The government of Cyprus has been long committed in boosting the island’s filming industry and has recently introduced a package of incentives encouraging international producers to choose Cyprus as their next film destination.
The Cyprus film industry scheme
Companies that choose to film in Cyprus will be able to benefit from certain tax incentives, ranging from a cash rebate or a tax credit and can also take advantage of certain tax deductions on investments to be made on relevant equipment and infrastructure, as well as a potential VAT refund on qualifying expenditure.
A film refers to an audio-visual production which is categorised, amongst others, as a film / feature film (including a documentary for television broadcast or for cinema broadcasting and animation), television series / mini-series, documentaries including factual programmes of natural history, animation (digital or analogue), television research programs and other audio-visual projects / films as developed and approved by the Committee.
The tax incentives as per the film scheme
The Scheme is created in accordance with the relevant EU Regulations which aim to promote European Culture and investment aid for small and middle-sized enterprises (hereinafter ‘SMEs’), and consists of a combination of grants and tax incentives as follows:
- Cash rebate
- Τax credit
- Tax Allowance for investment in infrastructure and equipment
- Return of VAT on expenditure
It is noted that, with respect to the cash rebate or the tax credit, the applicant must select which incentive it shall take advantage of, given that they cannot both apply together. The cash rebate can apply together with the tax allowance for investment in infrastructure and equipment as well as together with the VAT refund. The tax credit can apply together with the tax allowance for investment in infrastructure and equipment as well as together with the VAT refund, by completing the relevant applications.
- Cash rebate
The cash rebate that can be granted through the above scheme, represents 35% of eligible expenditure made in the Republic of Cyprus. The maximum annual available amount for this aid cannot exceed EUR€1.5 million, subject to certain criteria.
- Tax credit
This can be an alternative to the cash rebate, with the sum of the tax credit not exceeding 50% of the applicants’ taxable income for the tax year within which the production is made. If such credit is not granted due to the above percentage restriction, then it can be carried forward and be given within the next 5 years, subject to the above percentage restriction.
- Tax allowance for investment in infrastructure and equipment
The cost of the investment in film production infrastructure and technological equipment such as filming studios, audio visual processing premises, filming equipment, computer-generated audio-visual projects, can be deducted from the applicant’s taxable income.
Such allowance cannot exceed 20% of eligible expenditure in the case of small enterprises and 10% of eligible expenditure in the case of middle-sized enterprises. Also, if such investment relates to equipment, then the latter should remain in the Republic of Cyprus for a period of at least 5 years.
In determining the level of cash rebate and the tax credit, the Committee shall take into account all possible State subsidies, including aid provided by other EU Member States, in order to ensure that State aid does not go beyond fifty percent (50%) of the total production budget and sixty percent (60%) if it is a co-production pursuant to the relevant EU Regulation. The Producer shall provide a full and accurate disclosure of any relevant information relating to any other state aid received from any party and in any form.
- Return of VAT on expenditure
The VAT rates in the Republic of Cyprus are 19%, 9% and 5% on all products and services provided in the Republic, and 19% and 5% on all taxable imports.
An applicant from a third country has the right to a VAT refund in relation to any eligible expenditure, in the same way as every natural or legal person of a Member State of the EU has, in accordance with the relevant EU Directive.
The VAT refunds for the persons that carry out the foreign filming in Cyprus arise within 6 months from the deadline of submission of the VAT declaration which relates to the period during which the expense has occurred, or from the date on which the application for the VAT refund is filed.
Michael Mavrommatis – Partner, Taxation Services
Nexia Poyiadjis, Cyprus