The Belgian Tax Shelter is an efficient and transparent government-approved tax incentive designed to encourage the production of audiovisual works in Belgium. The system is open to Belgian productions as well as to qualifying international (mainly European) co-productions with Belgium.
How does it work?
Animation, documentary and fiction features, medium-length and short films qualify for the system as well as animation and live-action series, telefilms and TV documentaries.
Based on the amount of direct and indirect qualifying audiovisual costs the production will spend in the European Economic Area, a producer can sell Tax Shelter Certificates to investors.
The value of all the Tax Shelter Certificates sold for one audiovisual work may not exceed 15 million euros and is limited to 70% of the qualifying audiovisual costs in the European Economic Area of the production.
In order to achieve an optimal return on investment, the investor will purchase the Tax Shelter Certificate for 48.315% of its audiovisual expenditure value. In return for purchasing the Tax Shelter Certificate, the investor benefits from a temporary tax exemption of any retained taxable profits. The investors also receive interest on the sums paid to the producer; the applied rate is based on the Euribor 12-months rate augmented with 450 basis points.
The investors must make full payment within three months of signing the framework agreement. The investors thus pre-finance the production and/or post-production costs by purchasing a temporary tax exemption.
Investors can be approached directly by certified producers to arrange investment under the Tax Shelter, which will involve some legal work. An alternative is for the producer to work with an intermediary company certified by the Belgian authorities. The intermediary will match potential investors with productions and handle all the paperwork. In return for these services, the intermediary charges a fee to the producer.
Once the audiovisual work has been completed, the Ministry of Finance delivers the final Tax Shelter Certificate based upon the audited expenditure.
It is a win-win-win situation for the three parties involved: the producer is offered a very attractive way to finance and cash-flow projects; the investor obtains tax exemption through a virtually risk-free investment; and the Belgian state benefits from increased economic activity and spend.
What's the advantage for the producer?
If we take the example of a production with a 2 million euros direct and indirect qualifying audiovisual spend in the European Economic Area, this means that Tax Shelter Certificates can be sold to a total value of 70% - in this case 1,400,000 euros. 90% of this expenditure (1,260,000 euros) needs to be spent in Belgium on qualifying audiovisual costs, of which a minimum of 70% (882,000 euros) needs to be directly related to the production and/or post-production of the audiovisual work.
To acquire the optimal investment rate (48.315%), the investors buy the Certificates with a total value of 1,400,000 euros of qualifying expenditure for an amount of 676,410 euros.
In order to find potential investors and deal with the framework agreement and legal documents, a producer may hire the services of an intermediary company. In return for its services, the intermediary will charge a fee, in this example 15% or 101,461 euros.
In addition to a tax benefit, the investor also earns interest on the sums paid to the producer. The interest percentage is defined by the Euribor interest rate (in this example -0.30% over 12 months) augmented with 450 basis points x 18 months/12, in this case 42,614 euros euros.
The net advantage of the Tax Shelter Certificate for the producer comes to 676,410 euros - 101,461 euros (commission) - 42,614 euros (interest) = 532,335 euros euros = 42% of the qualifying audiovisual spend in Belgium.