Year-end tax optimisations series – Tax Shelter for audiovisual works

We are once again entering the final month of the year, and for most companies that also means the last month of the financial year. This is when there is still enough time to optimise numerous issues before the financial year effectively concludes. In this series we will shed light on a number of potential techniques for tax optimisation.

1. Introduction

The film industry is booming in Belgium, not in the least thanks to the Belgian Tax Shelter regime. Many years ago Belgian filmmakers were doomed to working on tiny budgets because their sales market was equally tiny. A Dutch-language film only has a few million Dutch speakers as its target audience, and while the French-language market is somewhat larger, it’s nothing when compared to the market that Hollywood reaches with its English-language films.

But in order to give the Belgian film world a helping hand the authorities created a ‘Tax Shelter’ regime for audiovisual works some years back. This regime boiled down to an indirect subsidy for the industry. The regime stipulates that companies must initially invest in the industry, and the recipient will not have to repay the full sum. But it is still an appealing avenue for investors because the authorities subsidise the investing companies themselves in the form of a tax exemption. This tax exemption ensures that the investment will still be profitable.

Because there were suddenly a great many investors in the film industry, Belgium has found itself firmly on the cinematic map. The attentive movie aficionado will have regularly seen mention of Belgian companies in the opening or closing credits of American blockbusters. 

2. Tax Shelter 

Is the Tax Shelter regime an attractive one? In absolute figures, yes. Just don’t overestimate its affect on the company, because the sum of the investment itself is limited by law.

Under the new legislation, if a company decides to invest in a Tax Shelter for audiovisual works, that company will not recover its investment. That means that whatever you pay to the investment company, you won’t receive the capital back. 

3. Tax benefits

So what are the tax benefits? The idea is that the tax authorities will exempt your profit on the investment to the amount of 310 percent. For every 100 euros you invest, 310 euros of the returns will be exempted. An exemption of 310 euros multiplied by the corporation tax of 33.99 percent means a benefit amounting 105.37 euros – a return of 5.37 percent. If you can combine that Tax Shelter investment with advance payments, such as investing in December and simultaneously deducting the expected savings from your advance payments in December, then you will immediately see your return. Can you think of any other investment scheme with a yield of 5.37 percent where your capital is only tied up for a few days? 

Is it an entirely risk-free investment? No, the tax benefit you receive is only a temporary one. You will only receive a definitive exemption at the time that the production company provides you with a Tax Shelter certificate. A value is stated on that certificate that directly influences the value of the definitive exemption, and this value depends on a number of conditions that the production company must meet. Under normal circumstances they will comply with them, but in exceptional cases the certificate value is not sufficient for retaining your full exemption. At that point you will lose a part of the return.

In order to cover that risk, production companies are legally permitted to offer insurance against the loss of exemption, and most production companies automatically issue such insurance to their investors. In the event of a tax benefit being lost, and consequently the loss of your return on the investment, the insurance will cover the difference.

4. Financial benefit

The authorities have also permitted the production companies to pay out a ‘benefit for financial resources made available’. What this really means is interest compensation that the production company can award to you for the money you made available to them for the period between the payment and the receipt of the Tax Shelter certificate. This period of interest payment is however limited to 18 months.

The sum of that interest compensation that can be paid out by the production company is also determined by the law, and is set at the 12 month average EURIBOR for the last six months (either the first six months of the present year or the last six months of the previous year) plus 450 base points. This means that currently we must take into account the 12 month average EURIBOR for the period from 1 January 2016 to 30 June 2016, being -0.015 percent. The benefit for financial resources made available that can be paid out by the production companies is thus 4.485 percent per annum. This would amount to 6.727 percent over 18 months.

5. Total benefit

The total benefit from a Tax Shelter investment is thus a tax benefit of 5.37 percent, which in principle can be enjoyed immediately and is completely tax-free because it is a tax benefit. The financial resources made available amount to 6.727 percent over 18 months (4.485 percent per annum), but this payment is naturally taxable.

For an investment of, let’s say, €20,000 you will thus receive an immediate tax benefit of €1,073.80 and an interest payment of €1,345.40 spread over 18 months. The interest must still be taxed, which means a net return of €888.10 remains. The total return from our €20,000.00 is thus €1,961.90, or 9.81 percent – where else would you get such a return these days?

