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Digital Games Tax Offset: What It Means for Video Game Developers

Digital Games Tax Offset – Introduction

On June 23, 2023, the Digital Games Tax Offset (DGTO) became law in Australia.

This new measure aims to support eligible video game developers by providing a 30% refundable tax offset for qualifying Australian development expenditure.

But what does this mean in practical terms?

What is a Refundable Tax Offset?

A tax offset typically reduces the amount of tax a company owes.

In the case of the DGTO, it’s a refundable offset, meaning if your tax payable is less than the offset amount, the Australian Taxation Office (ATO) will refund the difference.

For example, if you owe $500 in tax but have a $1000 offset, you’ll receive a $500 tax refund.

This mechanism effectively allows the government to contribute to and boost the development budget of a video game, provided the company has already spent the money.

Who is Entitled to Claim the Offset?

To claim the DGTO, the following criteria must be met:

• Entity Type: The applicant must be a company that is an Australian resident with an Australian Business Number (ABN) or a foreign resident permanently established in Australia with an ABN. Sole traders, partnerships, and trusts are not eligible.
• Minimum Budget: A minimum of $500,000 must be spent in an income year on qualifying Australian development expenditure.
• Original Game: The game must be an original creation. While detailed guidance on what constitutes an ‘original’ game is pending, it generally excludes ports or parts of broader games.

Qualifying Development Expenditure Includes:

• Remuneration to persons (including independent contractors) involved in the development (e.g., project managers, designers, writers, software developers, testers).
• Research and underlying game infrastructure (e.g., game engines).

Excluded Expenditure Includes:

• Marketing and user acquisition.
• Travel and accommodation expenses.
• Rent or land/premises costs.
• Acquiring copyright, trademarks, or image rights.
• Computer hardware or services.

Geographic Requirement:

The development expenditure must be Australian, meaning the goods or services are acquired in Australia. This excludes expenses incurred overseas.

How Much Can Be Claimed?

A company can claim up to 30% of all qualifying expenditure, with a maximum claimable amount of $20 million per year.

This cap applies across multiple games. For instance, if three games are developed with a total budget of $90 million, the maximum offset remains $20 million.

The approximate limit of a game’s budget that can be claimed is around $66.7 million.

The ATO will group related companies for the purpose of applying the cap, so developing two games from separate companies will have their expenditures added together.

Certification Requirement

Before filing an offset claim with the ATO, developers need a certificate (completion, porting, or ongoing) from the Arts Minister. This certificate verifies that all the requirements are met.

What Counts as a Video Game?

The definition of a video game under the act is broad, encompassing games in electronic form that can generate a display on:

• Portable electronic devices.
• Computer monitors, television screens, liquid crystal displays, or similar mediums.

Digital Games Tax Offset – Conclusion

The DGTO is likely to benefit larger developers more than indie developers.

The minimum threshold of $500,000 in development expenditure will rule out many independent studios, particularly considering the expenditures that do not qualify.

Therefore, even a game with a budget over $500,000 may not meet the criteria.

Final thoughts

If you have any queries about this article on the Digital Games Tax Offset, or Australian tax matters in general, then please get in touch.

New Zero Tax Rate on Photovoltaic Systems in Germany

New Zero Tax Rate on Photovoltaic Systems in Germany – Introduction

The world of taxation and renewable energy has seen a significant shift in Germany with the introduction of the zero VAT rate on photovoltaic systems, as per Section 12 (3) of the German Value Added Tax Act (UstG), effective from January 1, 2023.

This groundbreaking move, aimed at promoting green energy, initially stirred confusion and uncertainty among stakeholders.

However, the German Federal Ministry of Finance (BMF) has released comprehensive clarifications, most recently in its letter dated 30 November 2023, building on earlier guidance from February 27, 2023.

Here’s an in-depth look at what these changes entail.

Key Developments in the BMF’s November 2023 Circular

Withdrawal Option for System Operators

One of the critical aspects addressed is the option for withdrawal.

This is particularly relevant for operators who installed their systems before 31 December 2022, and had opted out of the small business regulation to benefit from the input tax deduction.

The BMF allows a retroactive withdrawal to 1 January 2023, but only until 11 January 2024, as a protection of legitimate expectations.

Unified Supply of Photovoltaic and Storage Systems

The BMF clarifies that a combined purchase of a photovoltaic system and an electricity storage system under a single contract is considered a unified supply of goods.

This means the zero tax rate applies to the entire system, streamlining the VAT process for such transactions.

Expanding the Scope of Zero-Rated Items

The BMF has expanded the scope of zero-rated items to include solar carports and solar patio roofs, along with their direct mounts.

