TAX REBATE TO THE AUDIOVISUAL SECTOR IN SPAIN

TAX INCENTIVES FOR THE AUDIOVISUAL SECTOR IN SPAIN

Tax Rebate Spain:

• The application of the Tax Rebate is extended to taxpayers who participate in the financing of the productions. The amount of the tax rebate, together with other aid received, may not exceed 50 % of the total cost of the production. This percentage varies:

• 1. Up to 85 % for short films.

• 2. Up to 80 % for productions directed by a person who has not previously directed or co-directed more than two feature films qualifying for commercial exploitation in cinemas, and whose production budget does not exceed 1.500.000 euros.

• 3. Up to 80 % for productions filmed entirely in one of the co-official languages other than Spanish which are screened in Spain in that co-official language or subtitled.

• 4. Up to 80 % for productions directed by persons with a degree of disability of 33 % or more, with recognition by the competent body.

• 5. Up to 75% for productions made exclusively by female directors.

• 6. Up to 75 % for productions with special cultural or artistic value that require exceptional financial support according to the criteria established by Ministerial Order or in the corresponding calls for applications for aid that are published.

• 7. Up to 75 % for documentaries.

• 8. Up to 75 % for animated works where the production budget does not exceed the amount of 2.500.000 euros.

• 9. Up to 60 % for cross-border productions financed by a Member State of the European Union and involving producers from more than one Member State.

• 10. Up to 60% for international co-productions with Latin American countries.

What are the necessary requirements for the application of the deduction for investments in Spanish productions of feature films and fiction, animation or documentary audiovisual series, which allow the creation of a physical support prior to industrial serialised production (Tax Rebate)?

• The following requirements must be met in order for the tax rebate to be applicable:

• 1. That the production obtains the certificate of nationality and the certificate attesting to the cultural character of its content, that it is linked to the Spanish cultural reality or that it contributes to the enrichment of the cultural diversity of the cinematographic works shown in Spain, both issued by the Institute of Cinematography and Audiovisual Arts (ICAA). These certificates are binding for the Spanish Tax Agency regardless of their date of issue.

• 2. A new copy in perfect condition of the audiovisual work produced must be deposited at the Filmoteca Española or a film library officially recognised by the corresponding Autonomous Community.

How do I obtain the certificate of nationality, which is a prerequisite for obtaining the Tax Rebate?

• Cinematographic films or other audiovisual works must have Spanish nationality according to the precepts set out in Article 5 of Law 55/2007, of 28 December, which are as follows:

• 1. At least 75% of the cast of authors of cinematographic and audiovisual works (director, screenwriter, director of photography and composer of the music) must be made up of people with Spanish nationality or nationals of any of the other Member States of the European Union, of the States that form part of the European Economic Area, or who have a valid residence card or authorisation in Spain or in any of these States. In any case, the director of the film must always comply with this requirement.

• 2. That the actors/actresses and other artists participating in the production of a cinematographic or audiovisual work are at least 75% represented by persons who meet the nationality or residence requirements established in the previous section.

• 3. That the technical creative staff and other technical staff involved in the production of a cinematographic or audiovisual work are each represented, at least 75%, by persons meeting the nationality or residence requirements set out in the first paragraph.

• 4. That the cinematographic or audiovisual work is preferably produced in its original version in any of the co-official languages of the Spanish State.

• 5. Filming (unless required by the script), studio post-production and production laboratory work must be carried out in Spanish territory or in other Member States of the European Union. In the case of animated works, the production processes must also be carried out in these territories.

• Likewise, Spanish cinematographic or audiovisual works are considered to be those made in co-production with foreign companies in accordance with the conditions required for this purpose by the specific regulations on the matter or by the corresponding international agreements and those affecting the Ibero-American Community of Nations.

• A Community work is defined as a work with a certificate of nationality issued by a Member State of the European Union.

How do I obtain the certificate attesting to the cultural nature of an audiovisual work, which is a prerequisite for obtaining the Tax Rebate?

• According to Article 22 of the R.D. 1084/2015, in order for an audiovisual production to be eligible for the Tax Rebate, it must prove its cultural nature as a necessary requirement.

• The certificate of cultural character is granted by the Instituto de la Cinematografía y de las Artes Audiovisuales (ICAA) upon application by the production company/s, which will decide on the basis of at least two of the following requirements:

• 1. The original version of the film must be in any of the co-official languages of Spain. In the case of co-productions with foreign companies, the original version of the feature film may be in one of the official languages of the European Union.

• 2. The content is mainly set in Spain.

• 3. The content is related to literature, music, dance, architecture, painting, sculpture or artistic expression.

