New film support system of Hungary Film Co-production Seminar, Bratislava 6 December 2004 Balázs Zachar Ministry of Cultural Heritage Audiovisual Department

18 November 2004New Film Tax Incentive System of Hungary Film Law – framework of the support of the sector (Act II of 2004 on Motion Picture) Regulating direct state support New film tax incentive system Purpose of the new tax incentive system: Increase the number of films produced in Hungary Strengthen the national audiovisual industry Extend the production capacity and the number of employees in the sector General positive impact on the economy

18 November 2004New Film Tax Incentive System of Hungary Dual effect of the tax scheme Attracting foreign filmmakers by offering financial contributions from the private sector Encouraging the making of national films and co-productions by offering additional funds besides the existing sources

18 November 2004New Film Tax Incentive System of Hungary Key aspects of the Tax Incentive System It is not important who owns the copyright to the film – equal advantages for national and foreign productions The higher the direct production costs incurred in Hungary, the higher the cost reduction available The producer may significantly reduce its overall production costs by receiving financial contribution from an independent Hungarian taxpayer The producer receives financial contribution from a Hungarian taxpayer, while the independent Hungarian taxpayer benefits from an advantageous tax allowance related to the contribution provided

18 November 2004New Film Tax Incentive System of Hungary Two types of production Production serviceCo-productions/national films Foreign film producer Hungarian production company Foreign film producer Hungarian co-producers Maximum of private support: 20 % of Hungarian production costs

18 November 2004New Film Tax Incentive System of Hungary Foreign producer 1. Co-production agreement Hungarian co-producer 2. Certification of Hungarian direct production costs 3. Sponsorship certificate Film Office Hungarian State 5. Tax allowance Indep. Hungarian Taxpayer 4. Financial contribution (20 %) Co-production scheme

18 November 2004New Film Tax Incentive System of Hungary What makes the system work efficiently? Production companies with projects to be shot in Hungary, missing 20 % of the local budget Corporate taxpayers with high amount of taxable incomes that needs to be reduced Agencies that assist in linking the above players (different sizes of production budgets and taxable incomes)

18 November 2004New Film Tax Incentive System of Hungary How does it help co-productions? The Hungarian co-producer is capable of raising 20 % additional source from the Hungarian private sector This may be completed by the direct support of the Hungarian Motion Picture Public Foundation Significant overall support for co-productions with Hungarian participation

18 November 2004New Film Tax Incentive System of Hungary For more information: National Film Office Ministry of Cultural Heritage Audiovisual Department

18 November 2004New Film Tax Incentive System of Hungary Financial position of the producer ProducerABC Total production budget1,000,000 Direct production costs incurred in Hungary 0750,0001,000,000 Financial support received (amount indicated in the sponsorship certificate) 0150,000200,000 Final cost to the producer1,000,000850,000800,000 Scenario A: no direct production costs incurred in Hungary Scenario B: 75% of direct production costs incurred in Hungary Scenario C: 100% of direct production costs incurred in Hungary

18 November 2004New Film Tax Incentive System of Hungary Financial position of the Hungarian taxpayer Hungarian taxpayerABC Profit before financial support to producer (hypothetical) 2,350,000 Financial support to producer (amount indicated in the sponsorship certificate) 0150,000200,000 Profit before tax2,350,0002,200,0002,150,000 Tax base (no increase)2,350,0002,200,0002,150,000 Tax liability (16%)376,000352,000344,000 Tax allowance (amount indicated in the sponsorship certificate) 0150,000200,000 Tax payable376,000202,000144,000