Audiovisual Tax Incentives: An Opportunity to Seize

By Irene González · LKS Next Legal

The audiovisual sector is experiencing a period of unprecedented expansion, and the audiovisual industry is once again in the spotlight. In this context, the tax framework applicable to productions has become one of the determining factors in attracting shoots, talent and investment. And in Spain, not all territories operate on the same terms. In this opinion piece, Irene González, a lawyer specialising in the structuring of audiovisual projects at LKS Next Legal, analyses how new tax incentives are expanding financing options for the sector and offering opportunities to investors from outside the audiovisual industry.

Common Tax Territory: Moderate Deductions with High Caps

In the Common Tax Territory, the deduction is 30% on the first €1 million and 25% on the amount exceeding that figure, subject to a maximum of €20 million per production and €10 million per episode in the case of series. As for when it can be applied, the deduction accrues in each tax period according to the production costs incurred in that period, although it can only be claimed from the tax period in which production is completed.

This rule means that, although tax credits are progressively “generated” during production as expenditure is incurred, the producer cannot realise them until the project has been completed. This also affects any financier acquiring the deduction by entering into a financing agreement under Article 39.7 of the Spanish Corporate Income Tax Act (LIS).

“The audiovisual sector may have seen its development constrained in the past by difficulties obtaining financing for its projects.”

Foral Tax Territories: A Qualitative Leap

The situation is substantially different in the Basque Country, where each of the three Historical Territories now has its own tax regime. In 2023, Bizkaia approved tax incentives to promote culture, substantially improving on its previous incentives and with the endorsement of the European Union, which had declared the incentive compatible with the Treaty on the Functioning of the European Union.

Subsequently, in 2024, Gipuzkoa and Araba also adopted this incentive, giving all three Historical Territories similar, though not identical, sets of rules.

The difference from the Common Tax Territory is striking when it comes to deduction rates. In Gipuzkoa and Araba, the deduction ranges from 50% to 60% of production costs, rising to 60% or 70% if the work is entirely in Basque. In Bizkaia, the rate ranges from 35% to 60%, with a minimum deduction of 35% regardless of where the expenditure is incurred. In short, the Foral Territories offer deduction rates that are almost double those in the Common Tax Territory.

As regards maximum limits, Bizkaia sets no absolute cap in euros, whereas Gipuzkoa and Araba establish a ceiling of €10 million per production and €3 million per episode for series.

Another significant advantage concerns the geographical scope of eligible expenditure. In Gipuzkoa and Araba, eligible expenditure may be incurred anywhere in the Basque Country. Bizkaia, for its part, generally restricts the relevant expenditure to its own territory, while the Common Tax Territory limits the relevant expenditure to Spain.

As for the point at which entitlement to the deduction arises, the Foral Territories apply the “cash basis” principle (the deduction is generated according to expenditure actually paid), improving production companies’ liquidity during the production process.

Third-Party Financing: A Key Component

In any event, one of the most innovative and attractive features of the incentives available to the audiovisual sector is the possibility for other taxpayers to participate in financing productions and benefit directly from the deduction. This arrangement allows them to finance incentivised activities — culture, in this case — and thereby generate a deduction for the financier. At the same time, it enables those carrying out the eligible activity to monetise their tax credits by obtaining financing.

However, the territories do not all operate in the same way in this respect: neither Gipuzkoa nor the Common Tax Territory allows the deduction to be transferred to investors outside their respective territories. This creates separate compartments between Bizkaia–Araba, Gipuzkoa and the Common Tax Territory, complicating the structuring of financing arrangements with investors seeking to optimise their tax liabilities.

An Impetus That Goes Beyond Tax

It should not be forgotten that the new regulations will not only benefit a range of stakeholders — cultural organisations, entities interested in promoting production, and others — but will also stimulate business investment in the sector, together with job creation, the enrichment of local culture and the attraction of investment to the territory as a whole.

The cultural sector, and the audiovisual industry in particular, may have seen their development constrained in the past by difficulties obtaining financing for their projects, especially initiatives that were not financed directly by platforms or distributors. This tax incentive, however, will become a tool for promoting projects of greater ambition, while also allowing producers to retain a stronger position regarding ownership of the intellectual property (IP) in the works created.

Ultimately, Spain’s audiovisual tax landscape is heterogeneous and, at times, complex to navigate. But it is precisely in that diversity that opportunity lies: for those with an in-depth understanding of the applicable regulatory framework, the differences between territories are not an obstacle but a competitive advantage which, if used effectively, can make the difference between a viable project and one that is not.