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The European Commission (EC) recently approved the Belgian tax shelter scheme for videogame production. The scheme was already applicable to the production of audio-visual works (since 2003) and the performing arts (since 2017). It aims to encourage investing in the production of such projects by means of a tax deduction.
Regarding videogame production, the scheme was introduced into law on 29th March 2019. However, its application was linked to two conditions:
(i) a decision by the EC stating that the scheme does not constitute an incompatible state aid; and
(ii) the adoption by the Communities of a cultural test as approved by the EC (unless this adoption does not take place before 1 January 2023, i.e. the date on which the videogame tax shelter will come into effect).
As regards the first condition, everything is now set as the EC recently gave the green light to the €36 million scheme.
General framework
When the conditions are met, the tax shelter allows eligible investors to benefit from a tax exemption of their profits based on a percentage (currently 421%) of the amount they invested in the production of qualifying works. One of these conditions is the setting up of a framework agreement for the investment between a production company (or a certified intermediary) and the investor. Another condition relates to the way the investment is expensed by the production company: so called "indirect expenses" may not exceed 30% of the total expenses. All expenses must also be made within a certain timeframe.
The scheme allows the investor to apply an upfront tax deduction on the sums invested within the agreement so long as they are actually paid within three months of the signing. At the end of the project, when all the conditions are met, tax authorities grant a tax shelter certificate that can be used to confirm the upfront tax relief (subject to certain thresholds).
In addition to the tax advantage, the production company may also grant the investor a lump interest premium on the invested sums.
Videogame tax shelter
With regard to the videogame tax shelter, the intent is to support creation, diversity and professionals active in the sector. Only original games are therefore eligible. To qualify, the EC also pointed out that videogames productions will have to ensure a "cultural character" (in any case, as mentioned above, a videogame must pass a cultural test as approved by the EC to be eligible).
The general expense timeframe is set at 24 months (identical to animated films and television series) as from the signing of the framework agreement and at the latest three months after completion of the videogame. The application of the tax relief is limited to 50% of the taxable profits per year with a threshold of €1 million whilst the total tax advantage cannot exceed €2.5 million.
The videogame tax shelter will come into effect on January 1st next year and will run until 31 December 2027.
Way forward
The goal of the tax shelter is to help producers to finance a part of their costs through external investors and therefore to boost this sector’s creativity in Belgium. This worked out quite well for the audio-visual sector and it is hoped that the video-gaming sector will share the same path.
As to the territorial component (stimulate creativity in Belgium), a question mark remains. Indeed, whereas the videogame tax shelter originally required that expenses were made in Belgium (similarly to the audio-visual tax shelter), this condition was dropped (following the EC in-depth investigation) to comply with EU law. All expenditure incurred in the European Economic Area should therefore be eligible, potentially reducing contemplated investments in Belgium.
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In case of questions, please do not hesitate to reach out to your regular contact within the Fieldfisher Belgium tax team.