The amendments of certain acts related to increasing the competitiveness of the motion picture industry, adopted by the Parliament on 16 December 2020, will bring several significant changes in 2021. We summarized below the most important changes.
Eligibility of payments to individuals for tax rebate
A significant change is that from 2021 onwards, the remuneration of individuals that is subject to Personal Income Tax or Simplified Contribution to Public Revenues (EKHO) will be eligible at 100% for the tax rebate up to HUF 12 million (approx. USD 41,000) instead of the current threshold of HUF 3 million (approx. USD 10,000). Remunerations exceeding the HUF 12 million (approx. USD 41,000) limit will be eligible at 50% (i.e. effectively 15% rebate can be claimed). We note that a great deal of Hungarian cast or crew members currently pay taxes other than personal income tax or EKHO (e.g. corporate income tax, simplified small business tax, etc.), meaning the 50% limitation is not applicable to them.
The change above does not apply to foreign cast and crew, either; their remunerations (if qualify as domestic spend) remain to be eligible at 100% for tax rebate up to HUF 3 million (approximately USD 10,000), and the eligibility of remunerations exceeding this limit will be capped at 50%.
The increased threshold only applies to film production for which “the request for entitlement to film support” is filed with the National Film Office (“NFO”) after 1 January 2021.
Simplified taxation of foreign cast and crew
From 2021, foreign cast and crew members who receive income from abroad for their activities in Hungary can opt for simplified taxation even if their stay in Hungary is longer than 183 days, regardless of how many film productions they are working for in Hungary. Under the current rules, if the individual stays in Hungary for more than 183 days in a 12-month period, the simplified tax regime is no longer applicable.
In the case of EU citizen cast and crew members, as of 2 January 2021, simplified tax regime may also be applied if they are resident for social security purposes in Hungary.
Simplified employment of extras
The rules for simplified employment of extras has also changed. The daily net income cap increases from HUF 12,000 (approx. USD 41) to HUF 18,000 (approx. USD 62), as well as the daily tax from HUF 3,000 (approx. USD 10) to HUF 4,000 (approx. USD 14) per day.
The definition of film extras is also extended, so simplified employment opens up for non-feature films, e.g. commercials.
Due to the increase in the public burden, this amendment will enter into force only as of the the 31st day after the promulgation of the amending law. This means that the amended rules are expected to be applicable from the last weeks of January 2021. (At the time of preparation of our newsletter, the amending law has not yet been promulgated, so the exact date of entry into force cannot be determined.)
Performance date and issuing date of the invoices for cost verification purposes
The amendment clarifies that for the purpose of the NFO cost audit only those costs can be accepted that are part of the budget and related to invoices the performance date of which falls within the production period, and the invoice is issued within three months after the completion date of the production at the latest.
The basis for the eligible cost of completion bonds has also changed to be in line with the basis for similarly regulated limitations on royalties, producer fees and production-related advertising costs (accordingly, the cap should be calculated on the sum of account groups 5 and 8 in the cost centered ledger for the relevant cinematographic work).
The amount of collection account for tax rebate remain unchanged
Based on our latest information, the available budget of the collection account of the Hungarian National Film Institute remains unchanged in 2021, i.e. it will be HUF 33 billion. In addition, it is likely that approx. HUF 10 billion will be left over from the 2020 budget that can also be utilized in 2021.