The Canary Islands has the most powerful tax incentive system for cinematographic and audio visual production in all Europe. Thanks to the Economic and Fiscal Regime (REF), the Archipelago benefits from its own special legal and fiscal framework which allows cinematographic productions to acquire numerous tax deductions. Below, you will find the tax advantages of filmmaking in the Canary Islands.
50-45% direct tax advantages of filmmaking in the Canary Islands for international productions
Producers who have a tax residence in the Canary Islands and are in charge of carrying out a foreign production, that is, production service companies could benefit from a 50% deduction on the first one million euros of expenses and a 45% deduction on the rest of expenses in the Canary Islands. In order to be eligible for this deduction you need to meet the following requirements:
- The eligible expense in the Canarian territory will be of at least 1.000.000 €. For animation films and post-production, the minimum will be reduced to 200.000 €.
- The total cost of the production will be of, at least, 2.000.000 € and the eligible expense must not exceed 80% of the total cost of the production.
- This deduction, along with the rest of incentives provided for the same production, will not exceed 50% of the total cost of the production.
- This incentive will be limited to a maximum deduction of 18 million euros (figure subject to changes).
What type of expenses can be deducted?
All the expenses made in the Canary Islands directly related to the production process.
Some of them are:
- Creative staff expenses, if they have a tax residence in Spain or another country from the European Union, up to 100.000 € per person.
- Expenses derived from the use of technical industries and other suppliers, including pre-production, production and post-production..
Who is eligible for get this tax advantages of filmmaking in the Canary Islands?
Production companies and service companies are eligible if their tax residence is in the Canary Islands, they have registered in the Institute of Film and Audio Visual Arts (ICAA), and have done a feature film or a foreign audio visual production.
Foreign productions are those audio visual works such as feature films, movies, fiction works, animation works and documentaries which do not qualify as Spanish.
How to obtain tax advantages of filmmaking in the Canary Islands?
The amount of tax deduction (50-45% of eligible expenses) will be deduced from the corporation tax once the production process has finished.
50-45% deduction for investments in Spanish productions or co-productions
In the case of national productions developed in the Canary Islands and those who have obtained the Canary Islands Audio Visual Production Certificate, the percentage of deduction will be the same as for international productions: 50% over the first million euros and 45% for higher figures. Also, in this case the incentive will be limited to a maximum deduction of 18 million euros.
What type of productions can benefit from it?
National productions are those feature films, audio visual series, animation works and documentaries which have the certificate for Audio Visual production in the Canary Islands, along with the Spanish culture and nationality certificates provided by the Institute of Film and Audio Visual Arts (ICAA).
How can I get the Canary Islands Audio Visual Production Certificate?
In order to obtain the Canary Islands Audio Visual Production Certificate, it is mandatory for the company to be registered in the Canary Islands Audio Visual companies’ registry. Moreover, the production will need to have a Spanish nationality and meet the following requirements:
Requirements related to the minimum filming time in the Canary Islands
In the case of real image feature films::
- 11 days for budgets under 2 million euros.
- 14 days for budgets over or equal to 2 million euros and under 4 million euros.
- 16 days for budgets over or equal to 4 million euros and under 8 million euros.
- 18 days for budgets over 8 million euros.
In the case of real image series:
- A minimum of 20% filming time in the Canary Islands will be required for the episodes that form the season of the series.
In the case of documentaries:
- There are no restrictions regarding filming time.
In the case of animation works:
- 15% of the production time for budgets over 5 million euros.
- 20% of the production time for budgets under 5 million euros.
- Rendering works cannot exceed 20% of the production time that corresponds to the Spanish part.
Requirements related to the hiring of staff members who have their tax residence in the Canary Islands.
The certified audio visual work must have at least:
- A person in the creative team.
- Nine people in the technical team which will have to be divided into five different teams.
In the case of documentaries, a minimum of two professionals from the following categories must be hired: Director, Director of Photography, Screenwriter, Executive Producer, Original Songwriter.
In the case of animation works, there must be a team leader in the production office located in the Canary Islands, or a lead, senior or dubbing actor with a leading or secondary role.
In the case of a co-production, the contribution of the Canary Islands producer must be over 20% of the total cost.
What type of expenses can be deducted for national productions?
In this case, the deduction amount will consist of the production cost and the expenses derived from the copy making, advertisement and promotion activities carried out by the producer. The limit, in both cases, will be of 40% of the total cost of the production. As a requirement, at least 50% of the deduction amount will have to be for expenses made in the Spanish territory.
How can you obtain a tax deduction?
The amount of tax deduction is the tax credit which is deducted from the corporate tax quota. If the quota is not enough to apply the whole deduction, the rest of it will be deducted from the next quotas from the corporate tax.
The Canary Islands Special Zone (ZEC)
Any company that carries out production activities or other activities related to the audio visual sector can constitute a ZEC. One of the advantages of belonging to the Canary Islands Special Zone is the possibility of a deducted 4% taxation rate in the corporate tax, instead of a 25% currently applied in Spain.
What are the requirements to become a ZEC?
- To be a newly created entity (or a subsidiary of the company).
- At least, one of the administrators must reside in the Canary Islands.
- To invest a minimum amount of 100.000 of fixed assets in two years.
- To create at least 5 job vacancies in the first six months of activity, keeping this average during the first year of validity of the company in the ZEC.
Activities related to the audio visual sector which can be in the ZEC are:
- Production services, filming assistance and post-production.
- Photography and Advertisement.
- Audio visual distribution.
What are the benefits of being in the ZEC?
- Only 4% of corporate tax.
- Exemption in the tax on Wealth Transfers and Documented Legal Acts.
- Exemption in the IGIC for the import of raw materials, investment or products.
- Application of the International Convention on double Taxation.
- Suspension of the restriction of the deduction application for double internal taxation on dividend income.
Other tax advantages of filmmaking in the Canary Islands
The Canary Islands has other fiscal mechanisms to promote the productivity of independent companies in the sector. Therefore, these can be applied to the audio visual sector and are compatible with all the specific subsidies mentioned above.
The Reserve for Investments in the Canary Islands (RIC)
This tax incentive is based on a reduction of the taxable base of the corporation tax up to a 90% from the non-distributed benefit. Production companies can get RIC from other companies to invest in productions, if and when they obtain the Canary Islands Certificate for Audio Visual works given by the Government of the Canary Islands. The RIC can translate into feature films, short films, audio visual fiction series, animation works and documentaries produced in the Canary Islands.
Other tax advantages of filmmaking in the Canary Islands: Deduction for I+D and deduction for IT
A deduction will be applied for activities qualified as Investigation and Development directly executed in the Canary Islands. A 45% deduction of eligible cost against the 25% granted in the rest of Spain. In the case of a deduction for Technological Innovation, in the Canary Islands the amount will be of a 45% against the 12% in the mainland and the Balearic Islands. This incentive can be applied to digital animation projects, post-production and video games.
At Las Hormigas Negras we offer consulting services on Tax Incentives. For more information, contact us and we will tell you how you can benefit from tax advantages of filmmaking in the Canary Islands.