Production Incentives

Incentives are the main marketing tool available to any film sector world-wide. Below is an outline of organisations and departments offering support and incentives to the filming industry.

THE SOUTH AFRICAN DEPARTMENT OF TRADE AND INDUSTRY   (DTI) The Department of Trade and Industry (the dti) offers a Large Budget Film and Television Rebate that offers financial incentives for the production of both foreign and domestic large budget film and television projects in South Africa. The incentives are: 

• The Location Film and Television Production Incentive, to attract foreign-based film productions to shoot on location in South Africa, and

• The South African Film and Television Production Incentive, which aims to assist local film producers in the production of local content. In establishing this rebate, the Government recognised that large budget film productions contribute to South Africa’s economic development and international profile by providing valuable economic, employment and skill development opportunities for the South African film production industry. The rebate ensures that South Africa remains competitive in attracting large budget film productions from abroad. These guidelines set out the eligibility rules for the rebate and outline the process involved in applying.

The rules may be subject to change from time to time. A successful provisional application will depend on the availability of funds. There are two programmes: i) Location Film and Television Production Incentive The Location Film and Television Production Incentive replaces the Large Budget Film and Television Production Rebate that was running from 2004. This component is only available to foreign-owned productions with a minimum Qualifying South African Production Expenditure (QSAPE) of R12 million and above. It provides a rebate of 15% of the QSAPE to qualifying productions in the following formats: feature films, telEMDOvies, television drama series, documentaries, animation and short form animations. The incentive requires 50% and 4 weeks of principle photography be done in South Africa.

ii) South African Film and Television Production and Co-Production Incentive The South African Film and Television Production Incentive was introduced in order to provide more financial support for locally-owned productions and international co-productions. This component is available to both South African productions and official treaty co-productions with a total production budget of R2,5 million and above. It provides a rebate of 35 per cent for the first R6 million, and 25% for the remainder of the qualifying production expenditure. The following formats are eligible: feature films, telEMDOvies, television drama series, documentaries, animation and short form animations. The incentives requires 50% and 2 weeks of principle photography be done in South Africa. Maximum rebate for both incentives is R10 million.

Details: Expenditure and Rebate Thresholds Production expenditure incurred on a film production must achieve a certain QSAPE minimum and ceases to attract the rebate at a certain level:

• Minimum spend on QSAPE should be R25 million.

• Rebate is capped at R10 million per production. Schedule Requirements In order to achieve a significant level of production in South Africa a majority of the film production’s principal photography should be filmed in South Africa: • At least 50 per cent of the principal photography schedule should be filmed in South Africa and,

• A minimum of four weeks of the principal photography should be filmed in South Africa. Eligible Formats A film production must be in one of the following formats: Feature film A film including animation commonly screened as the main attraction in commercial cinemas;

• No less than 60 minutes, or in the case of a large format (IMAX) film no less than 45 minutes; and

• is shot and processed to commercial release standards, for cinema exhibition, television broadcast or direct-to-video. Telemovies Drama programme of a similar nature to a feature film capable of exhibition on television;

• No less than one commercial television hour in length, or in the case of ‘C’ classification material and material specifically designed for children under six years of age not less than one half commercial television hour in length; and • Or in the case of a programme predominantly utilising cell, stop motion and/or

• computer animation not less than half commercial television hour; and • Is shot and processed to commercial release standards, for cinema exhibition or television broadcast. Television drama series or mini series An episodic television drama, including animation, which is either:

• Documentary or Documentary Mini Series • A non-fictional informative or educational programme or series recording real people or events that may involve some dramatisation;

• No less than one commercial television hour in length, or in the case of a large • format (IMAX) film no less than 45 minutes; and

• Is shot and processed to commercial release standards for cinema exhibition, • television broadcast or direct-to-video; and

• If a series, is limited to 13 episodes Exclusions

• Films, which fall within schedules 6, 7 or 10 of the Films and Publications Act, 1996, as amended, will be excluded from eligibility to this incentive. • Reality TV;