• 4. The script is an adaptation of a pre-existing literary work.

• 5. The content of the audiovisual work is of a biographical nature or reflects historical events or characters, without prejudice to free adaptations of the script, which are typical of a film production.

• 6. The content must include mythological or legendary stories, events or characters that can be considered to be part of any cultural heritage or tradition in the world.

• 7. To enable a better understanding of cultural, social, religious, ethnic, philosophical or anthropological diversity.

• 8. The content must be related to issues or topics that are related to the Spanish social, cultural or political reality, or that have an impact on them.

• One of the main characters or several of the secondary characters in the film story must be directly linked to the Spanish social, cultural or political reality.

• The work is specifically aimed at children or young people, and contains values in accordance with the principles and aims set out in the Education Act and the Law for the Improvement of Educational Quality.

What are the tax deductions to which producers are entitled for investments made in foreign productions of feature films and audiovisual series (Tax Rebate)?

• Pursuant to the second paragraph of article 36 of Law 27/2014, of 27 November, on Corporate Income Tax, producers registered in the Administrative Register of Film and Audiovisual Companies of the Institute of Cinematography and Audiovisual Arts (ICAA) who carry out the execution of a foreign production of feature films and other audiovisual works that allows the creation of a physical support prior to their industrial production are entitled to the tax deduction of expenses incurred in Spanish territory (Tax Rebate).

• The basis for the tax rebate is the following expenses directly related to the production which have been incurred in Spanish territory:

• 1. Expenses of creative staff who are resident for tax purposes in Spain or in a Member State of the European Economic Area.

• 2. Costs incurred for the use of technical industries and other suppliers.

• The amount of the Tax Rebate is:

• a) 30 % on the first EUR 1 million of the tax credit base, and 25 % on the excess of that amount. The tax rebate is applied provided that the expenditure incurred in Spanish territory is at least 1.000.000 200,000, except in the case of animation productions, where such expenses must be at least 200,000 euros. The amount of the aforementioned deduction (Tax Rebate) shall not exceed 20.000.000 per production. For audiovisual series productions, the Tax Rebate is determined on a per episode basis and is capped at 10.000.000 of euros for each episode produced. The amount of this deduction (Tax Rebate) together with the rest of the aid received by the taxpayer company cannot exceed 50% of the production cost.

• b) 30% of the Tax Rebate base when the producer is in charge of the execution of visual effects and the expenses incurred in Spanish territory are less than 1.000.000 of euros. The amount of this deduction may not exceed the amount established in EU Regulation 1407/2013, and is excluded from the limit established in the last paragraph of Article 39(1) of the aforementioned Law.

• In order for the Tax Rebate to apply for the execution of a foreign feature film production, the following requirements must be met:

• 1. That the production obtains the certificate accrediting its cultural nature related to its content or link to the Spanish or European cultural reality, issued by the Instituto de la Cinematografía y de las Artes Audiovisuales (ICAA), or by the regional body with competence in the matter. This requirement is not required in order to apply the deduction referred to in paragraphb.

• 2. That a specific reference to being eligible for the tax incentive, the collaboration of the Spanish Government, Autonomous Communities, Film Commissions or Film Offices, depending on each case, directly involved in the execution of the filming and production processes that take place in Spain, and for animation productions, the place where the studio in charge of the production service is located, be included in the final credits of the work.

• 3. That the holders of the rights of the work authorise the title and the graphic and audiovisual press material; that it expressly includes specific filming locations or the production process that has been carried out in Spain; the carrying out of activities and preparation of promotional materials in Spain and abroad for cultural or tourism purposes carried out by state, autonomous or local entities with competences in culture, tourism and economy, as well as by Film Commissions or Film Offices that intervene in the production or execution of the filming.

TAX DEDUCTIONS FOR CINEMA IN THE CANARY ISLANDS

Tax deductions for film and audiovisual production in Spain's autonomous communities and tax incentives for audiovisual production in the Canaries

• The Canary Islands offers film and audiovisual production one of the most advantageous tax incentives in Spain and worldwide due to its Economic and Fiscal Regime (REF), protected by Spanish and European legislation, a special legal framework in terms of special tax matters which is included in the Spanish Corporate Tax Law (Law 27/2014), and which offers audiovisual productions the possibility of benefiting from these tax deductions (Tax Rebate).

What are the tax deductions for international (Tax Rebate) and national (Tax Credit) film and audiovisual productions in the Canary Islands?

