Five Years of Tax Incentive for Films Results in Production Growth, New Jobs and Considerable Investment

Kadras iš „Tikra drąsa“ („Instrument of War“) filmavimo1

The Belgian creative industry consultancy KEA European Affairs has, under the commission of the Lithuanian Film Centre, conducted a research to analyse the results of the national tax incentive for film production from 2014 to 2017.

The European audiovisual sector is one of the fastest growing creative industries. In 2017, the overall value of the sector amounted to €28 billion. The number is expected to rise to €35 billion by 2022. Due to the huge economic potential of the field, a range of tax incentive schemes have been initiated in 26 European countries facilitating national film projects for domestic producers as well as exports of audiovisual services. Consequently competition between the countries offering such incentives has become more intense. Despite the small loss in tax revenues due to the incentive, such investment pays off and the value returns through the stimulation of other economic activities – goods and services, employment, consumption, as well as cultural activities and national image.

According to the research, the period from 2014 to 2017 has been particularly productive for the film industry with growing volume of national productions and co-productions as well as increasing number of projects implemented by foreign film companies. During this time Lithuania received €24.4 million worth of investment from foreign film producers. A total of 68 filmmakers have benefited from the tax incentive including 23 films of foreign companies. The Lithuanian tax incentive has drawn attention of such companies as BBC and HBO.

The tax incentive has also encouraged local investment in the film industry. A total of €8,526,871 have been poured into film production by local businesses during the 4-year period.

Film projects that have benefited from the tax incentive have stimulated employment in film industry and other related sectors. The growth of film production volume allows to create new jobs, because the process requires teamwork of a variety of different professionals. These include not only people directly participating in the film production, such as cinematographers, directors, assistants, production designers, etc., but also workers of industries providing services to filmmakers, such as technical and administrative personnel. Arrival of big film crews from abroad increases hotel occupancy, stimulates catering business as well as transport and rent sectors. Due to the growing film production volume 12,000 new temporary jobs were created during the period of 2014–2017 and nearly €11 million taxes were paid to the government.

Kadras iš Adam Thomas Anderegg filmo „Tikra drąsa“ („Instrument of War“, JAV, 2017)

A still from Adam Thomas Anderegg’s film Instrument of War, USA, 2017

During the 4 year period when the tax incentive for film production was offered Lithuania managed to entrench itself in the market of audiovisual services exports and successfully compete with both neighbouring and Western European countries. Local film professionals have earned trust of the most prominent film production companies. This enhances the image of the Lithuanian film industry as a reliable partner and helps spread awareness of the country. The market of audiovisual services exports is expected to expand in the coming years attracting even more foreign investment.

“It was important for us to assess whether the selected film industry development tool has been effective,” Rolandas Kvietkauskas, the director of the Lithuanian Film Centre, says. “This knowledge is essential for the application of the scheme for the next five-year period. The researchers’ forecasts are supported by the results of the first half of 2018 – expenditure on film production in Lithuania surpassed €14 million while business investments were nearing €3 million. We hope that the tool that creates such versatile value for the national economy will continue encouraging cooperation between cinema and successful businesses in the coming stage of the incentive.”

The Lithuanian Film Centre which administers the tax incentive expects €27 million to be spent on film production in the second half of 2018 – more than €5 million should come from the local businesses.

The goal of the tax incentive implemented in 2014 is to facilitate film production for both national and foreign filmmakers and to allow Lithuanian companies willing to sponsor film production to cut corporate tax. This enables filmmakers to finance up to 20% of the film production budget with private funds.

Any company operating in Lithuania and donating money to a Lithuanian film producer is eligible for the tax incentive, which allows the company to reduce its taxable income and payable corporate tax.