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Tax Credit Production

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A. ITALIAN TAX CREDIT SCHEME: GENERAL OVERVIEW

Under the Italian scheme, qualifying foreign theatrical motion pictures and TV productions can obtain a tax credit up to 30% of the eligible production costs. Such eligible production costs cannot exceed 75% of the overall production budget.

Eligible production costs are the production costs (including pre and post production costs) actually incurred in Italy (or in other European countries within the limits described in the paragraphs B.2. below).

The tax credit accrues during production on the basis of the costs actually incurred by an Italian production service company (IPSC). Foreign producers cannot apply directly for the Italian benefit. Only Italian production service companies – that are subject to taxation in Italy and meet certain legal requirements – are entitled to apply. Foreign producers must therefore engage one or more Italian production service companies, each of which shall apply for and get the tax credit.

Please note that as the Italian tax credit accrues during production (while production costs are incurred), the Italian production service company can use such credit to pay all picture-related Italian tax liabilities and therefore save on production costs.

Although the Italian production service company can offset the tax credit against any of its tax debts – even if unrelated to a specific production – such credit is usually entirely applied against the picture-related tax liabilities as to maximize and optimize the immediate benefit for the foreign production.

Foreign producers actually benefit of the tax credit by getting – through the Italian production service company – a cost reduction of up to 30% of the Italian spend.

The Italian tax credit is one of the few worldwide (and, most likely, the only one in the US and EU) that allows for a savings during production instead of a reimbursement or retroactive tax rebate on the local production spend.

B. FOREIGN THEATRICAL MOTION PICTURES & FOREIGN TV PRODUCTIONS

B.1. Cultural Eligibility

To qualify for Italian tax credit, foreign theatrical motion pictures must pass the cultural eligibility test.

B.2. Tax Credit

The tax credit granted to an Italian production service company is equal to 30% of all eligible production costs incurred by the Italian production service company. Such costs cannot exceed 75% of the overall production budget and may be incurred:

- in Italy
- in other European country (up to a maximum of 1/6 of the 75% of the overall production budget).

All production costs related to the picture incurred by the Italian production service company may be considered as "eligible" excluding the producer fee and certain financial costs.

The tax credit accrues on a monthly basis and can be used by the Italian production service company to offset any tax debt generated, including:

- italian VAT;
- company’s income tax (e.g. Ires, Irap);
- social security and withholding taxes for cast and crew (e.g. Irpef, Inps, Enpals), including foreign cast and crew hired by IPSC.

B.3. Procedure
In order to get the tax credit, IPSC must submit two different applications to the Italian Ministry of Cultural Activities, Heritage and Tourism (“Mibact”) as follows:

1. the preliminary application: to be submitted within 90 days prior to commencement of activities of the Italian Production Service Company (“Italian Activities”);

2. the final application: to be submitted within 180 days after completion of all ISPC Activities.

The preliminary application includes the cultural eligibility test and the actual use of the tax credit is conditional upon the submission of such application. The final application includes a detailed report of all eligible production costs incurred by the Italian production service company which must be certified by an independent chartered accountant. The final amount of all eligible production costs can exceed the provisional amount declared in the preliminary application up to a maximum of 10%.
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