Hefty VAT drop on arts and entertainment

They have been clamouring for a reduction since 2012 when value-added tax rose from 18% - having already gone up from 16% in 2010 – to 21%, and all arts and culture services and products moved from the bottom band, which has stayed at 4%, to the top.

With a hike in VAT of 4% to 21% overnight, cinema and theatre tickets, CDs, DVDs, books and all similar leisure items soared in price and sales dropped spectacularly.

It also led to a downward spiral in income and work for those working in the entertainment industry – from film directors and TV producers down to actors, singers and authors – who, outside of the glitz and glamour of Hollywood, frequently struggle to make a living anyway and face long periods of inactivity, and were hit even harder six years ago.

But with a new government gaining power in June this year, many practical and financial aspects of work, taxes and benefits were expected to change – and president Pedro Sánchez of the PSOE (socialists) has announced VAT on arts and entertainment will now fall into the second band, currently 10% after having risen from 8% in 2012.

Sánchez has also changed artists’ working regime so that they can continue in the Social Security system in between jobs, which includes periods of maternity, paternity and breast-feeding leave.

The latter is considered to be up to when the baby reaches nine months of age, since due to the very unique nature of their work, many artists cannot perform during this time.

Finally, they are also allowed to claim State pensions when they retire at the same time as earning royalties, something the former right-wing government effectively barred: in Spain, once a person retires and starts earning a State pension, he or she is not allowed to work – they are expected to either give up their pension and register as self-employed, or renounce earnings from any work they choose to do, including royalties from books or music they have authored.

Inspections into artists’ and writers’ affairs two or three years ago led to a backlash after many of them were fined for receiving both royalties and a State pension – but now, Sánchez says, these two sources of income are now compatible.

They will pay 8% in Social Security on royalties, although if they are under contract to a firm, they will pay 2% and the company 6%.

Additionally, income tax retentions for anyone in the arts world relating to earnings from fixed assets derived from works where the taxpayer is not the author will drop from 19% to 15%.

An example of how this works in practice would be income tax for the beneficiaries of an artist’s or writer’s will.

International film producers will face less red tape in seeking tax deductions allowing them to shoot on location in Spain.

Tax issues and inflated fiscal duties have, in recent years, put some producers off using locations in Spain, although much larger production companies – typically those linked to Hollywood and, famously, those behind the cult series Game of Thrones – have often gravitated towards the Spanish mainland and islands due to their dramatic, unusual and highly-varied landscape.

Given that big-budget films and TV serials are less likely to be put off by tax hurdles, however, it has meant smaller international producers opt to work on location elsewhere, depriving Spain of the huge economic boost it enjoys during filming.

Overall, the improved tax situation is aimed at encouraging the creative industries, especially home-grown ones.

The VAT reduction will come into force from the start of January.