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Bizkaia, a first mover in Spain’s film industry, provides a tax incentive of up to 70% for foreign and domestic audio-visual productions

As mentioned in a previous post, the three historical territories of the Basque Country in Spain (as well as Navarre) have their own tax status and tax sovereignty, which entitles them to pass their own tax legislation.

Bizkaia has approved a new tax framework increasing tax incentives in the cultural sector, which entered into force on 1 January 2023. The main objective is to boost investment in films and other cultural events and to transform Bizkaia into one of Europe’s top destinations for investment as a result of the favourable tax incentives for the audio-visual sector.

The new framework consists of a tax credit equivalent to up to 70% of investments made in audio-visual productions – including foreign ones. A new tax credit of up to 40% has also been approved for the production of art and live musical performances. Moreover, alternative financing of cultural and audio-visual productions is promoted by permitting the transfer of tax credits between the producer and the financing party, following the existing model for other corporate income tax (CIT) credits in Bizkaia (e.g. those for R&D activities).

In order for a taxpayer to apply this new framework – which has been codified in the Bizkaia Corporate Income Tax Regulations – it is necessary for them to correctly determine their tax domicile in the Bizkaia territory for the application of the Bizkaia Regulations.

So what are the main new features of the tax framework?

Approval of EU authorities

Legal certainty has been a key element in this improved tax framework. Accordingly, Bizkaia has requested – and obtained – approval from the European Commission to ensure that it is in compliance with EU regulations on State aid, which was notified on 30 June 2022 by Decision c(2022) 4616 (case SA.102040).

Absence of the "link-to-the-territory" requirement for accreditation of the tax incentive

Tax measures in other jurisdictions generally require that a specific percentage of the investment and expenditures be made in the territory. However, in the recently approved Bizkaia regulations, this “link-to-the-territory” requirement is not necessary for either domestic or foreign productions and, thus, no minimum percentage of the expenditure must be spent in the territory (although the determination of the tax credit percentage will be based on this variable).

The tax credit will be between 35 and 60% (if the amount of investment and expenditure in Bizkaia exceeds 50% of the total investment), which may be increased by 10% in the case of audio-visual works filmed entirely in the Basque language (Euskera). Consequently, the maximum tax credit will be equivalent to 70% (for audio-visual works filmed in Basque in which the investment made in Bizkaia exceeds 50% of the total investment) while the minimum will be 35%. The total amount of the tax deduction plus any other potential aid received by the taxpayer for each audio-visual project must not exceed 50% of the total production budget. Additionally, the deduction may not exceed 50% of the net (effective) CIT payable, although any deductions that cannot be applied due to there being insufficient tax owed may be applied in tax periods ending in the next 30 years and thereafter. Based on the above, this tax credit could result in an effective CIT rate of 12.5% (since the general CIT rate in Bizkaia is 24%).

Introduction of alternative financing for the generation of the tax credit

Another key element of the new framework is the possibility for the financing parties to apply the tax credit without the need to have a stake in – or acquire the intellectual property of – the audio-visual works. This could simplify the current standard structures applicable to investors’ participation in cinematographic works through the incorporation of “economic interest groupings” (agrupaciones de interés económico) that are created to invest in film production and that may allow investors to benefit from the tax credit.

The ultimate objective is to generate a genuine audio-visual hub in Bizkaia with extensive human and technical resources (e.g. infrastructure, suppliers, training schools). The idea is for audio-visual works, as cultural and economic assets, to not only play an important role in showcasing traditions and history but also in generating important opportunities to create income and jobs. Time will tell whether Bizkaia’s approval of these tax incentives will, as the first mover, significantly impact the audio-visual sector or whether the benefits will be tempered by increased tax incentives in the surrounding historical territories which have also announced future tax improvements in response to Bizkaia’s initiative.


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