In this series of blog posts, the tax lawyers of Mythra provide you with an overview of the existing Belgian tax incentives that you, as a game developer, could benefit from.
Today, we focus on seed capital, which are the funds required to start or expand your business. As a (future) game developer, you are full of good ideas, but you need the necessary funds to start your development. Also existing game developers (startups as well as scale-ups) might be in need of (additional) funds. Traditional banks might be reluctant to provide you with financing. To the extent the investor is able to obtain a tax benefit upon his or her investment in your business, the gathering of the required capital can go more smoothly.
Currently, Belgian game developers are able to benefit from the “tax shelter” for startups (1), “tax shelter” for scale-ups (2), tax exemption for interest on loans to startups (3), the win-win loan (4) and in the (near) future maybe also a specific tax shelter (5) for the games industry (as is the case today for audiovisual companies and performing arts).
(1) “Tax shelter” for startups
Individuals who acquire new shares representing a part of the capital of a startup are able to benefit from a personal income tax reduction. The tax reduction is limited to a participation of 30%. A company is considered as a startup during the first four years as of its incorporation, to the extent it qualifies as a small company (so-called ‘SME’, small or medium enterprise).
The tax reduction is available in case the individuals, directly, acquire shares in a startup or through a crowd funding platform, or, indirectly through either a financing vehicle, a public starters fund or a starters private equity fund.
The tax reduction amounts to 30%of the qualifying investments and is increased to 45%in case the startup (in which the investment is done) is very small (a so-called ‘micro company’).
An individual is allowed to invest a maximum of EUR 100.000 per year. Through this measure, a startup is able gather a maximum amount of EUR 250.000 during its existence.
(2) “Tax shelter” for scale-ups
The tax shelter for startups was recently (partially) extended to scale-ups. A company is considered as a scale-up as of the fifth year up to the tenth year as of its incorporation, to the extent it qualifies as an SME and subject to some other conditions. The tax reduction for investments in scale-ups amounts to 25%. As a scale-up, the total amount of seed capital may go up to EUR 500.000.
(3) Tax exemption for interest on loans to startups
Also debt financing of a startup (within four years as of its incorporation) by individuals is fiscally encouraged. An individual providing a loan, through a crowdlending platform, is able to benefit, subject to certain conditions, of a (withholding) tax exemption on the interest relating to the qualifying loan amount of EUR 15.320 (amount for assessment year 2019). The tax benefit consists out of a full exemption on the interestreceived (which in principle amounts to 30%). Contrary to what is the case for the tax shelter for startups and scale-ups, also loans granted to self-employed individuals (who do not have a company) may qualify.
(4) Win-win loan
Note that the previous incentives are different from the so-called ‘win-win loan’, which allows individuals to provide loans to Flemish SMEs (companies or self-employed individuals). This incentive is not limited to startups. It allows to invest a maximum of EUR 50.000 (per investor) and EUR 200.000 (per SME). As a result of this system, the individuals receive an annual tax credit of 2,5% on the outstanding loan amount and are able to receive a (one-time) tax credit of 30% to the extent the SME is not able to repay the amount.
(5) Specific tax shelter for the game industry incoming?
To date, a specific tax shelter regime already exists for investments in audiovisual productions and performing arts. This regime provides for tax exemption of 356%(assessment years 2019 and 2020) of the qualifying amounts invested in creative companies and may also result in a financial return.
Recently a proposal was deposited by OpenVLD in the Belgian Parliament to extend this regime to the game industry. Currently, it is uncertain whether this proposal will actually be voted to become law and whether Europe will allow it as legal state aid. This incentive however has proven to be quite successful for the Belgian audiovisual and performing arts industry. The extending of this incentive to the game industry would be most welcome, certainly for startups and scale-ups, which often have difficulties sourcing sufficient financing as the existing “tax shelter” schemes put forward strict financial limits (see above).
Want to know more?
Belgian tax legislation provides for some interesting tax incentives aimed at seed capital. Sadly, the Belgian legislator has made these regimes quite complex. Indeed, many conditions and formalities need to be fulfilled, so that the application of these tax incentives requires the intervention of specialized tax practitioners, with sufficient experience in the game industry. Should you wish to obtain more information on how the compensation for the transfer of copyright could apply to your business, feel free to contact Mythra Tax Lawyers.
In the final blog of this series, you will learn about management incentives.