China Announces Film Industry Tax Incentives

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SHANGHAI – China has announced a package of tax incentives designed to bolster its domestic film industry, including a five-year tax exemption on income derived from the distribution of Chinese films to rural areas and related copyright transfers. Similar tax breaks on film distribution have already been proposed for urban areas, especially in western China, where much of the country’s rapid construction of new cinemas is concentrated. The Ministry of Finance said that the measures would enhance the overall strength and competitiveness of China’s domestic film industry.

The inclusion of a US$16 million (100 million yuan) annual subsidy for five to 10 films with “influential themes” will do little to assuage criticism of Chinese films as being oversaturated with ideological messages. This comes at a time when Chinese film studios appear to be losing in their struggle to compete with Hollywood. Recently, the top five places in China’s box-office rankings were occupied by foreign films: Godzilla, Maleficent, Edge of Tomorrow, X-Men: Days of Future Past and Grace of Monaco.

Based on a WTO agreement concluded in 2012, China agreed to open up its film industry to a greater percentage of foreign (most importantly, Hollywood) content. This entailed relaxing restrictions on the number of imported films that can be shown annually in domestic cinemas, as well as increasing the proportion of box office revenue received by foreign film studios, which was promised to increase to 25 percent of total revenue.

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Chris Devonshire-Ellis of Dezan Shira & Associates comments, “The manner in which this incentive is constructed is likely to lead to a new generation of pro-Chinese films and increasing interest in how Western film production companies can access the Chinese market with local partners to take advantage of these incentives. As always with China, the money flows with the Government’s political ends.”

Even without these latest policies, the film industry in China is poised to boom over the coming decade. Last year, box office earnings in the country amounted to some US$3.5 billion, making China the second largest market globally, behind the combined U.S.-Canada market. Meanwhile, after adding 14 new screens per day for the year of 2013, the total number of screens in China exceeded 20,000 in March of this year.

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