There were two income tax rates for individuals until 2011: 18% and 36%, the latter operating from about 6 500 EUR per year. This was replaced with a 16% single rate, reduced to 15% from 2016. Family taxation was also introduced to provide extra incentives to families having at least one child. Families with three children living on the average salary are exempt from personal income tax.
Social security payments are usually calculated at 27 % above the gross salary and the 15% personal income tax is due to be paid on the super gross salary including social security costs. By nature of single rate taxation, those with higher legal income benefit most.
State prizes, awards and fellowships are tax exempt; artists may claim material expenses on their income tax. Also, the tax base of authors and other creative artists may be reduced by 50% of the income generated by copyright or other royalty payments. From 2011, company income tax is 10% for profitable companies below the 500 million HUF tax base (over 500 million the tax is 16%), with an additional 10% tax on the dividend. The so-called Non-Profit Act (CLVI/1997) defines the operational conditions of third sector organisations and foundations. It includes tax incentives to facilitate the involvement of private support in supporting public goals.
Associations, foundations as well as nonprofit enterprises can—by adhering to specific conditions—qualify as public benefit organisations. Businesses – companies and individual entrepreneurs – can deduct 20% of the value of donations given to such organisations from their tax base, and in the case of multi-annual pledges, this rate is 40%.
In spite of these regulations, philanthropic support to cultural organisations is not particularly widespread, and the little that takes place is barely acknowledged: the prevailing mood in the cultural sector is that of dissatisfaction. Certainly, most of these tax benefits affect other sectors (social and health care, education etc.), and the bureaucratic regulations attached render donation complicated both for the donator and receiver. Greater attention and expectations are linked to sponsorship, where tax exemption is difficult to conceive: the entire amount can be deduced from the tax base as marketing expenses anyway.
Tax legislation has greater significance with investments. In this respect, the Law on Motion Pictures (Act II/2004 or Film Law) stands out, offering a 20% tax break on film making. The tax credit attracted the shooting of international productions and also provided incentives to some local projects. It has also created a favourable environment for investment in studios, the largest of which is the Alexander Korda Studios at Etyek. After negotiation with the European Commission several of the criteria for public support were defined more strictly (with the cultural principle reinforced), and the limits of state subsidies are regularly re-negotiated. On the whole, the main principles of the Film Law were found to be compatible with EU regulations.
With the Performing Arts Act a similar tax credit arrangement was introduced for theatres and orchestras to the amount of 80% of the box office income each year. This became an important source of revenue for performing arts organisations. (Source: http://www.eloadomuveszetiiroda.hu). The fact that the regime was extended to donations to sports as of 2012 created concerns: how much would be left for culture at a time when profits of corporations are dwindling anyway? Nevertheless the amount grew to 11.6 billion HUF, divided between 150 organisations. (For comparison: the grants of the National Cultural Fund amounted to 9.8 billion HUF.) In 2013 the total sum of such support to theatres, orchestras and dance groups soared at 16.9 billion HUF.
In 2003, a significant innovation in the fiscal system radically simplified the administration and taxation of small enterprises (called EVA: simplified enterprise tax), which is beneficial for many self-employed artists and cultural operators.
Under EVA, small businesses are taxed at a flat rate of 37% from 2012. This eliminates any other income tax or levy. No record is required on business expenditure which negates the need for the collection, storing and book-keeping of bills and accounts. On the other hand, EVA subjects must add VAT to their invoices which they cannot reclaim. Partly, the large success of EVA led to a next step, the introduction of EKHO, a regime of simplified contributions to common charges (literally “public burden”) – see chapter 4.1.3.
There is one more speciality in the Hungarian tax system – Act CXXVI/1996 on “1%” has evoked great attention outside the country as well. When taxpayers submit their annual tax returns, they can allocate 1% of their income tax to a non-governmental organisation of their choice by indicating its tax identification number (also another 1% to a registered church, if they so wish). According to the data disclosed by the tax authorities, 49% of tax- payers channelled 13.1 billion HUF from the tax on their 2012 income to 31 101 organisations. The full list of recipients is available on the website of the tax authority. It is next to impossible, however, to identify the share of culture from the spreadsheet of 31 thousand lines. Names of the organisations do not always provide clues about their profile. Here is an exception from the first page of the list, for sake of illustration: the Bartók Chamber Choir Foundation in the city of Szolnok received HUF 159 000 (about EUR 530) from 39 anonymous donors.
The general value added tax (VAT, in Hungarian áfa) rate of 25% was raised to 27% with effect from 2012, which affects music recordings, performing arts (including theatre tickets), film making, video lending, cinema, etc.; whereas a rate of 5% operates for books, including textbooks, periodicals including newspapers, as well as licensed handicraft products. VAT registration is obligatory for undertakings, unless an individual tax exemption is granted, for those with an annual turnover under five million HUF (about EUR 16 700).
As one in the row of economic branch specific taxes, the tax on advertisements introduced in 2014 affects culture in an indirect way – see chapter 2.5.3.