• As for the international productions, production companies with their tax headquarters in the Canary Islands and which are in charge of the execution of a foreign audiovisual production, i.e. production service companies, are entitled to a tax rebate of 50% of the production costs incurred in the Canary Islands up to 1.000.000 and from 45% over the remaining expenditure, with each audiovisual work not exceeding the limit of 36.000.000 and 18.000.000 per episode in the case of audiovisual series.

• The following are considered to be deductible expenses incurred in the Canary Islands directly related to audiovisual production, as specified in Binding Resolution V1746-15 of the Directorate General for Taxation:

• 1. Expenses of creative personnel with tax residence in Spain or in a Member State of the European Economic Area with a limit of 50,000 euros per person, understood as creative personnel exclusively the director, the scriptwriter, the director of photography, the composer of the music, the actors and other artists participating in the work, the chief editor, the artistic director, the head of sound, the costume designer and the head of characterisation.

• 2. Expenses derived from the use of technical industries and other suppliers: These are the expenses that refer to the executive producer, the producer, the production assistant; the production team: director, production assistant, director, scriptwriter, casting personnel, and casting controllers; the set design team that are not included in the creative personnel: set designer, decorators, florists, assistant decorators, set decorators, set decorators, props, carpenters, etc. Also included are the costs of materials necessary for the scenography: construction materials, carpentry, paint, fabrics, etc.

• 3. Expenditure on costume and characterisation equipment not included as creative staff: costume designers, tailors, hairdressers and make-up artists, including costumes, make-up, wigs, etc.

• 4. Expenditure generated by special effects equipment, which includes special effects technicians, model makers, etc., as well as pyrotechnics, smoking materials, combustion accelerants, detonators, fire extinguishers, etc.

• 5. Expenses incurred for camera equipment: camera operators, assistants, etc., lighting equipment and sound equipment.

• 6. Technical equipment costs, which include both personnel: telecommunications engineer, electronic maintenance technician and image control technician, as well as costs related to technical equipment, such as mobile telephony, internet, satellite lines, data lines for routers, etc.

• 7. Expenditure on secondary technical equipment not included in the creative artistic staff: general extras, special extras, stuntmen, stuntwomen, acting stuntmen and lighting stuntmen.

• 8. Expenses generated by ancillary personnel: choreographers, master-at-arms, military advisors, dialogue teachers, animal handlers, drivers, security personnel, cleaning crew, medical and ambulance personnel, on-set risk supervisor, truck unloading assistants, expenses for moving technical equipment or props.

• 9. Living and accommodation expenses of the team participating in the filming in the pre-production phases, such as the location of exteriors, or in the production and closing phase of the project in the Canary Islands during the filming. Also included are living and accommodation expenses for crew working in locations other than the filming location, such as the cost of personnel in charge of props, locations, production, drivers in transit, etc. and who are unable to enjoy the catering on set and accommodation in establishments near the filming location.

• 10. Transport costs of filming material, props and/or machinery to be used in the filming on national territory, whether by air, sea and/or road; and transport and/or transfer costs of people within national territory when the filming is carried out in different locations, including pre-production costs for location scouting and/or travel for casting selection work.

• 11. Liability insurance costs with coverage directly related to the film production.

• 12. Rental costs of premises and locations for filming, and fees and taxes paid to local councils for filming, and rental costs of other premises which are directly related to the production, such as industrial buildings used for storage, the office for coordination of production activities, premises or caravans for wardrobe and make-up or for management meetings, booths, etc., when the office for coordination of production activities is different from the project administration office.

• 13. Expenses for rental of animals, weapons and ambulance used for filming.

• 14. Rental costs of furniture and equipment for the art department, and copying and printing costs for the art department.

• 15. Other costs such as air conditioning and heating of the set, repair and maintenance costs of vehicles used in filming, rental of vehicles for transporting cars used in the production, extras and extras' props, extras' and extras' car rental, dry cleaning, catering, rental of lockers for staff, rental of walkie-talkies during filming, costs of damages occurring in rented premises, supplies, etc.

• The following expenses related to administrative tasks are not included in the tax rebate:

• 1. Air, sea and/or road transport costs of filming material, props and/or machinery from other countries to Spain that will be used in the filming, as these are not expenses generated in Spanish territory.

• 2. Costs of legal and employment advice.

• 3. Expenditure on administrative equipment, including rental of premises considered as administration office; expenditure on administrative staff: chief accountant, accountant, paying accountant and assistant accountant; rental of office machinery and furniture: photocopiers, printers, office furniture, etc.; expenditure on the purchase of office supplies, stationery and courier services; and subsistence and subsistence expenses for administrative staff.

