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Hollywood comes to Olivewood?

Nicolas Cage, director Demetri Logothetis and co-star Alain Moussi (right) on set in Cyprus

The imminent release of Nicolas Cage’s Jiu Jitsu is very significant for Cyprus

By Michael Pelosi and Linda Stokes

The release of Nicolas Cage’s latest film “Jiu Jitsu” on November 20th will represent a significant event, not just for his many fans, but also for Cyprus’ nascent film production industry.  The local industry though small is bursting with talent and fresh ideas. In recent years films produced locally have been screened at Cannes and Venice film festivals and won awards at the Tribeca, Quebec and Palm Springs film festivals.  The importance of “Jiu Jitsu” though, lies in the fact that it is the first ‘Hollywood’ production to be entirely filmed in Cyprus and the first high profile success story for the Cyprus film incentive scheme (the ‘Scheme’)  launched by the government in 2018.

Compliant with all relevant European Commission directives, the Scheme is directed at boosting investment and employment in the film, documentary, and television production industries and, at showcasing the country as a tourist destination.  The Cyprus government also views it as a method of promoting Cyprus and Cypriot culture.  The Scheme is overseen by the Ministry of Finance.  It has the authority to approve or reject recommendations forwarded to it by the Assessment Committee for the Film Industry Scheme (ACFS) which is responsible for vetting all applications.  The ACFS includes representatives of the finance ministry, the tourism ministry, and Invest Cyprus.  Applications are assessed against a list of strict criteria with additional credit given to projects which, for example, have a Cypriot actor in a lead role or include the use of Greek language.

Companies which are facing financial difficulties are excluded from the scheme. Full details of the scheme may be viewed by following this link.  The following is a summary of its key features.

a) Applicants must:

  1. Be legal persons in the private sector,
  2. Carry the special purpose recognition initials AVC (Audio-visual Cyprus) after their name
  3. Be registered in the Republic of Cyprus, or in any other Member State of the European Union, provided that they carry on business in the Republic of Cyprus through a branch or office in the Republic of Cyprus at least after the approval of the application,
  4. Be strictly restricted to one audio visual project. There is no restriction regarding the percentage of foreign ownership participation in the Applicant

b) Audio visual productions which may be suitable to assistance from the scheme fall into the following categories:

  1. Cinematograph films with a minimum duration of 60 minutes including those fully or partially produced with computer generated images.
  2. Television films (drama), television series or, television mini-series subject to criteria on length, quality and for series a maximum number of episodes and/or minutes per year.
  3. Digital and/or analogue animation including full feature and television animation for international distribution, whether produced on computer or otherwise, but excluding computer games
  4. Creative documentary including significant original film content and concerning a topic which will retain interest for the viewer across time.
  5. Reality programmes which directly or indirectly promote the Republic of Cyprus and its culture. These must not be perceived as either insulting customs and culture, or demeaning the people participating in the programme.

c) Specifically excluded from the scheme are:

  1. Public or special performance(s) organised for filming or other purpose.
  2. Sporting events.
  3. Television game shows other than reality programmes
  4. Current affairs programmes or talk shows.
  5. Educational Programmes presenting/explaining hobbies, projects, etc.
  6. Pornographic productions
  7. Review, Magazine-style, or lifestyle programmes

d) Assistance available under the scheme

The Scheme consists of a combination of grants and tax incentives as follows:

  1. Cash rebate
  2. Tax credit
  3. Tax Deduction for investments in Infrastructure and equipment
  4. Return of VAT on expenditure.

Applicants may not receive both a cash rebate and a tax credit. They must select which incentive they want to take advantage of.  However, either of these incentives can be applied together with the remaining incentives.

Conditions common to both the cash rebate and the tax credit benefits are:

  • The application must be submitted by the Applicant
  • The maximum aid available is restricted to 35 per cent of the eligible expenditure made in the Republic of Cyprus.
  • Minimum expenditure in the Republic of Cyprus which amounts to at least €200,000 in the case of feature films (long films), €100,000 for television drama series or self- contained drama films, €50,000 for documentaries for television or cinema broadcast and €30,000 for other television programmes. Furthermore, such minimum expenditure must not exceed 50% of the total production budget.
  • For a production to be eligible for aid, the Applicant must satisfy certain criteria, which will ensure that the aid promotes, inter alia, Cypriot and/or European and/or world culture.

Additionally, for the cash rebate:

  1. The minimum level of activity of the production within the Republic of Cyprus is set at 20% for each payment application against the budget’s total expenditures and the maximum level at 70% for each payment application. Aid for the pre-production stage cannot exceed 100 per cent of the eligible expenditures of the total production.
  2. The aid sum is payable as designated in the temporary approval certificate and following an audit of the Eligible Expenditure for Production. Payment will be made within 90 calendar days following the Applicant’s payment application.