• An advertising programme or commercial; • A discussion programme, current affairs, news, a panel programme, a variety

• programme, or a programme of a like nature;

• A production of a public event, including a sports event; or

• A training or “how to” programme. Bundling If one applicant meets the expenditure minimums within any 12-month period across a slate of no more than three features, tele-movies or documentaries, the rebate will be available. This clause does not apply to television series. There must be a commitment to spend the full budget to acquire a provisional certificate and the final application cannot be processed until the full commitment is met and the films nominated are complete. If the films are sourced from an offshore producer it should be the same source for all bundled films. Source means a common beneficial holder of copyright. Entity Status

• An applicant must be the entity responsible for all activities involved in making the production in South Africa, and must have access to full financial information for the total production worldwide. Such overseas expenditure should be included in provisional and final applications but will not be subject to audit.

• Only one entity per film production or bundle (see above) can be eligible for the rebate.

• An applicant must be a Special Purpose Corporate Vehicle (SPCV) incorporated in the Republic of South Africa solely for the purpose of the production of the film or bundle of films and have at least one South African resident company director who should have an active role in the production and be credited in that role.

• The entity and all contractors and employees must abide by South African laws in all matters connected with filming in South Africa. Qualifying South African Production A production qualifies as South African if:

• all beneficial rights are owned by a South African; and

• The producers, writers, directors as well as the technicians, performers and other production personnel are citizens or permanent residents of South Africa unless the production requires the participation of an individual not covered by this clause

• Live action shooting and animation works is in principle carried out in South Africa. (Location shooting outside of South Africa - should the script require - may be authorised if technicians from South Africa take part in the shooting)

• The laboratory work is done in South Africa unless it is technically impossible to do so; or

• A production is approved as an official co-production by the NFVF. Interaction of this rebate with other incentive schemes Any other South African rebates, training or internship funding specific to this project may be claimed but should be deducted from the gross QSAPE before calculation of the rebate with the exception of SETA funds, which may be received after the final application or payment of the rebate.

A project that receives funding from the IDC, NFVF or private investors under 24F of the Income Tax Act No 58 of 1962 (see below) will be eligible for the rebate. An applicant must supply information on the intended and actual source of funding per the attachments Payment Provided the application for expenditure is complete and verified the dti will endeavour to approve payment within six weeks of final application. The Ministry of Trade and Industry will make payment of the rebate within three weeks of advice from the dti panel.

Contact For further information on the rebate programme and on the application process contact the Investment Services Manager or: Mapungubwe – the dti Group Campus Block A, 77 Meintjies Street Sunnyside, Pretoria Contact Centre: 0861 843 384 (Local) (+27 12) 394 9500 (International) Download the dti guidelines or visit the dti website: www.thedti.gov.za for further information.The dti’s Chief Director of Incentive Administration is Francisca Strauss at +27 (0)12 394-1259 or fstrauss@thedti.gov.za _____________________________________________________________________INDUSTRIAL DEVELOPMENT CORPORATION (IDC)

The Industrial Development Corporation also plays an important role in the provision of funding for projects and the building of infrastructure. Their vision is to become the driving force behind commercially, sustainable, industrial development and innovation in South Africa and across the rest of the continent. The IDC’s objectives include

• The creation of employment • The development of Small and Medium Enterprises

• The acceleration of Black Economic Empowerment

• To further the aims of the New Partnership for Africa’s Development The IDC operates in a broad spectrum of industries and is therefore able to offer appropriate financial assistance in the form of loan finance, by means of equity, quasi-equity, commercial loans, wholesale finance, share warehousing, export/import finance, short-term trade finance, and guarantees.

The IDC’s MEDIA AND MOTION PICTURES division offers the following financing facilities: • Equity Investment, involving direct investment into a project in the form of ordinary and/or preference equity ownership and participation of up to 49% (minority interest), as the IDC does not seek control or direct management participation.