• 4. Expenses derived from the tax depreciation of the assets directly assigned to the executive production of the series in the proportion corresponding to their assignment to the series if they are expenses of investments made abroad and which affect the production of the series.

• With regard to national productions or co-productions developed in the Canary Islands, the Corporate Tax Law regulates the deductions (Tax Credit) applicable to national productions or co-productions that obtain the Canary Islands Audiovisual Production Certificate, and are applied to investments in Spanish productions of feature films and fiction, animation or documentary series that allow for the creation of a physical support prior to industrial serialised production.

• In the event that the production is carried out in the Canary Islands by Canary Islands producers, the producer is entitled to a 50% deduction on the first million euros, and 45% for the rest of the capital invested, with the limit of 36.000.000 when production is carried out in the Canary Islands, from 18.000.000 for audiovisual series per episode produced, the maximum deduction base is therefore 79.800.000 euros.

• Therefore, Spanish productions of feature films or fiction, animation and documentary audiovisual series and fiction, animation and documentary audiovisual series can benefit from the Tax Credit, provided that they obtain the Canary Islands Certificate of Audiovisual Production issued by the Department of Culture of the Canary Islands Government, as well as the Certificates of Spanish Nationality and Cultural Character issued by the Institute of Cinematography and Audiovisual Arts (ICAA).

• The basis for the deduction is the cost of production, i.e. the total amount produced by the acquisition of goods and services necessary for the production of the work which are considered as production costs for accounting purposes, including, inter alia, production costs, artists' rights, technical staff, dubbing, developing, accommodation and subsistence costs, and the costs of obtaining copies and advertising and promotion costs to be borne by the producer.

• At least 50% of the deduction base must correspond to expenses generated in Spanish territory, and the amount of this deduction together with the rest of the aid received may not generally exceed 50% of the production cost. This limit may be exceeded in the following cases:

• 1. 85% of the production cost for short films.

• 2. 80% of the production cost for productions directed by a person who has not directed or co-directed more than two feature films qualified for commercial exploitation in cinemas, and whose production budget is not greater than 1.500.000 euros; for productions filmed entirely in one of the co-official languages; and for productions directed exclusively by persons with a degree of disability equal to or greater than 33% recognised by the competent body.

• 3. 75% of the production cost for productions made exclusively by female directors, and for productions with a special cultural and artistic value that require exceptional financial support according to the criteria established by Ministerial Order or in the corresponding calls for aid; for documentaries; and for animation works with a production budget of less than 2.500.000 euros.

• 4. 60% of the production cost for cross-border productions financed by a Member State of the European Union or involving more than one Member State; and for international co-productions with Ibero-American countries.

• Likewise, from 1 January 2021 with the entry into force of the General State Budget Law, taxpayers who participate in the financing, i.e. investors, of Spanish productions, and of the expenses incurred in obtaining copies, advertising and promotion at the producer's expense, up to a limit of 30% of the cost of the production, but without acquiring intellectual property rights, which must in any case be owned by the producer, may benefit from this deduction (Tax Credit).

• In order for the incentive to be applied by the investor, one or more financing contracts must be signed with the producer, which can be signed at any stage of production, detailing the identity of the producer and investor, the description and budget of the production with detailed expenses, the form of financing detailing the amounts contributed by the producer and investor, as main requirements, among others.

• In the event that the deduction generated (Tax Credit) cannot be applied to corporate income tax due to insufficient tax liability, the unused deduction can be deducted over the following 15 tax years.

Which productions can benefit from the tax credit offered by the Canary Islands?

• a) Fiction and animated feature films, short films and documentaries.

• b) Fiction, animation and documentary audiovisual series.

• These categories must fulfil the essential requirements of obtaining the Certificate of Spanish nationality and the Certificate of Cultural Character issued by the Instituto de la Cinematografía y de las Artes Audiovisuales (ICAA), the deposit of a copy of the production in a film library and the Canary Islands Certificate of Audiovisual Production issued by the Canary Islands Government.

What expenses can be deducted?

• The basis for the deduction is made up of the cost of production and the costs of obtaining copies, advertising and promotion expenses payable by the producer up to a limit of 40% of the cost of production for the aforementioned expenses. This total amount is reduced by the amount of the subsidies obtained to finance the investments that generate the right to the deduction.

Who can benefit from the Canary Islands Tax Credit?

• Production companies with their registered office and effective address in the Canary Islands, or with a permanent establishment in the Canary Islands that co-produce with an entity registered in the corresponding Register.

What are the requirements to obtain the Canary Islands Certificate in Audiovisual Production?

