Corporate tax relief relating to film production in Hungary

A new Film Act came into effect in Hungary from 1 April 2004 and as a following step the Corporate Income Tax Act has been amended in order to help boost film and video production in Hungary. The amended corporate income tax rules provide a tax relief for Hungarian companies (or the Hungarian branches of non-Hungarian companies) which subsidise the production of a film in Hungary. Such companies (or branches) are allowed to deduct the amount of the subsidy granted (up to 20% of the total direct costs of film production incurred in Hungary) from their corporate income taxes payable in the tax year that the subsidy was granted and the following three (3) tax years, in proportions determinable by the subsidising company.

Pursuant to the relevant regulations, in order to benefit from the tax relief, it is necessary that the funds spent covering the film production costs result in a tax payment obligation in Hungary. In other words, the film production costs must be paid to individuals or companies that are subject to Hungarian taxation.

A further condition is that the tax relief can only be utilised if the Hungarian Film Office (the "HFO") has registered the film prior to the commencement of its production. During and/or after the production, an audit of the costs of the film must be undertaken by the HFO and on the basis of the audit the HFO will issue certificates to the companies seeking such subsidy, containing the details of the relevant subsidising company, the registration number of the film and the amount of subsidy granted.

Further tax benefits are available in Hungary in respect of investments exceeding HUF 100,000,000 (ca. EUR 400,000) made in relation to film and video production. Preferential depreciation rates on real estate and assets used for film and video production are also applicable.

The above is only a short summary of the key regulations regarding film financing tax allowances available in Hungary. Should you or your colleagues have any questions in relation to the foregoing, or require any further information or consultation, please feel free to contact the members of our

Film Financing Group

: Dr. Erika Papp (Tel: +36 1 483 4800, fax: +36 1 483 4801, e-mail: erika.papp@cms-cmck.com); Dr. Eszter Kálmán (Tel: +36 1 483 4800, fax: +36 1 483 4801, e-mail: eszter.kalman@cms-cmck.com); or Dr. László Bóné (Tel: +36 1 483 4800, fax: +36 1 483 4801, e-mail: laszlo.bone@cms-cmck.com).