Incentives for Film Production

Rebeca Duran

Staff Writer
The Brazil Business

Updated

31 October 2013

In Brazil, the film production industry has many possibilities for growth, that's why the government, private sector companies and even other countries are betting on this Brazilian sector through investments.

The quality of Brazilian filmmaking has grown in recent years and has attracted attention worldwide. However, it still has not found space in the domestic market. It's necessary to make such production accessible for the greatest number of people and encourage the production of Brazilian films and/or co-productions.

Another important point for the development of the film industry: the country needs to encourage the exhibition of these films through the distribution channels such as cinemas. That's fundamental, because it’s these areas – located in shopping malls, cultural centers, etc. – where most people will watch the films.

Government Participation (1990s)

The political opening of Brazil during the last decades of the 20th century showed the extent of the economic crisis that the country witnessed thanks to debt created during the dictatorship. Some state agencies, thanks to their corruption and their financial problems were dissolved by the Brazilian Government in order to cut expenses.

With the end of Embrafilmes – a Brazilian company of films created during the dictatorship – the current Government of Fernando Collor created laws to supply the lack of a company that was once responsible for the Brazilian cinema and general culture. The agencies created the:

• Rouanet Law (Law 8313) popularly known by the name of the current Minister of Culture, Sérgio Paulo Rouanet.
• Audiovisual Law 1992 (Law 8401), modified in 2001.

With the Collor government, Brazil was seeking a market opening, the process of privatization and the remodeling of the public sector. The aim of these changes were to eliminate the – so present during the Military Regime – state intervention and promote government decentralization for a self-managing society.

Reflecting this government decentralization and the consequent transfer of responsibility to the business community, the cultural sector has been weakened. Law Rouanet was created, with the goal of protect the cultural consequences of the imported avalanche that was to come with neoliberalism deployed in Brazil.

Rouanet Law

The Law Rouanet established public policies for the development and appreciation of the national culture. The policies are organized by the name of PRONAC – the abbreviation for the National Program for Culture Support. This law provides guidelines for national culture in its first articles, and its basis is the promotion, protection and enhancement of national cultural expressions.

The highlight of the Rouanet Law is the policy of tax incentives allowing companies (legal entities) and citizens (individuals) apply a portion of the IR (income tax) to the cultural sector. The percentage of:

• 6 % over IRPF
• 4% over IRPJ

Even relatively small, these taxes allowed the investment of more than 1 billion BRL in 2008 in the culture sector.

Criticisms Regarding the Law

The law was created to educate businesses and citizens to invest in culture, but with time it has been attacked. Some critics affirmed that instead of teaching companies to invest in culture, the law is actually helping them to do free advertising.

Other criticism is that the government, rather than investing directly in culture, began to let the companies themselves decide which forms of culture deserve to be sponsored. Other criticisms include the possibility of funds being diverted inappropriately.

Audiovisual Law

The Audiovisual Law, is a Brazilian law turned to the investment in production and co-production of films and audiovisual works and infrastructure for production and exhibition. The law was made on July 20, 1993. Originally the law would have been valid until 2003, but it was extended for another 20 years by Provisional Measure 2228 2001.

Under the law, the sponsors of the film can receive income tax exemption up to 100% of the amount invested in the purchase of Certificates of Investments (CI) representatives of the rights of:

• commercialization of independent production films and of distribution projects
• display and technical infrastructure.

These values cannot exceed 3% of income tax to private persons and 6% to legal entities. The entity that collects income tax based on real income can also write off the total investment as an operating expense.

Main Financing Mechanisms to the Brazilian Films

Besides Rouanet Law, among the years other mechanisms were established in Brazil in order to incentivize the national film production and culture in the country.

Sector Fund of Audiovisual (FSA)

The FSA is a public fund used to the financing of programs and projects linked to the Brazilian audiovisual industry. Created in 2006 by Law No. 11,437, is allocated the National Fund for Culture and has resources derived from Condecine – Contribution to the Development of National Film Industry – and annual allocation from the Federal Government.

The fund guidelines are set by a management committee that must define the allocation of resources, the priority areas of action, and the annual investment plan. The fund can act in all industry sectors through direct financing, loans, equalization of interest rates, participation in research projects and infrastructure, and capital acquisition of Brazilian companies.

Total Investments: 74 million BRL.

Funcines

Funcines are participation funds focused on the audiovisual sector. Funcines may invest in all links of the production chain, including production, marketing and distribution of Brazilian films, construction and refurbishment of rooms, infrastructure projects and the acquisition of company’s shares of the sector.

The Funcines guarantee to investors the possibility of tax deduction of 100% of the invested amount up to the limit of 3% (legal person) or 6% (individual) of the income tax payable. Besides the benefit, investors have the ability to recover the amount invested at the end of the term of the fund, with the possibility of return on this value.

• Funcine RB Cinema I: dedicated to the production and distribution of domestic films.
• Funcine Lacan-Downtown: dedicated to feature films distributed by Downtown Films.

Net Profit of Funcine RB Cinema I: 18.9 million BRL.

Net Profit of Funcine Lacan-Downtown:15.4 million BRL.

Riofilme

The company's distribution of Rio de Janeiro city hall played a key role at the beginning of the "recovery period" – the end of the dictatorship. In recent years, however, it has lost strength and its ability to invest has been greatly reduced. Earlier this year, the former director of Ancine, Sérgio Sá Leitão, assumed the presidency of Riofilme and, last August, he announced a restructuring plan and the resumption of investments.

Total Investments: 6.9 million BRL.

Procult

The Procult is the Support Program for the Audiovisual Production Chain. The initiative, launched by BNDES in 2006, aims to stimulate the development of national audiovisual industry through investments in infrastructure, production, distribution and exhibition. The program, which has a budget of £ 165 million BRL, was a pioneer program in offering special loans to the private sector.

Total Investments: 52 million BRL.

National Iniciatives

Regional Iniciatives