• Commercial Loan/ Debt Finance. Term loans up to six years are structured to fit the business cash flow profile (i.e. asset-based finance and working capital). Owners’ contribution required for adequate financial structuring of the project. • Venture Loans (Quasi-equity). Minority interest in high-risk ventures with high financial returns and developmental impact. Finance is only made available after a comprehensive risk assessment and there is a minimum commercial/ venture loan value of R1 million. Rates are charged according to the project’s risk-return profile and the IDC requires some form of security. Key Investment Criteria

• Minimum IDC participation of R1 million (debt finance, quasi-equity and/or equity finance) • Each project to be considered on its own merit and show sustainable commercial viability

• Projects to deliver products for commercial exploitation in South Africa and the rest of the world • The IDC’s participation of up to 49% of a project subject to the potential risk-return profile • Project to secure a significant theatrical release and/or high profile television airing with a distributor or broadcaster acceptable to the IDC

• The IDC’s cash flow to be subject to the confirmation of all third-party funding and the draw-down schedule • The IDC requires raising and commitment fees

• The IDC requires a back-end profit share commensurate with financial participation • Recoupment on a pro rata pari passu basis with other investors • The IDC will expect to share in the rights (copyrights and ancillary rights) proportional to its investment

• All credits (front and end) to be negotiated in good faith between the parties • The IDC’s representatives to be entitled to attend all stages of production

• The IDC’s investment to be expensed only in Africa. For detailed information visit the Media and Motion Pictures section of the IDC website (www.idc.co.za) Industrial Development Corporation of SA LTD 19 Fredman Drive, Sandown P.O. Box 784055 Sandton, 2146 Tel: 011 269 3000 Fax: 011 269 3116 Enquiries: 086 069 3888 Email: callcentre@idc.co.za Web: www.idc.co.za _____________________________________________________________________ NATIONAL FILM AND VIDEO FOUNDATION OF SOUTH AFRICA (NFVF)

The National Film and Video Foundation (NFVF) is a statutory body established by Parliament, to promote the growth and development of the film and television industry in South Africa. According to the website: “The NFVF strives for a South African Film and Video Industry that is representative of the nation, is commercially viable and encourages development.” It has also been specifically mandated to:

• Conduct research into any field of the film and video industry

• Liaise with individuals, institutions and other government bodies in order to achieve the objectives of the NFVF.

• Monitor, measure and plan national strategies for the industry, and advise government on policy relating to the industry.

• Coordinate effective relationships between government, the film industry and regulatory bodies. The National Film & Video Foundation has built a solid reputation for nurturing and supporting the developing film industry.

In particular, the NFVF’s funding mechanisms are vitally important for the growth of Amathole film makers. The NFVF makes funding available in the following spheres: • DEVELOPMENT FUNDING • PRODUCTION FUNDING • Repayable loans for MARKETING AND DISTRIBUTION • EDUCATION AND TRAINING BURSARIES & GRANTS The NFVF will consider funding support for the production of films and documentaries, either through repayable loans or grants. NFVF funding is primarily as an investment and the Foundation recoups its expenditure on delivery of the finished product. In the case of a co-production, recoupment applies only to the South African distribution component. If a product is not completed, the NFVF reserves the right to be reimbursed.

Only South African-owned production companies with reasonable experience may apply for production funding in the genres of documentaries, feature films, short and specialised film and video productions, pilot of a television series with broadcast commitment or animation and multimedia projects with an audiovisual component. The NFVF also accepts applications for funding in the areas of education and training; development; and marketing & distribution. For further information visit www.nfvf.co.za _____________________________________________________________________ SOUTH AFRICAN REVENUE SERVICES (SARS)

