Olivewood - Tax Incentives for the film industry

Posted on 02 Nov 2018

Committed to boosting the highly promising sector of film-making in Cyprus, the government of the Republic of Cyprus introduced a package of incentives encouraging international producers to choose Cyprus as their next film destination. The Scheme is created in accordance with Regulation 651/2014 of the European Commission on declaring certain categories of aid, as compatible with the internal market and especially article 54 which aims to promote European Culture and article 17 in relation to investment aid for small and middle-sized enterprises, and consists of a combination of grants and tax incentives. Based on that, production companies that opt to film in Cyprus will be able to choose between cash rebate or tax credit and can also benefit from tax allowance for investments made on equipment and infrastructure, as well as VAT returns on expenditure in scope of the scheme. Some incentives are still pending parliamentary approval, as of October 2018.

It is noted that, with respect to the cash rebate and the tax credit, the applicant must select which incentive it shall take advantage of, given that they cannot both apply at the same time. Whether the applicant chooses the one or the other it does not affect the application of the other incentives, the tax allowance for investment in infrastructure and equipment and the VAT return, as they are applicable with both options upon completion of the relevant applications.

Qualifying production categories include, amongst others, feature films which includes animation, television series or mini-series, documentaries for theatrical or television release, animation which includes both digital or analogue, television research programs and natural history.

The tax incentives grant the following benefits:

  1.       CASH REBATE
  •          Rebate of up to 35% of eligible expenditures incurred in Cyprus will be granted, where the amount will depend on the score of the production at the cultural test
  •          The rebate will be given once filming is completed, on receipt of the audit report and its review by the committee
  1.       TAX CREDIT (Pending parliamentary approval)
  •          Tax credit offers a reduction of the corporate tax liability of the company responsible for the implementation of a production, with the same criteria that apply for cash rebate
  •          The sum of the tax credit against the taxable income shall not exceed 50% of the Applicants’ taxable income for the tax year within which the production is made.
  •          The tax credit, to the extent that it is not granted due to the above percentage restriction, shall be carried forward and be given within the next five years, subject to the above percentage restriction.
  1.       TAX ALLOWANCE FOR INVESTMENT IN INFRASTRUCTURE AND EQUIPMENT (Pending parliamentary approval)
  •          Any small and mid-sized enterprise subject to a tax liability in Cyprus investing in cinematographic infrastructure and technological equipment will be entitled to deduct the amount of its investment from its taxable income.
  •          The aid may not exceed 20% of the qualifying production expenditures in the case of small enterprises and 10% of the qualifying production expenditures in the case of mid-sized enterprises.
  •          Investment in the case of equipment should remain in the territory of Cyprus for a period of at least 5 years.
  1.       VAT REFUND ON QUALIFYING PRODUCTION EXPENDITURES
  •          For qualifying production expenditures incurred in Cyprus by natural or legal persons from third countries and which are related to the implementation of productions, the company is entitled to a refund of VAT.
  •          VAT rates in the Republic of Cyprus are 19%, 9% and 5% on all products and services provided in its territory and 19% and 5%, on all taxable imports.
  •          VAT returns arise within 6 months with respect to the legal person which carries out the foreign filming in Cyprus from the end of the last deadline for submitting the VAT declaration for the specific VAT period during which the expense occurred or from the date on which the application for VAT return is filed.