There is a single 15% income tax rate for individuals. Family taxation was introduced to provide extra incentives to families having at least one child. Families with three children are exempt from personal income tax. From 2022, income of youths below 25 years of age is also non-taxable. State prizes, awards and fellowships are tax exempt. Corporate tax is one of the lowest in Europe at 9%. Social security payments are usually calculated at 27 % above the gross salary and the 15% personal income tax is due on the “super-gross” salary which includes social security costs.
Artists and cultural operators can choose between a variety of statuses for their work and thus taxation:
- Private individuals with a tax number for activities without special permit.
- Self-employed: in some fields like actors, painters, translators etc. this is the dominant form.
- Member of a limited or limited liability company.
- Public servant: until 2020, people employed at public cultural institutions (museums, theatres etc.) used to be in this category.
The self-employed, including members of limited companies, have simplified tax regimes to choose from:
- EKHO, the method of simplified contributions to common charges was discussed in chapter 4.1.3.
- Flat-rate of tax
- Item-based tax on small tax enterprises (kata)
- Small business tax (kiva)
- Regular business/corporate tax (tao)
Each regime has its specific conditions (which are occasionally modified) and advantages.
Conversely to corporation tax, VAT is the highest in Europe at 27%. Books, journals and free live music (at restaurants and free community events) benefit from a 5% reduced rate. The intermediate 18% rate applies to paid open-air concerts – achieved by the festival lobby in 2018. The high VAT rate makes entry tickets as well as all expenses linked to cultural activities more expensive.
Associations, foundations as well as non-profit enterprises can—by adhering to specific conditions—qualify as public benefit organisations. These organisations are exempt from corporate tax if their business income is less than 15% of the total turnover. Other organisations – without a public benefit status – are exempt only if the total annual turnover is less than 10 million HUF, with less than 10% business income.
Businesses – companies and individual entrepreneurs – can deduct 20% of the value of donations given to public benefit organisations from their tax base, and in the case of multi-annual pledges, this rate is 40%.
Philanthropic support to cultural organisations is not particularly widespread. Most of these tax benefits affect other sectors (social and health care, education etc.), and the bureaucratic regulations attached render donations complicated both for the donor and receiver. Donating to culture is also negatively affected by the priority that the government gives to tax benefits that support sports, football teams in particular. A similar tax credit arrangement was introduced for theatres and orchestras between 2012 and 2018, which with time became an important income for the performing arts sector. Due to blatant frauds and abuse the government abruptly stopped that scheme.
Regarding sponsorship proper, tax exemption is difficult to conceive: the entire amount can be deduced from the tax base as marketing expenses anyway. The number of adverts displayed at most projects (exhibitions, theatre performances, festivals, and especially films) indicates that businesses support culture in many ways, including direct financial sponsorship.
Tax legislation has greater significance for investments. In this respect, the Film Law (2004) stands out, offering a 20% tax break on film making. The tax credit attracts the shooting of international productions and provides 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. These schemes have been brought in line with the requirements of EU regulations.
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, about a third of tax- payers channelled 9.6 billion HUF from the tax on their 2019 income to 27 854 organisations – in recent years both numbers have slowly descended. 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 over 27 thousand lines as the names of the organisations do not always provide clues about their profile. The share for culture is nevertheless around 1% only in this scheme.