Tax Policy is a key area of government facilitation. The South African Revenue Service (SARS) offers tax incentives under Section 24F of the Income Tax Act. The South African Revenue Services (SARS), through Section 24F of the Income Tax Act, grants a deduction of the production cost of a film to the film owner. It excludes any deductions for production costs or any allowances relating thereto under any other provisions of the Income Tax Act and provides for a film allowance instead. Section 24F also provides that a film owner may deduct a film allowance from his income. It is advised that if a production wishes to access Section 24F, a specialist tax professional in this area be consulted. As a general rule, a film owner is allowed a “film allowance” in respect of the production and post production cost incurred in respect of the film used in the production of income or from which any income is received by or accrues to the film owner. Section 24F(1) defines a film owner as “any person who owns, whether solely or jointly a film’. In order to qualify for the allowance, a person must acquire a bona fide ownership of a film or film right in order to qualify as a “film owner” for the purposes of the allowance. Special deduction that a film owner may claim • production and post production cost incurred in respect of the film; • marketing expenditure in respect of South African Export Film (SAEF marketing deduction);and • print costs in the making of the film ( print cost deduction). DEFINITION OF PRODUCTION COSTS UNDER SECTION 24F Refers to the total expenditure incurred by the owner in respect of the acquisition or production of the film, including: • Salaries, legal, accounting or other fee, commission or other amount payable for any purpose of or connected with the production of the film; • Costs of acquiring story rights, script, screenplay copyright etc; • Insurance premiums for insurance against injury to or death , loss of or damaged to property employed or used in the production of the film; • Premiums or commission payable to secure a guarantee that the film will not exceed a specified amount; • Interest, finance charges and raising fees incurred for the purpose or in connection with the production of the film; • Cost of acquiring or creating music, sound or other effects that form past of the film. Costs for the erection, construction or acquisition of any buildings are excluded. The film allowance granted in terms of section 24F of the Act remains unaffected by the DTI’s rebate scheme, and is available for the same productions. However, it is important to note that this film allowance is only allowed to the extent that payment has actually been made without using credit or loans, or alternatively to the extent that the film owner is at risk of suffering an economic loss. Since guaranteed rebates will reduce any economic loss that might be suffered, the section 24F film allowance will generally initially be reduced, and the balance claimable only once the loan finance has been settled. SARS may attempt to reduce the film allowance by the amount of the DTI rebate received, in terms of section 23(n) of the Act. This section of the Act was inserted with the introduction of the tax rules for Public-Private Partnerships, and prohibits any deduction or allowance in respect of any asset, to the extent that an amount is granted to the taxpayer by the Government, which is exempt from tax, and which is granted for the purposes of the acquisition of that asset. Since the DTI rebate is granted by the Government, is exempt from tax, and could be said to be granted for the purposes of the acquisition of a film, it appears prima facie that the film allowance should be reduced. However, a contrary view could be taken, based on the principle of legal interpretation that legal provisions should not be interpreted in such a way as to render them void, and that the only way to give any effect to the tax exemption for the rebate is to adopt the interpretation that section 23(n) of the Act will not limit the section 24F film allowance claimable. Clarification in this regard is needed from SARS. NON-SECTOR SPECIFIC INCENTIVES The South African government has additionally introduced a range of business and skills development incentives which may be applicable to the film sector. These include: _____________________________________________________________________ DTi’s Export Marketing Initiative (EMIA)

This programme is specifically designed to financially assisting exporters (including film producers) with the costs incurred in respect of their efforts to • develop export markets for South African products and services • recruit new foreign investment into South Africa. Programmes offered under the EMIA scheme include: • Primary Market Research • Foreign Direct Investment Research • Individual Participation at International Exhibitions: • Exhibition Assistance at National Pavilions • Ad hoc Group Exhibitions • Inward/Outward buying/selling/investment trade missions In general, the above listed programmes offer South African businesses a range of benefits (dependent on the exact nature of the promotional activity.) These benefits generally include a portion of the airfare, daily subsistence fees, support towards transport of samples, translation of brochures etc. The DTI also offers assistance for Specific Industry Sectors: • 50% to 80% of approved projects that will contribute to the development of the industry as a whole. • R50 000 to establish an export council. • For Export councils, a membership income matching grant to maximum R500 000 per annum. • Generic advertising and publicity: a matching grant to a maximum R250 000 per annum. • Other marketing materials: a matching grant to a maximum of R100 000 per annum. • Local trade exhibitions: a matching grant to a maximum of R100 000 per annum towards the cost of space rental and construction of stand. _____________________________________________________________________ Small Enterprise Development Agency (Seda)

