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. 

The basis for lifting the Swiss banking secrecy
Belgian-Swiss double taxation convention Amendment takes effect
On 10 April 2014 Belgium and Switzerland signed an Amendment of the Convention on preventing double taxation for taxes on income and on assets. This Amendment entails a number of significant innovations. For example, the Amendment contains an article on exchanging information within the double taxation convention between Belgium and Switzerland, with this provision being the basis for lifting Swis
The basic requirements appear to be identical
The new insolvency law will also affect those in liberal professions
Insolvency of companies Minister of Justice Koen Geens is steadily moving forward, and after a comprehensive overhaul of the Companies Code and the codification of the company law in the Economic Law Code, we are now set for the codification and updating of the insolvency law. The Law of 11 August 2017 saw a brand new and rather hefty Book XX added to the Economic Law Code, ‘Insolvency of compa
Establishing, requirements and consequences of a VAT group
How the Summer Agreement affects VAT groups
Establishing a VAT group in order to avoid losing the right to deduct input tax on the grounds of renting out immoveable property It is a regular event for a company (such as a real estate company) that is part of a group of companies to buy or build property, which it then makes available for use by another of the group’s companies (such as an operating company). The latter company will then p
Important things and pitfalls to consider
Working with self-employed persons: things to consider for cooperation agreements with self-employed persons
For most companies it is a daily part of life to work together with independent service providers and it is a highly flexible and easy form of cooperation.
A two-stage rocket: 2018 & 2020
Summer agreement: What will change for corporation tax?
You will no doubt have discovered from one of the many news stories that the federal government reached an agreement on 26 July 2017 on the corporation tax overhaul and its decreased rates. Other measures resulting from this ‘summer agreement’ are the tax on securities accounts, the expansion of flexible jobs, the option to make the rental of property subject to VAT and the reform of the tax o
Measures concerning self-employment, penalties, savings & flexible jobs
Summer agreement: more than corporation tax alone
You will no doubt have discovered from one of the many news stories that the federal government reached an agreement on 26 July 2017 on the corporation tax overhaul and its decreased rates. Other measures resulting from this ‘summer agreement’ are the tax on securities accounts, the expansion of flexible jobs, the option to make the rental of property subject to VAT and the reform of the tax o
What are the consequences and the opportunities?
Buying real estate in the Netherlands: are there tax benefits?
In recent years the purchase of property in the Netherlands has seen an uptick, especially in the beachside town of Cadzand, where 1,500 new apartments and houses are being be built between 2008 and 2020. This is the perfect opportunity to examine the (tax) consequences of buying real estate in the Netherlands and the opportunities it offers in respect of asset and inheritance planning. This artic
A refresher on the current state of affairs
Interest on savings accounts with foreign institutions: Belgian rapped over the knuckles again for its exemption
With tax return season lurking on the horizon it is a good idea to have a refresher on the current state of affairs with respect to the exemption for interest on savings accounts. The general rule as regards the exemption At the present, the first bracket of €1,880 (for tax year 2018, base sum of €1,250) of the income from regulated savings accounts (those accounts where the bank complies
The regional benefits have diverged completely
Home-owner taxes in the tax year 2017
'Own homes' have been a regional authority matter, since 2014. Even then, it was predicted that this would result in serious fragmentation and complication of the fiscal benefits for own homes. 
A reminder of the most significant tax-related points
‘For free’ is not always ‘VAT-free’
 ‘A free sample, a gadget with a corporate logo, rewarding faithful buyers and suppliers with a small gift…’ Every company is familiar with this situation, but are they also aware of the tax-consequences of these generous gestures? The tax authorities recently published a circular as a reminder of the most significant tax-related points for attention in this respect.  The rules&

Subscribe to our newsletter