Portugal: Lights, camera, action – Portuguese tax incentive for film production
With more and more tax incentives being offered around the globe for film production, Portugal has decided to position itself as one more jurisdiction competing in the cinema industry playing field.
With Decree-Law 22/2017, which added Article 59-F to the selection of available incentives in the Tax Benefit Statute (EBF), Portugal adopted essentially a tax deduction for investment in qualifying film productions in line with most tax credits available in other EU countries. This was recently supplemented with Ministerial Order 89-A/2017, which further regulates the granting and procedures for the tax incentive.
Under this new regime available from the 2017 financial year, resident corporate entities and branches of foreign entities are entitled to deduct 20% (increased to 25% in certain cases) of eligible expenses as a tax credit against corporate income tax (CIT) that may be due.
Eligible film production types include the following:
Portuguese production works as defined under the law;
Portuguese/international co-production as defined under law, where Portuguese participation may be a majority or minority;
Works of Portuguese/foreign initiative, carried out under private contract, in an analogous way to Portuguese/international co-production (but not recognised as an official co-production under international co-production conventions); and
Foreign works produced wholly or partly in Portugal using a local executive producer, or through a branch in Portugal or special vehicle of limited duration.
The incentive functions as a tax credit of 20% used as a deduction from the tax due on all qualifying film production expenses incurred in Portugal. The concept of "expenses incurred in Portugal" remains unclear and may be linked to the wider principle of the production that needs to take place mainly in Portugal rather than a stricter territorial concept. The tax credit may be increased to 25% for:
Expenses incurred in certain low density areas; and/or
Remuneration of actors and technicians with a disability;
Films whose original version is Portuguese and films with special cultural relevance or whose production has significant impact on the Portuguese film industry.
This incentive may be accumulated (without double financing the same item) with other state aid up to the limits of the aid intensity rate laid down in Commission Regulation (EU) 651/2014.
The incentive applies to expenses of projects that meet the following requirements:
Project must be for a film destined to be distributed initially in commercial cinemas within the limits set out in Decree-Law 124/2013 (contents where the incentive is disallowed); and
Involve eligible production expenses, incurred in Portugal, of a minimum of €1 million ($1.2 million).
Another relevant aspect of the tax incentive are the financial caps. Basically, the tax credit is limited per project (€4 million per production) and to annual limits (€7 million in 2017, €10 million in 2018 and €12 million between 2019 and 2021). Any excess expenditure above tax due may be carried forward to the next tax periods up to the year of production conclusion.
A final note to mention is that the tax credit is subject to certain procedures, which require a provisional recognition by the ICA, IP (Instituto do Cinema e do Audiovisual), followed by a final recognition from the same entity. This procedure will position the film production to apply directly the tax credit from the outset and at completion request a refund of the amount not deducted. This refund should be granted within 60 days from notification to tax authorities of the decision of final recognition.
Ultimately, the tax incentives are one more element alongside other factors for deciding on shooting locations, and we are confident that this incentive will provide international film studios an opportunity to explore the full potential of Portugal as a location and place of talents and professionals for film production.
Tiago Cassiano Neves (firstname.lastname@example.org)
Garrigues, Taxand Portugal
Tel: +351 231 821 200
Fax: +351 231 821 290