UPDATE! On 17 December 2024, Parliament adopted Bill T/9717 amending the Film Act, so the provisions discussed in this article will enter into force from 2025.
According to the draft bill, cost eligibility rules for the Hungarian film tax rebate would change as of 1 January 2025.
The most important proposed amendments to Act II of 2024 on Motion Pictures (“Film Law”) expected for 2025 are summarized as follows:
- A ministerial decree would define the types of costs of film production in Hungary that are eligible for the Hungarian tax rebate. The intention behind the new regulation is to enable a quick action in case of harmful practices. The scope of such restrictions is therefore not known yet, but it should only be exercised on an occasional basis in our understanding.
- The calculation of foreign eligible spend would also change. Renumerations paid to foreign cast and crew members would remain to be eligible Hungarian spend according to the current rules – i.e. up to HUF 3 million per person and per film production they are 100% eligible, and renumerations exceeding HUF 3 million per person and per film production are 50% eligible. A significant change would be, however, that these costs would no longer increase the basis of the foreign qualifying spend, thus from 2025, the effective indirect film tax rebate rate with respect to foreign cast/crew remunerations would decrease from 18.75% to 15%.
- Costs related to purchase of or good or services from the foreign producer or co-producer would no longer be eligible as direct production costs (except for costs incurred prior to setting up the SPV for the film project). This change may require the review of contractual structures set up for Hungarian projects and the involvement of other affiliated enterprises as contracting parties.
- Local business tax would remain eligible as direct Hungarian production cost, but only following the submission of the tax return, when the liability gets final and paid. Local business tax prepayments would no longer be considered as eligible costs, which may cause issues while producing series and movies where the final tax rebate application precedes the filing of the local business tax return.
- Trailers or other kind of showcasing to video games would no longer be considered a cinematographic work thus would not be eligible to film tax rebate.
- The practice of National Film Office (“NFO”) with respect to monthly/quarterly cost audits would also change. Among others, instead of costs that are booked in the period under review, only costs actually incurred in the period under audit could be included in the production costs submitted to the NFO for verification of eligible costs of that period. Costs that are recorded in the audited period but paid later could only be taken into account as eligible costs in the last audit period, in accordance with the rules of the cost correction procedure. The new process may result in delayed access to rebate fundings for certain spend.
- The above new rules to eligible costs would first apply to productions where the rebate registration process initiated after the expected entry into force of the amendment to the Film Law i.e. following 1 January 2025.
- There is no news about the increase of the annual budget of the film deposit account yet. The current budget is HUF 69 billion. Negotiations are ongoing in this regard and the decree setting the 2025 budget is expected in Q1 2025.
Andersen Hungary is happy to assist with any questions arising from the changes to the Film Law. Please feel free to contact our experts.