Sport and Film Related Tax Incentives
Hungarian corporate taxpayers may provide support to film productions and certain team sport (football, handball, basketball, water polo, ice-hockey, volleyball) organizations, and consequently, become entitled to taxation benefits. Taxpayers may provide their financial support directly to their preferred organizations and receive a tax allowance on their tax return or they may offer part of their corporate income tax liability and receive a tax credit.
1. Support paid directly to the beneficiaries (old system)
In the old system, companies may provide their financial support by transferring a subsidy to the beneficiary organisation directly.
Beneficiary organizations could be the following:
- film productions and the Hungarian National Film Institution
- national federations of the popular team sport, amateur and professional sport clubs, organizations, public foundations created for the promotion of a popular team sport and the Hungarian Olympic Committee
Corporate sponsors are entitled to claim tax allowance on their tax return, if the following conditions are fulfilled:
- sponsorship contract must be signed by the sponsoring company and the recipient organization
- sponsorship certificate must be issued by a supervising authority
- the amount specified in the sponsorship certificate must be transferred to the recipient organization’s account by the end of the tax year
- in the case of sponsorship of popular team sports, the taxpayer must notify the national tax authority about the transfer of the support and supplementary support
The taxpayer must also provide 75% of the tax benefit as supplementary support to the organization determined by law by the end of the tax year.
The support (with the exception of the amount of supplementary support) is acknowledged as a business-related expenditure for corporate income tax purposes.
In the tax allowance system, the effective net saving is 2.25%. The above-mentioned tax allowances can be utilized up to the end of the eighth tax year, calculated from the tax year when the sponsorship amount was granted.
2. Tax credit system (new system)
As of 1 January 2015, besides the earlier corporate tax allowance regime, a new tax credit system has been introduced to support film production projects or popular team sport organizations.
Under this regime, companies can provide their support by designating a part of their corporate income tax liability to support the preferred organizations. According to the taxpayer’s declaration, the tax authority then transfers the support to the organizations. Therefore, there are no risk of administrative errors and related financial consequences for the sponsoring company. Also, there is no need to finance the support since it is not an additional cost, but it is settled from the tax advances and year-end tax liabilities of the sponsors.
The support amount is capped at 80% of the annual tax payment liability. A part of the allocated amount generates credit for the company, which is indicated as a decreasing item on the tax account balance of the company. The crediting is made by the first day of the second month following the submission of the annual corporate income tax return (typically as of 1 July). The effective net saving is maximum 7.5% of the 80% of payable corporate tax, so the amount of tax benefit should be higher compared to the parallel (old) tax allowance system.
Moreover, it is no longer necessary to also pay supplementary support if film productions are supported. However, if the beneficiary is a sport organization, then 12.5% of the amount offered is qualified as supplementary support which does not entitle the corporate sponsor to a tax credit.
Providing the sponsorship from corporate income tax does not affect the EBIT (i.e. it is a below-the- line item, not eroding this important financial indicator of the company that is especially important for multinational corporations.).
The tax authority transfers the corporate income tax liability offered to the beneficiary only based on the tax certificate issued by the relevant supervising authority (not needed if the support is to be offered to the Hungarian National Film Institution).
Taxpayers can choose any of the above listed forms of support (old system or new system), but the two different taxation benefits cannot be utilized together in a given tax year.
- Reviewing and verifying the optimal amount of sponsorship
- Assessing the effective net saving on the basis of the draft corporate tax calculation
- Assisting the corporate taxpayers find film productions/ sport organizations to be sponsored
- Advising on the tax and international accounting treatment of the sponsorship/tax credit
- Advising on the sponsorship process, and the conditions to be fulfilled to claim tax allowance and tax credit
- Setting up the contractual structure of the sponsorship, reviewing the draft sponsorship contracts
- Communication and contact with the beneficiary organizations, assistance with the administration associated with the contracting and sponsorship process (coordinating the contract negotiation process, obtaining sponsorship certificate, reviewing the offering declaration to be submitted to the tax authority)