• In order to obtain the Canary Islands Audiovisual Production Certificate, the production must be carried out by audiovisual companies registered in the Canary Islands Audiovisual Companies Register, or in the case of co-productions, at least one of the audiovisual companies must be regis tered in the Register, the production must be of Spanish nationality and must also meet the following requirements:

• 1. Audiovisual productions in co-production shall be considered to be canary Islands productions if the contribution of the Canary Islands producer exceeds 20% of the cost of that production.

• 2. In the case of financial co-production, the contribution of the Canarian producer must not be less than 10% or more than 25% of the production cost.

• 3. The contracting of personnel with residence or fiscal domicile in the Canary Islands will be required.

• Requirements regarding the hiring of personnel with tax residence in the Canary Islands:

• 1. For feature films and fiction series, the production must have at least one person considered as creative staff, such as the authors (director, scriptwriter, director of photography and music composer), the actors and other artists and the technical creative staff (chief editor, art director, head of sound, costume designer and head of characterisation; and nine persons considered as technical staff belonging to at least five working teams from the following departments: production, locations, camera direction, sound, lighting and riggers, art, costume, make-up and hair, action specialists, special effects and post-production.

• 2. For documentaries at least two people between director, scriptwriter, composer of the original music, director of photography or executive producer must reside in the Canary Islands.

• 3. For animation at least the team leader of the Canarian office or animation lead, senior animator or main or supporting actor/actress.

• Running-in time requirements:

• 1. For fiction feature films: 11 days for budgets of less than 2.000.000 of euros. 14 days for budgets greater than or equal to 2.000.000 and less than 4.000.000 of euros. 16 days for budgets greater than or equal to 4.000.000 and less than 8.000.000 of euros. 18 days for budgets over 8.000.000 of euros. Exception: 9 days of shooting if a minimum accredited expenditure of 15% of the budget is made in post-production in the Canary Islands.

• 2. For fiction series: 20% of the filming time comprising a season must take place in the Canary Islands. Exception: 15% of the shooting time of a season if a minimum accredited expenditure of 15% of the budget is made in post-production processes carried out in the Canary Islands.

• 3. Documentaries have no minimum shooting time requirements.

• 4. For animation works: 15% production time for budgets exceeding 5.000.000 of euros. 20% production time for budgets of less than 5.000.000 of euros.

• Rendering work may not exceed 20% of the total timeproduction corresponding to the Spanish part.

How do I obtain the tax credit (Tax Credit) in the Canary Islands?

• The amount of the tax credit is the tax credit to be deducted from the producer's corporate income tax liability. In the event that there is insufficient tax liability to be able to apply the full amount of the deduction, the outstanding balance may be deducted from the tax liability generated in the corporate income tax of the following 15 tax years. The deduction is generated in each tax period for the production cost that has arisen and is applied from the tax period in which the certificate of nationality is obtained.

What requirements must be met in order to obtain the tax credit (Tax Credit) in the Canary Islands?

• The total amount of aid received by the production company, including deductions and subsidies, must not exceed 50% of the production cost. This limit may be raised in accordance with the provisions of article 36.1 of the Corporate Income Tax Act.

• At least 50% of the deduction base must correspond to expenses incurred in Spanish territory. The same investment cannot give rise to the application of more than one deduction for the same entity, nor can more than one deduction be applied in more than one entity.

How is the tax incentive applied to an Economic Interest Grouping (EIG)?

• In the event that the production of the audiovisual work is carried out by an Economic Interest Grouping (EIG), the tax credit generated by the investment in the film production can be passed on to the members according to the percentage of capital paid up in accordance with the special tax regime regulating these Associations.

How is the tax incentive applied in a Finance Contract?

• A taxpayer who participates in the financing of Spanish film productions by means of a Financing Contract may directly apply the deduction obtained for Spanish audiovisual productions up to a maximum equivalent to 1.2 of the amounts contributed at any stage of the production.

• The Finance Contract must specify the identity of the producer and the investor, the description and budget of the production detailing the costs, the form of financing detailing the amounts contributed by the producer and the investor, among other aspects, and the Contract and the fulfilment of the requirements must be communicated to the Tax Agency.

What are the tax incentives offered by the Canary Islands Special Zone?

• The Canary Islands offer other tax instruments that provide incentives for the operation of companies regardless of their sector of activity, and which are therefore compatible with companies in the audiovisual sector. An entity that carries out audiovisual production activities can be set up as a ZEC entity, which means that it is taxed at a 4% rate of corporation tax instead of the 25% rate in force in the rest of Spain if certain requirements are met.

