Tax advantages

Tax advantages

Being a distant territory from mainland Spain, the Canary Islands have some tax benefits to promote economic and social development in its territory. This tax incentives also apply to audiovisual production.

Due to these circumstances, Fuerteventura has one of the most appealing tax incentives applied to media and film production from Europe. Those productions benefit from the following credits.

For Spanish productions there is a 40% deduction applied on the first million Euros invested in production and 38% deduction for the rest of the production budget; the maximum deduction per film being 5 400 000 Euros. On the other hand, international film productions shot in Fuerteventura can benefit to a maximum of 4 500 000 Euros; being those the 35% of the total production budget.

Generating tax benefits

Deduction of taxes for international productions

From January 1st 2015, the Spanish section 36.2 of Spanish Corporate Income Tax Law is enhanced, creating a new payable tax credit program according to which any international production can deduct up to 4 500 000 Euros of the 35% of the expenditure within Fuerteventura; being 1 000 000 Euros the minimum amount expended and if all the eligible requirements are met.

1. Which productions are eligible for tax relief?

International film productions must meet the following requirements:

  • It must be a cinematographic or audiovisual project of live action or animation intended for theatrical release. Other audiovisual projects shown in other media channels such as television series and documentaries.
  • The film or the audiovisual project can not qualify as a Spanish production; the film production company must be from outside Spain.
  • The payable tax relief is subject to the international film producer hiring a Spanish film producer registered in the companies tax net.
  • For productions to be eligible to the tax relief, the minimum expenditure must be 2 000 000 Euros; they can claim up to 80% of the total production expenditure.
  • Expenditure within the Canary Islands must be a minimum of 1.000.000 Euros

2. Eligible expenses

Eligible expense is defined as the expenditure incurred on filming activities such as:

  • Expenses related to the creative team: director, writer, director of photography, music composer, actors, and other participating artists, editor, artistic director, music editor and costume designer who have their tax residency in Spain or any of the countries members of the European Economic Area, capped to 50 000 Euros per person.
  • Expenses intended for the technical production crew and suppliers

Spanish Tax Administration, according to the ruling question V1746-15 of 2nd June 2015, contemplates as a basis of deduction the following expenses:

  • Expenses of the executive producer, production manager and producer´s assistant; fees for the editing team: editor, edit assistant, script, casting director and casting assistant; fees related to production design that have been not already included as creative costs such as: production designer, set decorator, florists, scenic art assistant, scenic artist, set dresser, carpenters, etc. including materials necessary for the production design: building materials, carpentry materials, paints, fabrics, etc.
  • Expenses of costumes and characterization that have not been already included as creative costs such as: costume maker, hairdresser, make-up artist, etc. and its materials such as costumes, make-up, wigs, etc. also qualify for tax relief.
  • Expenses of the special effects team which include: technician, model maker, etc. and its materials such as fireworks, smoke producing items, combustion items, detonators and fire extinguishers, etc.
  • Camera crew expenses: camera operators, camera assistant, lightning and sound technician.
  • Expenses of the technical team: telecommunications engineer, electronic technician, image control technician and its related expenses such as mobile communication fees, internet, satellite connection and connectivity, etc.
  • Expenses of the secondary artistic team that can not be included as creative costs such as extras, variety artists, stunt performer, special extras, stand-ins.
  • Expenses of the additional staff such as choreographer, armorer, army advisors, dialogue coaches, animal wrangler, driver, cleaner, security staff, paramedics and ambulance, health and safety adviser and stage-hand.
  • Expenses of the crew catering and accommodation which include pre-production (ie scouting film locations) or the principal photography/shooting itself.
  • Expenses of the accommodation and food allowance for the crew working in a place distant from the principal shooting site that can not use the catering provided and accommodation sites close to the production (builders, locators, drivers in transit, etc.)
  • Travel expenses, within Spain, when the shooting takes place in a different location, including pre-production, work for location scouting and casting trips.
  • Expenses incurred by hiring or purchasing furniture and machinery directly related to the production of the series, such as tents, umbrellas, portable toilets, barriers, chairs, tables, make-up mirrors, generators, cranes, etc.
  • Expenses incurred by renting locations (castles, bullrings, factories, etc.) including fees and taxes paid to Town Councils when filming in exterior locations; Expenses incurred by hiring premises directly involved in the production (caravans, control huts, storage, etc.)
  • Expenses paid to hire animals, weapons and ambulances for the production.
  • Public liability insurance for the productions

