Will the tax shelter for video games
finally come into force?
December 2021 – On 29 March 2019, the tax shelter regime for the video game industry was cast in a law that has not yet come into force. Europe had expressed several reservations about the Belgian law. The requested changes should nevertheless be made quickly thanks to a recent bill.
What is a tax shelter regime?
Belgium already applies a tax shelter for companies that invest in the production of cinematographic and audiovisual works and in the performing arts. This scheme consists of a tax advantage granted to Belgian companies or permanent establishments of foreign companies that invest in the production of films, television series, musicals, dance shows or theatrical performances of Belgian origin.
The amount of the tax exemption is fixed at 421% of the amount invested.
The investor does not receive any rights to the revenues or any other financial or economic benefits. Nor does he/she get his/her investment back.
Only interest is allowed on the actual payments made, and this for the period between the date of the first payment and the moment the tax shelter certificate is issued (with a maximum of eighteen months). In order to avoid any abuse, the rate granted is however capped.
Video game industry
The tax shelter regime for the production of video games will be modelled on other tax shelters: a production company signs a framework contract with investors who undertake to pay a certain amount.
The production company must be approved by the Minister of Finance. The investor must be subject to Belgian corporate tax either as a Belgian company or as an establishment of a foreign company.
421 %
Why a 421% exemption? As explained above, the return on investment comes almost exclusively from this tax exemption.
If you invest EUR 100,000 in a tax shelter, you get a tax exemption of EUR 421,000. Taking into account a corporate tax rate of 25%, this amounts to EUR 105 250. The EUR 100,000 invested is not recouped. The return on your investment is therefore 5,250 euros.
The exemption will initially be temporary: the exempted profits must be booked to a separate liability account until the tax shelter certificate is obtained.
If all other conditions are met, when the tax shelter certificate is issued you will receive a tax exemption of 203% of the final tax value of the tax shelter certificate. The tax value of the tax shelter certificate is equal to 70% of the eligible production and exploitation expenses incurred in the European Economic Area and directly related to the production and exploitation of the video game.
If the development of the video game cost 300 000 euros, the tax value of the game will be 70% of the investment, i.e. 210 000 euros. 203% of 210 000 euros = 426 000 euros.
Your temporary exemption of 421 000 euros thus becomes permanent.
If the cost is lower, you may lose part of the temporary exemption. Let's say the development only cost 250 000 euros. The tax value in this case is 175 000 euros. 203% of this amount is 355 250 euros. Your temporary exemption of 421 000 euros is reduced to 355 250 euros.
The tax shelter certificate must be issued by 31 December of the fourth year following the year in which the contract was signed. Otherwise, you will lose the benefit of the exemption entirely.
It should be noted that different ceilings have been provided for. Initially, the tax exemption could not exceed 750 000 euros, but in view of the reduction in the rate of corporation tax, this amount has been raised to 1 million euros. This limit applies to all your tax shelter investments!
There is also a ceiling for the sum of all tax values of tax shelter certificates issued for a video game. This is set at 2 500 000 euros (but see below).
If the profits of the taxable period are insufficient to apply the exemption, the surplus can be carried forward to subsequent years.
Europe
Europe had made numerous comments on the tax shelter law for the video game industry. A recent legislative proposal should adapt the law in question. More than two years later, it would seem that its entry into force is once again on the agenda.
A first adaptation concerns the list of investments eligible for the tax shelter. We discussed above the tax value of the investments listed on the certificate. This amounts to 70% of the investments. However, not all expenditure is taken into account. The law stipulated that only expenditure incurred in Belgium was to be taken into account. This point was criticised by the European Union, and the eligible expenditure now includes all expenditure incurred in the European Economic Area.
According to the law, this had to be original video games. At the instigation of Europe, the games must also have a cultural dimension (which was already required for the other tax shelter schemes). The three Communities in our country will therefore have to issue an approval.
Finally, the maximum amount per project giving entitlement to a tax advantage is halved to 1,25 million euros.
These adjustments must also be approved by Europe. It is therefore not possible to give an exact date for the entry into force of this tax shelter.
