Changes to the Hungarian film legislation – the basis of tax rebate has been broadened

According to the current regulations, cost of the remunerations of individuals subject to Personal Income Tax or Simplified Contribution to Public Revenues (EKHO) is 100% eligible for the tax rebate up to HUF 12 million and remuneration exceeding this limit is eligible at 50%. The recently passed amendment to the Motion Picture Act lifted this restriction in the case of domestic resident individuals, while the cap of HUF 3 million for foreign individuals remains in force.

The amendment to the Motion Picture Act removes the limitation on the eligibility of remunerations paid to domestic individuals, and at the same time it regulates who qualifies as domestic individual. According to the new regulation, only those Hungarian, EEA or third-country nationals are considered as domestic individuals who are habitually residing in Hungary, i.e. they have a registered residence in Hungary for three years preceding the start of the film production period (preparation) without interruption. (We note that the definition of domestic individual in the Motion Picture Act is not directly linked to the tax residency)

A Hungarian citizen can certify his domestic status by a declaration or a copy of the address card (verifying the three years of residence). In the case of an EEA citizens, a copy of the registration certificate verifying the three-year residence or a permanent residence card will be required. For a third-country citizen a copy of the EC permanent residence permit or a national permanent residence permit will be necessary.

During the cost audit procedure of the National Film Office (NFO) the film producer or the film production company should verify the individual is habitually residing in Hungary. Therefore, to facilitate the administrative obligation it is worthwhile to prepare a template declaration for Hungarian individuals, which could be signed at the time of concluding the contract with them. Furthermore, it is worthwhile planning the process in a way that a copy of the required documents of the EEA or third-country nationals be included in the tax rebate application to be submitted to the NFO, with attention to the GDPR rules.

If the individual’s status as a domestic individual is not proven by the above documents, the NFO will automatically consider him/her as a foreign individual, and therefore, the HUF 3 million limit will be applied when determining the amount of the direct Hungarian film production cost.

The amendments already apply on ongoing procedures, meaning that the abolition of the limit for domestic individuals and the related documentation obligation will be applied to cost audit procedures filed after 1 January 2022, the date when the amendments will enter into force (including applications filed  for December 2021 or the 4th quarter).