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VFX: Where to get the best for your budget?

Lots of countries (and regions) have tax breaks to entice film and TV production into their jurisdiction. But the situation with visual/special effects is less expansive. The main reason for this is that most countries aren’t geared up to handle VFX jobs. Put simply, incentives won’t persuade producers to bring work to a country if the talent and infrastructure isn’t also up to scratch.

Having said that, VFX incentives play a key role when producers make tough decisions about budgets. California is still the world leader in VFX, but others are following suit quickly - andif it’s possible to achieve similar quality effects, at a lower price, than that is worth considering. Below are the major options for producers.

Canada

Canada is a very desirable production destination thanks to the quality of its infrastructure, the depth of its talent-base and its world-beating incentives. Typically, a production coming to Canada can secure attractive incentives at both a federal and a state level, with animation and VFX both being a part of the mix. British Colombia, Ontario and Quebec are all Canadian provinces that offer attractive tax incentives for VFX and animation.

The Ontario Computer Animation & Special Effects (OCASE) tax credit is a refundable tax credit based on eligible Ontario labour expenditures. It can be claimed in addition to the Ontario Film and Television Tax Credit or the Ontario Production Services Tax Credit. It is calculated as: 20% of the eligible Ontario labour expenditures incurred by a qualifying corporation with respect to eligible computer animation and special effects activities.

British Colombia, home to Vancouver, offers a similarly attractive incentive (17.5% of qualified labour). For a detailed breakdown of digital media and animation incentives in Canada, it’s worth looking at PriceWaterhouseCooper’s work on this here. Overall, Canada is the biggest challenge to California’s market leadership.

 

The United Kingdom

Paddington bear stillThe UK has a very attractive tax relief set up (see details on our production guide). Its film incentives were updated in 2014 so that the rate of tax relief for films with a qualifying budget of £20m or over rose from 20% to 25% of the first £20m of qualifying UK expenditure. The minimum UK spend threshold was also reduced to 10% from the previous 25%. This makes the UK a more attractive co-production partner, and allows a wider range of projects to take advantage of the UK’s excellent VFX and post sectors.

The Cultural Test (which assesses whether a film can qualify as British) was also modernised in a way that supports visual effects, post and wider film production. With regard to VFX, the key point to understand from these changes is that the rules have been relaxed so that a producer that wants to come to the UK purely to use the country’s VFX capabilities is now in a better position to do so.

The rationale for the change becomes clear when you look at how the UK's VFX business has grown. In 1997, the four biggest companies in the sector each employed less than 30 staff. Now they have 2000 between them. All told the UK VFX industry is reckoned to be worth £375m a year and employs 5000 people. This is an asset that the UK government is keen to protect.

 

Germany

Outside the UK, Germany is the most important film production centre in Europe – a status that has been boosted by film incentives at both a national and a regional level. In 2012, the German Federal Film Fund (DFFF) extended its subsidy programme to cover VFX for the period 2013-2015. Under the new regime, effects work done in Germany qualifies for the DFFF’s 20% production subsidy as a “virtual film shoot”, without actually requiring a location shoot in the country. A key condition of the virtual shoot framework is that a minimum of €5m and at least 25% of the film’s VFX budget must be spent in Germany. In most circumstances, this would mean more than one VFX company having to be involved in a shared project.

The quality of Germany’s VFX has been steadily improving in recent years. German companies have contributed to international productions such as Harry Potter and the Deathly Hallows: Part 1, Captain America: The First Avenger, and X-Men: First Class. Pixomondo, an international VFX firm that was founded in Germany, won an Oscar for Hugo. While the extension of the VFX subsidy has been welcomed by the local industry, it is not regarded as compelling enough to attract much activity away from leading markets Canada and the UK.

 

New Zealand

The Hunger games VFXEchoing the situation in Australia, The New Zealand Film Commission administers a Post, Digital and Visual Effects (PDV) Grant scheme on behalf of the Ministry of Business, Innovation and Employment. Eligible productions can access a cash grant equivalent to 20% of Qualifying New Zealand Production Expenditure (QNZPE) with 5% uplift for a smaller number of productions that can demonstrate significant economic benefits to New Zealand. To be eligible, productions must have incurred NZ$1m or more on QNZPE.

Productions which have received the previous PDV Grant include: Jumper, District 9, Gulliver’s Travels, X-Men: First Class, The A Team, Walking with Dinosaurs 3D, Cirque du Soleil: Worlds Away, The Wolverine and The Hunger Games: Catching Fire.

 

Australia

Australia is one of the few countries in the world to run a dedicated incentive for VFX. Australia’s Post, Digital and Visual Effects Offset (PDV Offset) is an attractive and highly sought after incentive. It offers a 30% rebate on Qualifying PDV Expenditure (QAPE) incurred in relation to PDV work. Eligible productions must have a total Qualifying Australian PDV Expenditure of at least $500,000. Eligible formats include feature films, TV-based films, miniseries, and television series, but productions do not need to be filmed in Australia.

Examples of films and TV series that have utilised Australia’s PDV services include TED, The Hunger Games, Harry Potter and the Deathly Hallows Part 1 & 2, The Green Lantern, The Great Gatsby, Ghost Rider: Spirit of Vengeance, Captain America, Thor, Iron Man and Prometheus. More details can be found here.

 

Asia (India, The Middle East, Japan, China)

India has a $2bn movie industry, so it’s no surprise to see some of its companies expanding their international activities in animation and VFX. The most high-profile activity has involved Reliance Mediaworks and Prime Focus, which are partners in a fast-growing global VFX business. Key assets include stakes in Lowry Digital, Digital Domain and Double Negative. Most of this activity has been about securing world-class facilities in LA and London, though there are sure to be long-term benefits for indigenous Indian talent as a result. As of yet however there are no VFX incentives to be had in India.

Abu Dhabi in the UAE has a 30% filming incentive that is popular with international filmmakers. The state recently attracted Fast & Furious 7. VFX is part of the work that has been undertaken there as part of the overall deal. Abu Dhabi has made it clear that it wants to be able to handle all parts of the production chain in its bid to become a regional centre of excellence in media. In 2012, Twofour 54, the AD government-backed media zone, launched an animation-VFX studio and media school in partnership with Digital Domain.

Japan’s VFX industry is well-regarded in video gaming but is not so sophisticated when it comes to film/TV VFX production. China is starting to emerge as a low-cost alternative to the main VFX markets, but it’s yet to rival them in terms of production quality. As with India, there are no VFX incentives at time of writing (though Digital Domain opened up a VFX studio there in partnership with Galloping Horse Film Company).

 

USA

As explained at the outset, the US is still the leading market for VFX, with California being by far the most important centre. California has more VFX companies then the rest of the US put together. Numerous other US states have tax incentives designed to lure production away from California, but very few have specific VFX tax incentives. This is because most states don’t have a VFX industry to match what is on offer in California. The only states that really offer a viable alternative to California and that also have tax incentives are New York and Louisiana.

New York has a stand-alone VFX tax credit of 30%, however, this only triggers if a producer spends 75% of their VFX budget in NY. This is seen as a hindrance to the widespread take up of the incentive.

 




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