The Department of Trade and Industry’s Small Enterprise Development Agency is a one-stop centre for small businesses. It seeks to make entrepreneurs aware of services and products that could be of benefit to their business, including in-depth information on franchising in South Africa. SEDA is primarily a co-ordinating body and has links with government, the private sector, the media and academic institutions. ____________________________________________________________________ Skills Support Programme

The Skills Support Programme (SSP) is a cash grant for skills development with the objective of encouraging greater investment in training and creating opportunities for the introduction of new advanced skills. The grant is aimed at benefiting investors engaged in manufacturing, tourism, information and communication technology, and culture industries and is payable to new projects or the expansion of existing projects. There no restrictions on the type of training that can be conducted. Training activities that cover procuring training equipment, upgrading instructor competence, training in-house assessors, printing of learner materials and designing learning programmes, material and curricula - all qualify. ___________________________________________________________________ Black Business Supplier Programme The Black Business Supplier Development Programme (BBSDP) is an 80:20 cost-sharing, cash grant incentive scheme, which offers support to black-owned enterprises in South Africa. The scheme provides such companies with access to business development services in order to assist them in improving their core competencies, upgrading managerial capabilities and restructuring to become more competitive. _____________________________________________________________________ Support Programme for Industrial Innovation The support programme for industrial innovation aims to encourage the development of technologically advanced products with great commercial potential. It is a matching grant scheme, in other words, a 50% subsidy. The grants are limited to R1, 5million per project. _____________________________________________________________________ Partnership in Industrial Innovation This program also offers a 50% grant, but it is repayable. It applies only to projects larger than R3million. Repayment is based on a negotiable formula that relates to future sales of the product. In the event of an unsuccessful project, there would be no obligation to repay the grant. ____________________________________________________________________ IDC Franchising An area of activity that may also have relevance in the future is FRANCHISING. The IDC facilitated approvals amounting to R110,4 million. For the first time ever, this included investments in the real estate, retail and cellular telephone sectors within the Franchising industry. The funding amount led to the creation of 1 731 job opportunities BEE businesses received 90% of the total amount approved. Township franchised businesses received R13,9 million of approved finance. ___________________________________________________________________ National Empowerment Fund The National Empowerment Fund Trust supports broad-based black economic empowerment. It fosters entrepreneurship among historically disadvantaged people and promotes their business ventures by providing equity and debt funding in accordance with venture capital principles. The trust’s targets include funding for start-ups, expansion and buy-ins and buy-outs from black South Africans. The trust may support businesses that are not currently black-owned or managed, provided there is a detailed plan to ensure meaningful black owner/management participation within a reasonable period. ____________________________________________________________________ Business Partners Business Partners Limited is a specialist investment company for small and medium enterprises. It provides a full-service offering for entrepreneurs, including tailored investment solutions, property broking, property management, mentorship, consulting and on-going business support through industry-specific units. Total business solutions are individually structured to meet the specific need of a wide range of entrepreneurs, from single-owner private practices to multi-owner management buy-outs or buy-ins (MBOs and MBIs) The company invests in independent enterprises in the commercial, manufacturing and services sectors of the economy, with the exception of on-lending activities, farming operations and non-profit organisations. Value-added services are offered on an independent basis, both pre- and post-investment. Business Partners Limited comprises two discipline-specific operating divisions, namely Business Partners Investments and Business Partners Properties. Professional mentorship and consulting services are, in turn, provided by Business Partners Mentor and Consulting Services. ___________________________________________________________________ The Business Partners Empowerment Fund The Business Partners Empowerment Fund aims to facilitate the participation of black entrepreneurs in the mainstream economy through equity participation in well-established white-owned businesses that are in need of an empowerment partner to ensure future growth. Unlike any other investment fund of its kind, the criteria for this Fund require that the black partner or partners be involved in the business full-time, ensuring that empowerment is real and that value is being added to the business.