Tax benefits for the film industry

Colombian cinema is a reflection of everyone's identity and is the best way to promote Colombia abroad. That is why the National Government, through the Orange Economy policy and the extension of its benefits in the National Development Plan, has bet on the promotion of this industry to bring it to a level similar to that of Argentine or Mexican cinema. It should be mentioned that never in history has a specific industry had such interesting and attractive tax benefits for investment.

Since the enactment of Law 814/2003, the deduction for donations or investments in Colombian film projects was established, where the investor could take as a deduction 165% of the value donated or invested in them. Then, through Law 1556/2012, extended until 2032 by Law 1955/2019 (National Development Plan), a compensation mechanism was established whereby the company would be reimbursed 40% of the expenses for film services and 20% of the expenses for hotel, transportation and food services. Likewise, Law 1556 created, for the producers of non-national audiovisual works, but partially produced in the country, an Audiovisual Investment Certificate which may be taken as an income tax discount equivalent to 35% of the value of the investment made in Colombia, and which will also have the character of negotiable value, whose effective negotiability will not generate any tax to the transferor. It should be noted that, for the producers of national works, the regulation granted them the power to choose between the Audiovisual Investment Certificate and the consideration on the amounts invested.

As if the above were not enough, Law 1943 of 2018 brings the whole policy of tax incentives of the Orange Economy, from which companies identified with ISIC Code 5911 (production activities of cinematographic films, videos, programs, commercials and television commercials) can benefit. These companies may access a seven (7) year period of exempt income if they comply with the minimum investment and employee hiring requirements and their project is endorsed by the Orange Economy Committee of the Ministry of Culture, after justifying its financial viability, economic convenience and qualification as an Orange Economy activity.

When carefully reviewing the application of these benefits in the light of the provisions of Article 23 of Law 383 of 1997, which establishes that the same economic fact cannot generate more than one tax benefit, we see that such benefits are not -in themselves- concurrent, which is why they can coexist. This occurs because the first benefit would be the exempt income, and the second would be the discount established in the Audiovisual Investment Certificate, which is enshrined in Article 23 of Law 383/1997 as an exception to the concurrence of benefits.

Thus, in a project worth $100 pesos, where the investment comes 100% from the investors, they could take a deduction for $165. Due to the exempt income, the project would not pay income tax, however, the company could take a 35% discount on the investment made. This amount may be requested to the Dian as a refund or simply negotiate the title without any tax impact. In case of not taking the 35% discount benefit, the law empowers the producer of the cinematographic work to request the consideration of 40% of the expenses for cinematographic services and 20% of the expenses for hotel, transportation and food services, since these benefits (the consideration and the 35% discount certificate) are exclusive in their application by express legal provision. Finally, the new customs regulation (Decree 1165/2019) contemplates the suspension of customs duties for the importation of film production and filmmaking equipment.

With these benefits, the internal rate of return (IRR) of the film project increases exponentially. It is impossible to think that Colombia will not quickly become a world hub for film production.