With the purpose of creating favorable conditions for foreign cinematographic entities for the production of films in the territory of Ukraine using Ukrainian scenic and stage facilities, pavilions, localities (locations), services of Ukrainian cinematographic entities, hotel services, etc. in Ukraine, state support for foreign cinematographic entities in the form of a government subsidy was introduced for the reimbursement of a part of the qualified costs incurred by a foreign cinematographic entity for the production (creation) of a film in Ukraine.
In case of receipt of such support, foreign cinematographic entities will be able to return up to 25% of the qualified costs for producing films in Ukraine, and additional 5% if they pass the cultural test on Ukrainian subjects. Thus, Ukraine, which possesses beautiful natural landscapes and relatively inexpensive human resources, hopes to become a cinema mecca, alongside countries such as the Czech Republic, Croatia or Hungary.
In particular, in September 2019 amendments were introduced to the Law of Ukraine "On State Support for Cinematography in Ukraine" (by adopting the Law of Ukraine "On Amendments to the Law of Ukraine "On State Support for Cinematography in Ukraine" regarding the Provision of a State Aid for a Reimbursement of Qualified Expenses Made by a Foreign Film Production during Production of a Film in Ukraine" No. 130-IX of 20 September 2019) and the Budget Code of Ukraine (by adopting the Law of Ukraine "On Amendments to the Budget Code of Ukraine regarding the State Support for Cinematography" No. 76-IX of 12 September 2019).
In addition, it is planned to introduce amendments to number of subordinate regulations for the purpose of implementation of abovementioned legislative acts. It is expected that foreign entities will enjoy the benefits of new cash rebate programs starting from 2020.
Requirements to a foreign film production entity
The foreign film production entity shall be eligible to the cash rebate of a part of the qualified expenses incurred by it in course of the film production subject to absence of residents of Ukraine among its owners, participants, shareholders, including the final beneficial owners (controllers), as well as officials of this foreign entity.
Additionally, foreign film production entity shall receive the cash rebate through Ukrainian film production entity , that must be engaged by it for film production on the basis of agreement. Such Ukrainian film production entity, among other, shall be included into the State Register of Film Producers, Distributors and Demonstrators.
Amount of cash rebate and types of expenses which can be qualified for cash rebate
The foreign film production entity shall be eligible to cash rebate of 25% of the qualified expenses incurred by it in the course of the film production, if the above requirements regarding the entity and the film are fulfilled.
The foreign film production entity may be additionally entitled to 5% cash rebate if at least one of the following criterions is met:
- at least four cultural criterions of the cultural test (as described above) are exclusively Ukrainian (culture/history/mythology/religion/architecture/environment, etc.);
- the film contains scenes (at least 5% of the total film length) in which the characters of the film read a book(s) by Ukrainian author, and the storyline/screenplay/central theme focuses on the actions of the film's characters in a way that makes it possible to identify the book(s) of the Ukrainian author;
- the storyline/script/central theme of the film is based on Ukrainian literary work;
- the storyline/script/central theme of the film is based on events of aggression against Ukraine and the film directly the asses the illegal actions of country-aggressor.
The following expenses shall be qualified for cash rebate:
- salaries and other fees of individuals (actors and film crew);
- purchase of goods, services;
- rental of property;
- other costs directly related to the production of a film produced in Ukraine.
Importantly, only those expenses which have been incurred in the course of transactions with those Ukrainian taxpayers which apply general system of taxation may qualify for cash rebate (i.e. not payers which use special tax regimes such as simplified taxation system).
At the same time, the following costs cannot be qualified for cash rebate:
- depreciation of fixed assets, other non-current tangible and intangible assets;
- the cost of negotiations;
- financial expenses (including interest on loans);
- operating expenses not included in the cost of the film production;
- the cost of distribution of the film;
- travel expenses for travels outside of Ukraine;
- wages or any other types of remuneration paid to the actors and film crew who are non-residents of Ukraine, except for the expenses which are taxable in Ukraine.
Separately, the foreign film production entity may claim for reimbursement of 10% ( if personal income tax was paid in the city of Kyiv) or 4.5% (in case if personal income tax was paid in the territory of Ukraine other than city of Kyiv) of the remuneration of actors and film crew, who are non-residents of Ukraine, carry on their business and/or reside outside Ukraine (if such payments are taxable in Ukraine).
Requirements to a film
The foreign film production entities may claim cash rebate for a film that passed a cultural test. The cultural test consists of a cultural criterion and a production criterion. A film is considered to have passed the cultural test if it has scored at least 2 points on cultural criterion and at least 18 points on production criterion
Examples of cultural criterion (2 points each):
- the storyline/screenplay/central theme of the film is based on events that are part of Ukrainian or European culture/history/mythology/religion;
- the film is based on a well-known character/personality of Ukrainian/European culture/history/religion or Ukrainian/European society;
- the storyline/screenplay/central theme of the film is based on Ukrainian or European literary works;
- the film reflects important Ukrainian and/or European value(s): solidarity/equality/protection of human rights/tolerance/protection of the environment/respect for cultural or family traditions/critical thinking/the rule of law.
Amount of points that can be earned for production criterion vary from 0.5 to 4 points. Please see below the examples of production criteria each scoring up to 4 points:
- the shooting takes place on locations, in interiors or studios in Ukraine and the number of shooting days in Ukraine is at least 50% of the total number of shooting days;
- Ukrainian service providers are engaged in the pre-production stage for at least 50% of the total number of pre-production days;
- the amount of money spent on the film in the territory of Ukraine exceeds 50% of overall expenses.
At the same time, the cultural test requirement shall not apply if both of the following requirements are met:
- (1) at least one of the following services are provided in Ukraine:
- organization of production, production itself and/or animation;
- computer graphic design (CG), including creating visual effects (VFX).
- (2) at least 50% of persons involved in provision of services are citizens of Ukraine.
In addition to above, the law sets the following requirements as to type of film, its minimum duration and minimum amount of qualified expenses for the foreign film production entity to be eligible for cash rebate:
- a motion picture or animation intended for cinema viewing: minimum duration - 74 minutes, minimum amount of qualified expenses – approx. USD 347,400;
- a motion television film or animation film consisting of one or more series: minimum duration - 74 minutes, minimum amount of qualified expenses – approx. USD 97,000;
- a documentary intended for viewing in cinemas and/or to be shown on television: minimum duration - 52 minutes, minimum amount of qualified expenses – approx. USD 61,000;
- a television series or animated television series, or a separate part (series): minimum duration - 40 minutes, minimum amount of qualified expenses – approx. USD 292,000;
- a commercial or music video intended to be shown on television, viewing in cinemas and/or for broadcasting on the Internet: minimum duration - 20 seconds, minimum amount of qualified expenses – approx. USD 167,000. At that, 10% of received cash rebate for such video must be reinvested in production of debut films by Ukrainian directors.
If you have questions concerning information above or if you need support with regard to:
- applying for cash rebate and liaising with public authorities;
- preparation of any kinds of agreements (film production, services, IP license, financing, labor agreements, etc.);
- negotiations with Ukrainian counterparties (actors, film crew, service providers, location and equipment lessors, etc.);
- advice regarding tax and customs aspects of the business;
- investing and doing business in Ukraine.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.