The Belgian Tax Shelter is a government-approved tax incentive designed to encourage the production of audiovisual works. It is one of the very few audiovisual systems that applies to the whole of Belgium rather than to a particular language community.
It is a win-win-win situation for the three parties involved: the producer who is offered a very attractive way to finance his projects; the investor who obtains tax exemption through a virtually risk-free investment; and the Belgian state which cashes in on increased activities and spent.
The Ministry of Finance estimates that from 2003 to 2009 the system channeled over €310 million into films and other audiovisual works, providing more than €60 million in 2009 alone.
The mechanism allows a company providing financial backing for audiovisual productions to benefit from exemption of any retained taxable profits worth up to 150% of the sums actually paid. The upper limit on investment is 50% of a company’s retained profits, up to a ceiling of €500,000. This way, the legislator ensures limited financial risks for the investors.
A producer can of course attract several companies to invest in one project, provided that the total amount of Tax Shelter money does not exceed 50% of the production budget.
Part of this investment, with a maximum of 40%, is usually in the form of a loan, which the producer must return to the investor as a matter of course. The remaining 60% (the equity part) buys rights in the commercial exploitation of the film. If investors don’t want to wait for the production to make money, they may arrange a “put option” to sell back their rights after a certain period. The value of this option is determined in the agreement between producer and investor, and it has to be invoked no later than at the beginning of the work’s commercial career.
The production and operating costs for the audiovisual work incurred in Belgium must amount to at least 150% of the equity part of the investment (not the loan part).
(Situation of one investor and a budget of €1,000,000)
* A company invests €500,000 in a film (€300,000 in the form of a co-production and €200,000 in the form of loans). It can be granted an exemption of €750,000, if the expenses incurred in Belgium amount to 150% of €300,000, i.e. €450,000 for the production and operating costs.