Additionally, for the tax rebate:

  1. The sum to be deducted from the taxable income must not exceed 50 per cent of the Applicant’s taxable income for the tax year within which the production is made. The credit, to the extent that it is not granted due to the above percentage restriction, may be carried forward and be paid within the next five (5) years.
  2. The tax credit is not transferable to any third person.

Conditions attaching to Tax Deduction for investments in Infrastructure and equipment

  1. Every Applicant investing in film production infrastructure and technological equipment such as filming studios, audio visual processing premises, filming equipment, digital audio visual means, etc., is entitled to have the sum of his investment deducted from his taxable income.
  2. The aid cannot exceed 20% of the Eligible Expenditure in the case of small enterprises and 10 per cent of the Eligible Expenditure in the case of middle-sized enterprises.
  3. The investment, if it relates to equipment, must remain within the Republic of Cyprus for a period of at least 5 years.
  4. Eligible Expenditure for the tax deduction is the investment expenditure in eligible tangible and intangible assets as defined in the Scheme documentation.
  5. Additional conditions apply where assistance provided is linked to job creation. These relate to proof that the jobs created are truly additional and that they will endure for a minimum 3-year period.

The investment paid by small and medium-sized enterprises (“SMEs”), is deducted from their annual gross income. Where the deduction cannot be granted in full due to the above restrictions, it may be carried forward and be granted during the next five (5) years.

Conditions applying to VAT Return on expenditure for third countries

  1. The Applicant is entitled to VAT return in relation to any expenditure. With respect to natural or legal persons from third countries that transact with the Applicant, such persons are not entitled to VAT return except in the cases of persons from Israel, Norway and Switzerland, countries with which the Republic of Cyprus has already signed interstate agreements
  2. VAT returns arise within 6 months with respect to the legal person who carries out the foreign filming production in Cyprus from the end of the last deadline for submitting the VAT declaration for the specific VAT period during which the expenditure occurred or from the date on which the application for VAT return is filed.

For Invest Cyprus, the successful application of the Scheme to the production of “Jiu-Jitsu” was crucial to its objective of Cyprus taking a stake in the international film industry.  Cyprus has many natural advantages to offer foreign producers such as guaranteed good light and good weather, dramatic and diverse scenery, skilled workers proficient in English and good infrastructure.  The incentives offered by the scheme are intended to tip the scales in favour of Cyprus when alternate locations are under consideration.  “Jiu-Jitsu” was a test case intended to prove the efficiency of the Scheme and the suitability of Cyprus as a production venue.

In truth, all has not gone entirely smoothly. Many MPs were skeptical about the efficiency of the scheme and its benefits for Cyprus. Discussion concerning the anticipated rebate of € 8.5 million to the producers of the film was particularly fierce.  The producers also encountered problems trying to raise commercial finance in Cyprus and were forced to raise funds elsewhere.  Despite sitting on a pile of cash and being desperate find worthwhile ventures to lend to, Cyprus banks felt unable to accept documents issued by the Scheme as loan collateral.  Fortunately, this matter was subsequently resolved at the end of July with the Cyprus government agreeing that guarantees given to filmmakers could be issued to guarantee loans from Cyprus banks.

Overall, however, both sides of the “Jiu-Jitsu” project appear to regard it as a success. Director Demetri Logothetis and his production team are already laying the ground for their next film Man of War, to be shot entirely in Cyprus.   Also due for imminent release is “SOS Survive or Sacrifice” another high-profile beneficiary of the scheme starring Hollywood A lister William Baldwin. Other large international projects are also under discussion.  Success in attracting them offers the prospect of new investment opportunities such as studios, exhibition centres and editing sound suites.  Nor should the employment potential be ignored – particularly at a time when the normally vibrant tourism sector has been annihilated by the Covid 19 pandemic.  “Jiu-Jitsu” producer, Chris Economides, recently highlighted the fact that, whilst the terms of the assistance received for the film under the Scheme required the production to employ a minimum of six people, it had in fact employed 220 – 60 as actors, screenwriters etc., and a further 160 to undertake various tasks needed to facilitate the production.  To date the Scheme has resulted in the creation of around 400 jobs.  Perhaps most tellingly however, despite heated exchanges, the House of Parliament approved the €25 million budget for the Scheme in 2020 and, the Scheme will continue until June 2021 at least.

It seems that Cyprus could indeed one day live up to its’ oft touted ‘Olivewood’ potential.  In the meantime, however, you can view the official “Jiu-Jitsu” trailer here and see how many familiar landmarks you can spot!

 

Michael Pelosi is a legal consultant and Linda Stokes a publications editor at Elias Neocleous & Co LLC

 

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