• This reduced rate of the Canary Islands Special Zone is compatible with the rest of the deductions and incentives to which an audiovisual production company may be entitled up to the applicable accumulation limits. It has other advantages and exemptions: 

• 1. In the Canary Islands Indirect Tax: IGIC at a 0% rate on transactions betweencompanies under the ZEC regime; the 0% IGIC rate is also applied to certain supplies and imports of goods and services intended for the production of feature films or audiovisual series of fiction, animation or documentaries under certain conditions. The application of the 0% rate requires prior recognition by the Tax Agency. Exemption from IGIC on the import of raw materials and finished products.

• 2. Exemption from Transfer Tax and Stamp Duty (ITP and AJD).

• 3. Exemption on Repatriation of dividends for non-resident companies as there is no withholding tax on dividends repatriated to the non-EU foreign parent company.

• 4. Exemption of dividends, interest and capital gains paid to any country in the world that does not qualify as a tax haven.

What are the requirements to become a ZEC entity?

• Be a newly created entity/branch.

• At least one of the Administrators must be resident in the Canary Islands.

• Make a minimum investment of 100,000 euros in tangible and intangible fixed assets within two years of registration of the ZEC entity. For innovative projects in knowledge-intensive activities, the minimum investment is reduced to 50,000 euros. Companies in the audiovisual sector that create 6 jobs in the first case, and 4 jobs in the second case, are exempt from this requirement.

• Create 5 jobs in the first six months of the activity, maintaining this annual average for as long as the company remains in the ZEC, if the activity is carried out on an island with capital; this is reduced to 3 jobs if the activity is carried out on an island without capital.

• The activities to be carried out must be authorised within the ZEC. The authorised activities in the audiovisual sector are:

• 1. Audiovisual production: Film, video, radio and television production.

• 2. Production services, shooting assistance and post-production: -VFX-Sonorisation-Production services: camera, lighting, carpentry or props (excluding rental without personnel)-Casting, locations and dubbing-Editing and reproduction of recorded media-Reproduction and duplication of feature films, compositing and photoengraving-Intermediation services for obtaining contracts.

• 3. Photography: Photography and feature film development activities.

• 4. Marketing and advertising: -Direction of catalogues, publications and promotional material -Creation and implementation of advertising campaigns.

• 5. Audiovisual distribution.

What other tax incentives does the Canary Islands offer?

• Reserve for Investments in the Canary Islands (RIC): This tax incentive offers the possibility of reducing the taxable base for Corporation Tax by up to 90% of the undistributed profit. Production companies can capture RIC from other companies to invest in their productions if they obtain the Canary Islands Audiovisual Work Certificate granted by the Canary Islands Government.

• The Reserve for Investments in the Canary Islands can be made in feature films, short films and audiovisual series of fiction, animation or documentaries when they have been produced in the Canary Islands.

• Deduction for R&D (Deduction for Research and Development), Deduction for TI (Technological Innovation): A deduction is applied for activities qualified as Research and Development directly carried out in the Canary Islands of 45% deduction of the eligible costs, which can reach 75.6% in the first years of execution of the project.

• In the rest of Spain, the deduction is 25%. Likewise, the deduction for Technological Innovation will be 45% in the Canary Islands, and for the rest of Spain the deduction will be 12%. In the event that the quota is insufficient, an application can be made to the Tax Agency for the monetisation of the remaining amount not deducted. To obtain this deduction, a pre-qualification process of being an R&D or IT project must be formalised by means of a reasoned report.

• Deduction for advertising and publicity expenses: Deduction of 15% to 10% of the cost paid in advertising and publicity expenses for the launch of products for opening and prospecting markets abroad, and for participation in fairs and events, including those held in Spain that are international in nature.

TAX REBATE FOR INVESTMENTS IN CINEMATOGRAPHIC FILMS AND OTHER AUDIOVISUAL WORKS IN NAVARRA (TAX REBATE)

What tax rebate can be obtained in Navarre for investments in cinematographic films and other audiovisual works in Navarre?

• Article 65 of Navarre's Corporate Tax Law 26/2016 regulates the tax incentive for cinematographic films and audiovisual production.

• Investments made in Spanish productions of cinematographic films and other audiovisual works of fiction, animation or documentary that allow the creation of a physical medium prior to their broadcast entitle production or co-production companies of Spanish productions to obtain a deduction from the net quota or base of the corporate income tax deduction of 35% (Tax Rebate), as opposed to the 30% obtained in the rest of Spain for the first million euros, which is reduced to 25% on the excess of this amount (with the exception of the Canary Islands and the Basque Country).

