Canary Islands Abolish Cap on Tax Rebates

In a move to consolidate its bullishly expanding audiovisual industry, Spain’s Canary Islands have just scrapped a prior €50 million ($53.5 million) cap on total annual tax incentives tapped by movies and series shooting in the archipelago.

Announced April 30, the ground-breaking measure was applauded by local industry heavyweights who have been lobbying national and regional authorities, “This couldn’t be better news for the Canarian audiovisual sector, and by extension, for the Spanish audiovisual sector,” said Rubén Zarauza, president of the Audiovisual Cluster of the Canary Islands, and co-head of Amuse Studios, the Spanish branch of France’s Amuse Animation group. 

“What we have achieved with this [tax break] cap removal is greater peace of mind for producers and other players in the sector,” Zarauza added. 

Pablo Hernández, president of ZEC, the Canary Islands’ tax Special Zone, offered to regions on the periphery of the European Union, echoed Zarauza: “The tax credit in the Canary Islands for [single] audiovisual productions is 54% for the first €1 million [$1.1 million] of eligible expenditure and 45% for amounts exceeding €1 million,” he told Variety. 

“The maximum is a €36 million [$38.9 million] tax rebate/credit for a film, and €18 million [$19.4 million] per episode for a series. There was a limit of €50 million for all projects worth approximately €250 million [$270 million] in annual production spend. Now that this limit is being abolished, all producers in the island can enjoy the rebates with caps stallion place for individual works,” he underscored.

“Removing the cap means that we can grow exponentially,” continued Zarauza, who cited other local industry drivers such as “the excellent productive capacity of Canarian professionals, the incredible locations, hours of sunlight and climate” on top of the extremely competition tax incentives, that make the Canary Islands “one of the best places in the world to produce, especially in the current times where budgets of platforms and broadcasters are being reduced,” he noted.

Hernández for his part noted that beyond access to what he argues are “the highest tax rebates and tax credits in Europe” the incentives in place mean that “companies established in the Canary Islands and producing there can enjoy a reduced 4% corporate income tax and no dividend, interest or capital gain taxation, as well as no VAT. 

“This implies that not only production is more efficient thanks to the tax rebate, but also that marketing and profits derived from a film and other IPs enjoy up to 40% extra income after taxes. In sum, the incentives cover all the process and not only the production side,” he says.

As reported in Variety, the Canary Islands’ muscular tax breaks – upped to the current level in 2023 – have succeeded over the past few years in luring scores of Hollywood and European movies and series such as“Clash of the Titans”, “Jason Bourne,” “Fast & Furious 6”, “Wonder Woman 1984”, “The Head” and “Peacemaker.” 

Meanwhile, there’s been a notable surge in the Canary Islands’ local audiovisual industry.

“In 2017, 30 audiovisual productions were filmed in the Canary Islands, resulting in an economic boost of around €30 million [$32.1 million] and the creation of over 1,000 direct jobs within a year. 

He added: “These figures, which were three times higher than those of 2013, underscore the remarkable exponential growth witnessed in just a decade,” says the production executive, who insists on the “pivotal role” that the tax incentives have played in “solidifying the industry within a territory eager for diversification.”

“Today,” he continued, “current figures have quadrupled since 2017, indicating a remarkable upward trajectory. Predictions for the upcoming years forecast a continued growth rate of 15%-20% in the archipelago’s audiovisual activity, further cementing its status as a thriving hub for the industry.”

Recent productions that chose the Canary Islands as a main location include the premium Spanish-German series “Weiss & Morales” ordered by RTVE and ZDF, Paramount+’s U.K. romantic comedy “The Road Trip” starring Emma Appleton and the Spanish wrestling pic “La Lucha” from Tenerife-based El Viaje Films, one of the top production houses in the Canary Islands.

For Hernández, as the foreign shoot bonanza was starting to put pressure on the existing film tax regime, time was ripe for the government of the Canary Islands and for ZEC to switch strategy, to promote and incentivise not only shoots but also local production, IP creation, talent development and VFX/post-production work.

“The strategy of the cultural and economic departments of the government of the Canary Islands, jointly with us, is to boost local stories, local productions and the establishment of production companies that manage the film industry from here, on top of enjoying the tax rebate or credit,” insists Hernández. 

“We are also working with local schools and providers to join established producers to bring together more and better talent to the industry. This, jointly with the already established animation and digital arts ecosystem of companies, is making the Canary Islands one of the most vibrant audiovisual hubs in Europe.”

Figures provided by Hernández support his vision and show how the local authorities and ZEC’s strategy have borne fruit. Today, 31 production companies in the Canary archipelago are working in live action and 4 in VFX and post-production; 16 are doing technical activities established in the Canary Islands Special Zone, according to Hernández. That marks a clear leap from 2009 levels of 9 production companies making live action films and TV, 2 providing technical services, and zero VFX/post-production activity.

On the employment front, in 2009, only 1,400 persons were permanently employed in the film industry in the Canary Islands, against more than 3,100 today. In terms of temporary contracts, there were approximately 2,000 in 2018 against more than 15,300 today, according to Hernández.

“The forecast is that the growth will prove high in forthcoming years, especially with the recent improvement in the tax rebate limits,” he concluded.