A tax shelter for video games?

After years of procrastination, in 2019, the tax shelter was extended to video games. It is based on the tax shelter for audiovisual productions with the application of specific provisions. However, it has not yet entered into force. A recent draft bill makes some amendments to the tax shelter for video games. Furthermore, the draft bill provides that that the tax shelter for video games will come into force when the Minister of Finance publishes the statement in the Belgian official gazette (Moniteur belge) confirming the green light from Europe.

Gamescom 2022, one of the world's biggest gaming events, will open its doors at the end of August, and let us hope that the tax shelter for video games will have entered into force so that Belgium can communicate on that occasion.

The video game industry is very fast-growing, and its turnover exceeds that of the music and film industries worldwide. Video games, a creative product like those of the audiovisual and performing arts, curiously receive little support from the public authorities despite having high added value and the fact that its industry is creating jobs.

The tax shelter, first introduced in 2003 for audiovisual production and which was extended to the performing arts in 2017, is experiencing real popularity, with more than 130 million euros having been raised in 2021 alone. These two sectors have been organized and developed in recent years based on the tax shelter, which represents a significant portion of the productions' budget.

It is time for the tax shelter regime to benefit the video gaming industry in such a way that it can capitalize on this incentive to flourish in this very competitive market. It can take years to develop a video game, and it is during this development phase, before revenues are being generated, that companies are most vulnerable and therefore in need of a financial boost.

The sector is struggling to find the necessary funding. Furthermore, it is facing strong international competition as many countries have already started implementing a tax incentive for the video game industry.

The tax shelter for video games is largely based on existing texts for audiovisual productions and the performing arts but has been tailored to the specificities of video games. To benefit from the tax shelter, an original video game must be approved by the competent services of the Community concerned as a European video game. The definition of video game will certainly already give rise to discussions, especially regarding the "original" or "new" character of this video game. Because the envisaged criteria are far from clear.

The maximum amount that can be financed by the tax shelter is 2.5 million euros per video game, well below the 15 million euros for audiovisual productions, and 50% of the expenses budget. The legislator probably considers that the budget of a video game is less substantial than that of an audiovisual production. By introducing this threshold, the legislator may have wanted to introduce a sort of eligibility criterion by avoiding large works that could require large budgets. But it is probably also a way of not destabilizing the market too much in favour of video games.

The eligible expenses must be made in a period of 24 months, which does not take into consideration the time required to develop a video game. A period of 36 months would most certainly have been warmly received by the industry.

For the investor there is nothing new to report. He is on well-trodden ground, at least if he has prior experience with a tax shelter investment in audiovisual productions or the performing arts. Furthermore, the tax benefit and the maximum amount of his investment are identical to what prevails for audiovisual productions and for the performing arts.

The investment amounts involved are limited and there is therefore a risk of competition between these different players in a bid to attract investors. The investor will have to make a choice: only invest in video games, performing arts, audiovisual productions, or any combination of the three. There is no doubt that this new tax shelter will be successful and that it will result in a transfer of portions of the tax shelter investments for the audiovisual and performing arts to this new form of creative expression whose offer and budgets will only grow in the years to come. We can only be delighted that this sector will now also benefit from the tax shelter, creating further growth and development, perpetuating itself, ensuring talent remains in Belgium, and ultimately creating many new jobs.

Benoît Malvaux, Partner