• The basis for the deduction (Tax Rebate) is constituted by the investment of the production or co-production company if the expenses generated in Navarre reach 40% of the investment. If this percentage is not reached, the basis for the deduction will be the result of dividing the expenses incurred in Navarre by 0.4.

• Recognition of the investment will be carried out by means of a procedure to be carried out by the Directorate General for Culture of the Government of Navarre.

• This percentage of 35% would be increased to 40% of the first million of the deduction base in the following cases:

• 1. Productions whose only original version is in Basque.

• 2. Productions made exclusively by female directors.

• 3. Documentaries.

• 4. Animation productions.

• 5. Productions directed by a person who has not directed or co-directed a feature film or a series of fiction, animation or documentaries.

• 6. The maximum amount of the deduction (tax rebate) is 5.000.000 of euros.

• In the case of co-productions, the above amounts are determined for each producer according to their respective percentage of participation in the co-production.

• The deduction (Tax Rebate) is understood to be generated in the tax period in which the production is completed. When the production has a term of more than twelve months or affects more than one tax year, the producer may opt to apply the deduction to the extent that the payments are made and for the amount of these payments, applying the deduction system in force on the date on which the deduction begins. In this case the deduction shall be deemed to be generated in the periods in which the payments are made.

• Production companies wishing to obtain this deduction (Tax Rebate) must present an explanatory report on the project to the Directorate General of the Government of Navarre responsible for culture, which will issue a report on whether the project meets the requirements and conditions for the deduction.

• When the report has been requested, the producer can enter the deduction generated in his declaration/settlement.

What requirements must be met in order to obtain the Tax Rebate for investments in cinematographic films and other audiovisual works in Navarre?

• In order to be able to apply the tax rebate, the production must obtain a certificate of nationality and a certificate accrediting the cultural nature of the content, its link to cultural reality or its contribution to the enrichment of the cultural diversity of the cinematographic works exhibited in Spain, both issued by the Institute of Cinematography and Audiovisual Arts (ICAA).

• The characteristics and requirements of these certificates are listed in the corresponding sections of Tax Deductions in Spain.

• The production company must submit to the Directorate General of the Government of Navarre responsible for culture within six months of the application for the certificate of nationality the justification of the investment made and compliance with the other requirements established to accredit the deduction under the conditions determined by the department responsible for taxation.

• Failure to comply with this deadline determines the loss of the deduction applied and its regularisation in accordance with the provisions of the Foral Law on Corporation Tax. The Directorate-General responsible for culture shall, within six months of the submission of the documentation justifying the deduction, issue and notify a decision determining the basis for the deduction, taking into account the production company's investment and the expenses incurred in Navarre.

• If the deduction base recognised by the decision is lower than the deduction base declared, the producer must pay, together with the tax liability for the tax period in which the decision was notified, the full amount corresponding to the deduction unduly applied, plus interest for late payment.

What deduction (Tax Rebate?) is available to production companies for investments in cinematographic films and other audiovisual works in Navarre?

• Production companies registered in the Administrative Register of Film Companies of the Institute of Cinematography and Audiovisual Arts (ICAA) that carry out the production of feature films or other audiovisual works that have a certificate accrediting their cultural nature are entitled to a tax rebate of 35% of the expenses incurred in Navarre.

• In order to apply the deduction, the production must have been shot for a minimum of one week indoors and outdoors in Navarre, unless the period is shorter for justified reasons of not being able to take place in the region.

• The amount of the deductions together with the other aid received by the taxpayer for each production may not exceed 50% of the eligible costs. This limit may be exceeded in the following cases:

• 1. 85% for short films.

• 2. 80% for productions directed by a person who has not directed or co-directed more than two feature films qualified for commercial exploitation in cinemas and whose production budget does not exceed 1.500.000 euros.

• 3. 80% for productions shot entirely in Basque.

• 4. 80% for productions directed exclusively by people with a degree of disability equal to or greater than 33% recognised by a competent body.

• 5. 75% for productions made exclusively by female directors.

• 6. 75% for productions with special cultural and artistic value that require exceptional financing according to the criteria established by Foral Order or in the corresponding calls for aid.

• 7. 75% for documentaries.

• 8. 75% for animated works with a production budget of not more than 2.500.00 euros.

• 9. 60% for cross-border productions financed by more than one EU Member State and involving producers from more than one Member State.

• 10. 60% for international co-productions with Latin American countries.

• The taxpayer (production company) must submit a self-assessment of the tax in which it avails itself of the aforementioned deductions and a list of the other public aid or subsidies it has received in order to determine compliance with the established percentages.