The following expenses related to administration activities CANNOT be included as deduction base:

  • Expenses incurred by air/sea/ and road travel of the filming equipment, property or machinery to be used in the production as these expenses are not created within the Spanish territory.
  • Expenses paid to employment and legal advice
  • Expenses related to the administration department including: hiring administration offices, staff expenses (head accountant, payroll department and assistant accountant), hiring office machinery and furniture (photocopiers, printers, office equipment), office supplies and courier expenses.
  • Cost of the tax depreciation of the assets directly involved in the executive production of series, proportionate to their allocation in the series as they are not incurred in Spanish territory.

Any of the above mentioned expenses may qualify for deduction as long as "the service is actually provided in Spain or in the case of delivery of goods, when they are delivered into Spain, regardless the origin of the goods supplier or service provider. If a service is partially offered in Spain, the deduction base will include the part of the service carried out in Spain"

The total amount of the deduction and the funding is capped to 50% of the total production expenditure.

3. When is the tax relief applied?

The Spanish Tax Department specifies that the tax relief will be applied to the period to which tax return applies after finishing the filming activities which take place within Spain. It does not include administrative activities, post-production/distribution expenditure and those will not mean delay to the period to which the tax relief applies.

4. Applying for tax rebate

By applying for the rebate, the Spanish production company will reduce its tax amount payable to the Corporation Tax without limit. Meaning the total amount payable can be reduced to zero.

If the tax rebate exceeds the Corporate Income Tax due for this year, the difference will be paid by the Spanish Tax Department when presenting the Self Assessment tax return with no maximum to the amount claimable per year.

The section 124 of the Spanish Corporate Income Tax Law contemplates that the deadline for submission of the Self Assessment tax return is after 25 calendar days of the period to which the tax relief applies.

Tax relief for Spanish productions

Section 36.1 of the Spanish Corporate Income Tax Law contemplates that expenditure in Spanish productions such as feature films, fiction series, animation films or documentaries producing a film holder, qualify to benefit from tax relief up to a 40% of the expenditure capped to 5 400 000 Euros within the Canary Islands.

  1. According to the Spanish Tax Department, the tax base must be on the same level as "the production expenditure". The "production expenditure" is defined as the expenditure incurred by the applicant in, or that is reasonable attributable to, "the making of the film"(the project).
    The making of the film includes things necessary for the production of the first copy of the project. This includes development, pre-production, principal photography and post-production activities and any other activities that are necessary to bring a production up to the state where is ready to be distributed or exhibited to the general public to a maximum of a 40% of the expenditure of the producer. The expenditure does not include any aspect of financing the project received (e.g. grants).
    The amount of the refund is up to 40% on the first million Euros invested in the production and up to 38% on the remaining amount invested subject to a maximum deduction of 5 400 000 Euros per film in productions made within Fuerteventura by producer companies from The Canary Islands.
    Total tax relief and funding are capped to a 50% of the total production expenditure.
  2. Which productions qualify for income tax credit?
    The production is an eligible project if they fulfil the following requirements:
    1. Qualify as feature films, animated films, TV series or documentaries
    2. The production must shoot at least two weeks within interior or exterior spaces of the Canary Islands. If the filming is not possible within the territory, it must be duly justified.
    3. The work must fulfil the requirements needed to obtain the Spanish nationality and obtain the classification as Canary Islands work.
    4. The Cinema Act consider that as a qualifying Spanish film those made by Spanish producers, by producers of another EU member-country or by foreign companies by co-production system with Spain. That means for a production to be qualified as “Canary Islands Production”, there is a requirement for the production to be made by Canary Islands audiovisual companies or by co-producing companies acting jointly with at least one registered audiovisual company from the Canary Islands. This co-productions must include at least a technical or artistic participant resident in the Canary Islands (e.g. team leader, leading actor/actress, supporting actor/actress)
    5. Cultural Test