6. Limited investment sums

Unfortunately the total permitted investment sum is limited. In highly technical terms, this means that the exemption (3.1 x your investment) can only constitute half of the movement of the reserves prior to exemption being applicable, but for which the exemption can already be taken into account when calculating taxes. Please contact us if you would like us to perform such a calculation, but a rule of the thumb is that you can invest approximately ten percent of your pre-tax profits in a Tax Shelter. So to invest €20,000.00 you need to make a pre-tax profit of €200,000.00 and it may not be distributed as dividends or profit-sharing bonuses. The maximum exemption is €750,000.00, of which (divided by 3.1) no more than €241,935.48 can be invested per year, and this is of course if your pre-tax profit would exceed €2.4 million.

So it is a great investment, but unfortunately the permitted investment sums are limited. 

An interesting way to obtain capital more advantageously?
The Belgian tax treatment of the surrender of Dutch pensions under self-administration
Just before the end of the year, the tax administration finally made the decision and published a circular (Circular 2017/C/87 dated 22 December 2017), which addresses the Belgian treatment of the phasing out of the Dutch “pension under self-administration”.  Phasing out Dutch pensions under self-administration  Until 1 April 2017, a Dutch director-major shareholder or “DGA”
Who is now obligated to use this cash register?
The long-expected circular on the 'white cash register' has been published
Many words have been written over the past few years about the registered cash register system (the 'white cash register'). In exchange for a rate reduction for restaurant and catering services to 12% (instead of 21% - except for drinks), there was a requirement for hospitality businesses to work with a registered cash register system in order to combat fraud in the sector. The question over the p
The new tax rules
New car tax legislation: wheels in motion
Traditionally in Belgium, January is all about cars. Each year, the Autosalon (Motor Show) attracts hundreds of thousands of car fans to the Heysel. This year, the spotlight will not just be on the latest models of cars – the new car tax legislation will also be grabbing all the attention. So, once more, it’s time to set out the most important changes – in both corporation and personal incom
A simple and flexible way for companies to give a bonus to their employees
The profit premium from 1 January 2018
The new profit premium gives companies the opportunity to allocate part of their profits as a bonus to their employees in a simple and flexible way. The employees receive a premium, which amounts to either a fixed sum or a percentage of their wages without the employee being allocated a voting right in the company. Definition of profit premium and conditions The profit premium is a premium pa
Reduced corporation tax: in favour of or to the detriment of the taxpayer?
A new minimum remuneration requirement
The Summer Agreement, partially translated into the Corporation Tax Reform Act of 25 December 2017 (published in the Belgian Official Gazette of 29 December 2017) introduces a reduced corporation tax rate that falls to 25% by tax year 2021. Under certain conditions, a small company can even benefit from a reduced rate of 20% on its first tranche of € 100,000 of taxable revenue. However, the
A number of regulated professions are being abolished
Abolition of professional competence in Flanders: the consequences at a glance
In accordance with the Establishment of Businesses Act, every SME, natural person or legal entity wishing to engage in a commercial activity must prove the necessary entrepreneurial skills. For most professions, a basic knowledge of business management is sufficient but for a number of others, specific professional competence is required. This is in contradiction with European legislation that sta
The 4 action points thoroughly discussed
How the Summer Agreement affects the ATAD Directive
By now it’s hardly news that Belgian corporation tax will be comprehensively reformed as part of the Summer Agreement. The proposed reforms as set out in the drafts of the Programme Act (authorising government expenditure measures) and the Recovery Act were approved on 27 October by the Cabinet. The government presented the Programme Act bill to the House of Representatives on 6 November 2017, w
The December advance payment & the optional VAT system will be discussed
VAT news in brief
The December advance payment for those submitting quarterly returns.  VAT payers who submit periodic monthly returns are already familiar with the December advance phenomenon, and soon those who submit quarterly returns will also have to keep this requirement in mind. As part of the further simplification of the VAT legislation and administration, the Minister of Finance decided to scra
A comparison of the present & future legislation
What the Summer Agreement means for future capital reductions
Since the Summer Agreement was concluded there has been much discussion on the pro rata rule for capital reductions. Given that to date no definitive legislative texts have been published, this aspect of the corporation tax reforms remains murky and changes might still be introduced to the proposed regulatory measure.  The present legislation  In the event of a capital reduction, one
The consequences of a incorrect or incomplete registration
Why it is essential to ensure you are properly registered with the crossroads bank for enterprises
It is important for all companies to ensure that their details registered with the Crossroads Bank for Enterprises (CBE) are kept up to date. The CBE is the central register of the FPS Economy in which all the basic information of companies and their business entities are recorded. The information contained in the CBE is distributed to the various public services (such as the VAT authorities, the

Subscribe to our newsletter