larger than the actual sponsorship amount (thus, the company can optimize its taxes with the help of the subsidy.) Progressive Productions’ role in this phase is either to locate this sponsor company or to hire a financial broker to find one in return for a commission. Another available option is a new deposit account created by the Hungarian state. The National Film Office can regularly deposit funds onto this account; therefore, if sufficient funds are available on this account, the subsidy can be transferred from here as well.
Hungary’s Place in the Central European Region
Finally, it is worthwhile to compare Hungary with other countries in the Central European region, such as the Czech Republic, Romania and Poland. The rate of the tax rebates varies, with the Czech being the lowest at 20%, Poland’s is the same as Hungary’s 30%, while Romania offers 35-40%. Still, Hungary is the only country among these to not have a cap per project, nor an annual one. The Czech tax rebate does not have a per-project cap but does have an annual one and the other countries have both types of caps. This can be an issue when the country is very popular among international productions and grants tax rebates on a first-come, first-served basis, then if a production applies too late, there might not be a budget left for that year’s tax rebates. Also, Poland’s minimum sum to be spent locally for eligibility is ten times larger than the countries, while Hungary does not have a minimum budget size expected of a production. In these countries feature films, TV shows, documentaries and animations are all supported. Commercials, video games and reality TV is not supported, apart from the latter being eligible for tax rebates in the Czech Republic.
In summary, this is a very favourable system even by international standards, which can be very attractive to productions of all kinds, especially when paired with Hungary’s experienced professionals and well-equipped studio system. Progressive Productions is committed to provide our partners with the best options possible if they pick Hungary.
