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Lights, camera, action! The tax exemption in respect of films

12 September 2017   (0 Comments)
Posted by: Authors: Nandipha Mzizi and Louis Botha
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Authors: Nandipha Mzizi and Louis Botha (CDH)

“From the beginning of the production stage to the actual editing of the final film and exhibition, the industry contributes to the economy, revenue, job creation and economic activity.” The results from the economic impact modelling report for 2017, prepared by Urban-Econ Development Economists for the National Film and Video Foundation (NFVF) (NFVF Report), reveal that the film industry has had a positive economic impact on the South African economy. During the 2016/17 financial year, the film industry in South Africa had a direct impact of R4,4 billion on economic production. The NFVF Report also revealed that the operations of the film industry in South Africa raised the level of production by approximately R12,2 billion in total.

The South African income tax system contains an incentive to stimulate the production of films within the country. The current incentive comes in the form of s12O of the Income Tax Act, No 58 of 1962 (Act). Section 12O came into effect on 1 January 2012 and applies to all receipts and accruals of approved films if principal photography commenced on or after this date but before 1 January 2022. Section 12O provides for an exemption from normal tax, specifically income derived from the exploitation rights of a film. The South African Revenue Service (SARS) has also recently issued a guide, reflecting SARS’s interpretation of this provision (SARS Guide).

Exemption requirements

In order to qualify for an exemption, taxpayers must satisfy the following criteria:

1. NFVF must approve the film as a local production or co-production. A film that is co-produced must be co-produced in terms of an international co-production agreement between South Africa and another country, which agreement must be subject to the Constitution.

2. Income is received by or accrued to two types of investors:

2.1     Those who acquired exploitation rights prior to production of the film; or

2.2     Those who acquired exploitation rights after the production commenced but before completion date provided that funds they receive will not be used to compensate pre-production investors.

3. Income must be received or accrued within a period of 10 years after the completion date of that film.

Please click here to read full article.

This article first appeared on cliffedekkerhofmeyr.com.


 

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