• The above deductions cannot be applied if the taxpayer (production company) has benefited from previous unlawful aid declared incompatible by the European Commission until it repays the full amount of such unlawful and incompatible aid together with default interest thereon into a blocked bank account.

What are the conditions for applying tax rebates in Navarre?

• In order to apply the Tax Rebate the production company must:

• 1. To provide or allow access to graphic and audiovisual material from the filming and locations in Navarre, for non-commercial use and exclusively for the promotion of the region: teaser, trailer, making off, scenes of filming in Navarre and photographs.

• 2. Include in the final credits that the production is covered by the tax incentives established in the Regional Law on Corporate Tax of the Community of Navarre.

• 3. Include the logo of the Government of Navarre.

• 4. In national productions or co-productions, the production company must deliver a copy of the production to the Filmoteca de Navarra within three months of its completion.

• Taxpayers (production companies) who prove their entitlement to the deduction give their consent to the dissemination of data corresponding to the deduction as set out in the Commission Communication. The tax authorities of Navarre will publish the information under the conditions required in that Communication.

What expenses are included in the basis for the deduction for investments in cinematographic films and other audiovisual works (Tax Rebate) in Navarre?

• Order 69/2021 of the Regional Ministry of Economy and Finance of the Autonomous Community of Navarre establishes the expenses that form part of the basis for the deduction, the criteria for determining which expenses are understood to have been incurred in Navarre; the content and procedure of the report that the Directorate-General of the competent Department of Culture must issue on compliance with the requirements and conditions of the deduction for the taxpayer (production company) to include in its tax return/settlement on the deduction; and the procedure for the submission to the said Directorate-General of the justification of the investment made and compliance with the other requirements of the deduction applied.

Expenses that form part of the basis for the deduction for investments in cinematographic films and other audiovisual works (Tax Rebate) in Navarre.

• 1. The basis for the deduction provided for in the Foral Law on Corporate Income Tax is made up of:

• a. The cost of production up to the production of a standard copy or a digital master, with the following characteristics and limits:

• The remuneration of the executive producer may not exceed the higher of the following limits: 10% of the cost of the production or €100,000.

• Only executive production carried out by natural or legal persons whose corporate purpose is executive production, among others, is recognised as a cost.

• When there is a commercial relationship between the production company and the executive producer, the contract must be accompanied by the corresponding invoice, and when the relationship is an employment relationship, the corresponding payslip must be provided together with the contract, which expressly states the affiliation to the General Social Security Scheme.

• When the purpose of the executive producer's or other workers' contract is generic for film productions or audiovisual series made by the production company, the cost must be apportioned according to the effective participation in each production.

• When the staff of the production company performs executive producer functions without a specific contract, the remuneration shall be charged to overheads pro rata according to the effective participation in the executive production.

• The amount of overheads up to a limit of 10% of the cost of production.

• The cost of the production company's staff without a specific employment contract for the work to be deducted is charged to overheads.

• Expenditure on staff with a specific employment contract according to the employment category assigned for their participation in various audiovisual works of the production company is pro-rated according to participation the actual cost of each of the productions is charged to technical staff costs.

• Expenses corresponding to supplies (water, gas or electricity...) produced during the filming period in premises or facilities directly linked to the filming. The link must be justified by providing the corresponding contracts.

• When these expenses are incurred at the production company's registered office and this is not the premises directly linked to the filming, they would be charged to overheads.

• The tax-deductible depreciation cost corresponding to the time spent on equipment and technical material owned by the production company and used in the production of the work.

• Expenses for catering, hotel and catering services, travel and travel expenses, as well as telephone and internet expenses incurred during the filming of the work. Expenses incurred outside the period between the start and end of filming will be charged to general expenses.

• b. Expenses corresponding to publicity and promotion of the work up to a limit of 40% of the production cost.

• c. The costs of adapting the finished audiovisual work to the media or systems necessary for its exhibition in cinemas or for its exploitation; in the case of series for broadcasting on television or on platforms offering streaming content.

• d. The costs of making the material supports necessary to guarantee the conservation of the audiovisual work, and the costs of obtaining copies or other supports that are intended for its exhibition in cinemas or cinematographic exploitation, and in the case of series for its retransmission on television or platforms that offer streaming content.

• e. The costs incurred for the issuing of the special audit report attesting to the cost of the audiovisual work.

• 2. The expenses considered to be the amount of the investment must be incurred between 24 months prior to the start of filming and 24 months after its completion. To determine the start and end dates of filming, the criteria established by the Instituto de la Cinematografía y de las Artes Audiovisuales (ICAA) must be taken into account.

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