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The South African Revenue Service has published a guide providing general guidance on the exemption from normal tax for income derived from the exploitation rights of a film.
South Africa had provided an incentive aimed at stimulating the production of films within South Africa. It previously provided an upfront tax deduction, or in some circumstances a deduction which was spread over 10 years, for certain production or post-production costs actually incurred by the taxpayer.
That incentive was repealed and replaced, with effect from January 1, 2012, by an exemption from normal tax on income derived from the exploitation rights of approved films. The exemption applies to all receipts and accruals of approved films if principal photography commenced on or after that date but before January 1, 2022.
The income derived from the exploitation rights of a film are exempt from tax under if the National Film and Video Foundation has approved the film as a local production or a co-production; if the income is received by or accrues to an investor acquiring the exploitation rights before the completion date of the film; and only to the extent that the income is received or accrues within a 10-year period after the film's completion date.
Taxpayers may also claim a net loss on a film in a year of assessment commencing at least two years after the completion date of the film. The deduction of a net loss results in a taxpayer being unable to claim the tax exemption on the particular film in the future.
The guide also confirms that any grant under the Department of Trade and Industry film production incentive received by a special purpose corporate vehicle responsible for the production of a film will be exempt from normal tax. In certain cases, if the grant is passed on to an investor, the investor will also qualify for the exemption.
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