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Hungary For You

Small but packing a punch is this small Central European country, whose new tax incentive programme offers irresistible financial incentives

Those who believe that all good things come in small packages were probably thinking of Hungary when they cape up with that cliché.

Hungary, a landlocked country, is surrounded by seven countries but it packs a whole lot within its own borders. One of the oldest European countries, it is situated in the Carpathian Basin of Central Europe and is known for diversity – landscapes which range from flat and grassy plains to lush peaks and valleys, and a culture which makes room for both traditional wooden churches and feisty modern nightclubs.

Budapest, the capital, is the hub of superlative music and art, with one of the world’s best known Opera houses as the main attraction. There is an array of museums and galleries too.

Hungary’s springs along with Lake Balaton (the largest in Central Europe) are ideal for sunbathing and have supported this culture since Roman times. Hungary is also the birthplace of renowned scientists, explorers and personalities. Small things can make a big difference!

As for filming, it is a serene destination with reasonable pricing and great tax benefits, thanks to a new film tax-incentive system.

What does the tax incentive system offer film-production houses?

• Financial refund and investment opportunities to encourage foreign film producers to come to Hungary, to make films as they may reduce their film production costs this way.

• Generating additional resources for co-productions by encouraging Hungarian enterprises to make investments in motion picture production.

• Through the tax-incentive system, the amount of contribution/investment available in Hungary is 20 per cent of local film production costs. These contributions and investments come from the pre-tax profits of business associations in Hungary

Which productions may receive contribution under the tax incentive?

• Films produced to order (production services): Productions made in Hungary by foreign filmmakers with the participation of a commissioned Hungarian film production company.

• Films not produced to order (co-productions or Hungarian films): Productions made by a Hungarian film production company alone or in co-production, with the financial involvement of domestic investors.

The first model: The budget of the film is fully available (typically by a foreign filmmaker or studio) but the objective is that the foreign filmmaker reduces production costs in Hungary by the refund. In this case, the contribution (refund) is directly received by the foreign filmmaker, to be provided by the domestic corporate taxpayer.

The second model is intended to support films where the producers cannot provide the total budget of the film. Therefore, they intend to involve external private sponsors as well. In this case, the funding (investment) is received by the Hungarian production company (co-producer) of the film from the domestic corporate taxpayer. In return for the investment, the taxpayer not only receives a tax incentive but it will have a share of the revenues from the film as well (the minimum thereof is not specified).

Tax incentives for development purposes

• The new system also encourages investments in infrastructure for film production purposes by tax incentive. Companies making such investments of at least HUF 100 million will receive a tax incentive of 35 to 50 per cent of the amount invested depending on the region of the country where the investment is made. (Budapest: 35 per cent, Pest County: 40 per cent, Western Transdanubia: 45 per cent, the rest of Hungary: 50 per cent).

• The applicable tax law makes it possible to apply favourable depreciation rules to buildings (studios, sound-stages etc.) and machinery (equipment) for film production purposes. In case of machinery and equipment solely for film production purposes, the rate of depreciation is 50 per cent, while in the case of buildings it is 15 per cent.

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