Brussels approves tax credit for cinema included in tax reform

The Directorate-General for Competition of the European Commission has approved the modification to the Spanish regime of tax credits for cinema and audiovisual productions (this includes theatre works and the performing arts) included in the tax reform.

The tax modifications were included in the reform of Corporate Income Tax (CIT) that came into force in January 2015, following a prior analysis made by an inter-ministerial work group that included participation from the cinema industry.

On the one hand, the tax reform increases the tax credit from 18% to 20% under CIT for audiovisual productions, with a maximum tax deduction of 3 million euros. It also includes post-production costs such as those deriving from the promotion, advertising and making of copies. Cinema productions also benefit from the reduction in the general tax rate from 30% to 25% this year.

On the other hand, a new deduction has been established for foreign productions that opt to come to Spain to film, with the aim of fostering direct investment in Spain and hence boost the wealth and generation of new jobs in the sector. This deduction amounts to 15% of expenses carried out in Spain, with a minimum expense of 1 million euros, and the possibility of the advance payment of this sum, without a quota limit (equivalent to the French model). It also includes all the expenses of a technical nature (production and directing, scenography, special effects, wardrobe, characterisation) and other expenses of a complementary nature, such as rentals, locations, cleaning staff, security and assistants.

The government notified all these changes to the European Union at the appropriate time. Following a year of analysis, the European Commission responded that the aforesaid incentives are compatible with the State subsidy system and with the EU internal market rules, specifically pursuant to Article 107 of the Treaty on the Functioning of the European Union.

Consequently, Brussels has decided not to draft any objections to these modifications. The Commission reminded Spain that it must present the mandatory annual reports on the application of the subsidy regime.