Application of the tax incentive – Economic Interest Groupings

This Tax rebate could work as a transferable tax credit to Spanish companies by setting up an Economic Interest Grouping. Their special tax regime allows their members to impute directly in their corporation Tax Return: tax allowances, tax rebates, positive and negative tax bases, financial expenses and withholding generated through the company making the production.

Canary Islands Special Zone (ZEC)

Fuerteventura is part of a low tax regime known as “Zona Especial Canaria” ZEC (Canary Islands Special Zone). This fiscal incentive was authorized by the European Commission in 2000, to promote social and economic development of the region.

The most attractive advantage is the low corporate tax rate of 4% instead of the 30% applied to the rest of Spain. Other benefits include Canary Islands General Indirect Tax (IGIC – the regional equivalent of the Value Added Tax), Transfer Tax and Stamp Duty and the Income Tax on Nonresident. These reduced tax benefits apply to the tax relief applied to international productions.

Requirements to benefit from the Canary Islands Special Zone (ZEC) regime:

  • Creating a new company/ funding a company
  • Perform investments from 100.000 in tangible and intangible assets within the 2 years of the registration in the ZEC registry.
  • Create and maintain a minimum number of 5 jobs within the geographical limits of ZEC.
  • -At least one of the members of the Board of Administrators should be resident in the Canary Islands.
  • The corporate purpose should be included in the list of permitted activities (audiovisual sector activities DO qualify)

Further information on www.zec.org

Canary Islands Special Zone (ZEC)

Canary Islands Special Zone is of interest for companies who want to invest within the Canary Islands because they can benefit from its profitable tax system:

  • Tax rate applicable of 4% (the general Spanish Corporate tax applicable is 25%)
  • The importation of goods and provision of services performed within ZEC entities exempt those from IGIC: (VAT in the Canary Islands)
  • The acquisition of rights and goods should not trigger transfer tax, as long as, the tax payer assigns them to its business activity and then such rights and goods are located or executed within the geographical limits of ZEC.
  • No stamp duty should be levied, although with some exceptions.
  • The ZEC entities are entitled to apply all the double tax treaties (DTT) concluded by Spain and all the EU directives.

For the special ZEC regime to be applied the following requirement must be met:

  • Create and maintain a minimum number of 5 jobs within the geographical limit of the ZEC.
  • Perform investments from 100.000 in tangible and intangible assets within the 2 years of the registration in the ZEC registry.

Audiovisual activities which can benefit from ZEC:

  • Production
  • Video and Film production
  • TV and Radio production
  • Feature film production
  • Additional activities: Dubbing, Location scouting...
  • Services provided within the production and post-production
  • Casting
  • Public Relations and Communication
  • Scouting locations
  • Software editing
  • Video editing
  • Photo-composition and Photo-engraving
  • Photography and advertising
  • Photo-shoot (fashion, tourism…)
  • Arranging clips
  • Promotional arrangement
  • Design
  • Advertising campaign

ZEC provides with personalized advise to all production and audiovisual companies interested in investing within the Canary Islands.

The Canary Islands Investment Reserve (RIC)

The Canary Island Investment Reserve (RIC), is a Corporate Tax benefit aimed to stimulate selffinanced investment which have important effects over the taxable base.

From 2008, changes applied to the tax regime within the Canary Islands allow audiovisual and production companies to be part of RIC. These companies can benefit from RIC:

Film and short film productions, fictional audiovisual series, animation production, documentaries or TV programmes as long as they have been produced in the Canary Islands and have been shot at least 2 weeks (interior or exterior shot).

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