This extension, however, doesn’t cover the entire substructure to which the panels are attached.

Simplification for Electricity Storage Systems

For simplification, electricity storage systems are preferentially treated under the zero tax rate if they have a capacity of at least 5 kWh.

Storage systems using hydrogen as a medium are also included, provided the hydrogen is exclusively used for converting energy back to electricity.

Additional Clarity on Related Measures

The BMF’s guidance extends the zero tax rate to necessary modifications like the extension or renewal of the meter box due to the installation of the photovoltaic system.

However, it doesn’t cover other electricity-consuming systems powered by the photovoltaic system, such as heat pumps or charging infrastructure.

Invoice Identification for Small Businesses

Small businesses exclusively operating a photovoltaic system and engaging in tax-free letting and leasing can use their market master data register number in invoices instead of the VAT identification number, easing administrative burdens.

Implications and Takeaways

This comprehensive guidance from the BMF is a significant step in clarifying the implementation of the zero VAT rate for photovoltaic systems in Germany.

The circular ensures:

• Equality for Operators: Both operators of pre-2023 systems and newer installations are treated equally under the new regulations.

• Simplified Tax Compliance: The clarification on unified supplies and the expansion of zero-rated items simplify VAT compliance for businesses.

• Promotion of Green Energy: These measures are in line with Germany’s push towards sustainable energy, making photovoltaic systems more financially attractive.

New Zero Tax Rate on Photovoltaic Systems in Germany – Conclusion

The BMF letter serves as a crucial supplement to its February 2023 counterpart, providing clarity and legal certainty in the application of the zero VAT rate for photovoltaic systems in Germany.

This move not only streamlines tax processes for businesses but also significantly contributes to the promotion of renewable energy sources in the country.

Final thoughts

If you have any queries about this article on New Zero Tax Rate on Photovoltaic Systems in Germany, or German tax matters in general, then please get in touch.

Israel’s new Angels Law unveiled – a boost to the high-tech sector?

Israel’s new Angels Law – Introduction

In a bold move to bolster its standing as a global high-tech hub, Israel recently introduced the revamped Angels Law, packed with enticing tax incentives to attract investors into its burgeoning tech sector.

The legislation, effective until the end of 2026, is a strategic successor to the original Angels Law that concluded its run in 2019.

This reinvigorated legal framework seeks to accelerate investment in Israeli high-tech startups while offering an array of tax benefits that promise to reshape the landscape of tech investments.

Tax Credit

In order to ignite investment in high-tech startups under specific criteria, the new Angels Law delivers a tax credit as a carrot to investors who put their money into Israeli high-tech startups.

This credit is calculated by multiplying the investment amount by Israel’s applicable capital gains tax rate – a tax credit that mirrors what would have been levied had the investor sold their allocated shares within the same tax year of investment.

This is a game-changer that empowers investors to recoup a portion of their investment costs swiftly, thus paving the way for lower entry barriers to high-tech startups.

However, there’s a cap of ILS 4 million for this tax credit, and unused credit can be carried forward to future tax years.

Deducting Investment from Capital Gains

The Angels Law introduces the concept of deducting investments in Israeli high-tech startups from capital gains realized through the sale of shares in other high-tech companies.

For this benefit to kick in, the investment must be made within 12 months before or 4 months after the shares’ sale.

By allowing investors to trim their capital gains with the investment amount, this provision optimizes the tax landscape for experienced investors, fostering a nurturing environment for their invaluable business acumen.

Deduction of Acquisition Costs

In an innovative twist, the Angels Law permits an Israeli high-tech company that acquires control over another local or foreign high-tech entity with a “beneficial intangible asset” to deduct the purchase cost from its “preferred technological income.”

This deduction can be claimed over five years, post-acquisition.

This shift empowers companies to manage their profitability during the early stages post-acquisition, giving time for strategic investments to mature.

Tax Exemption on Interest Income

Large Israeli high-tech firms often look to foreign financial institutions for funding due to restricted domestic financing options.

The new Angels Law aims to ease this burden by granting foreign financial institutions tax exemption on interest income generated from loans extended to Israeli high-tech firms.

This exemption aims to reduce the financial strain on tech firms, facilitating smoother access to essential funding from global sources.

Israel’s new Angels Law – Conclusion

With the clock ticking until the Angels Law’s expiration at the close of 2026, the window of opportunity for both local and foreign investors to capitalize on these lucrative tax benefits is a limited one.

Israel’s high-tech sector is now primed for an influx of investments, as startups and established tech giants alike stand to gain from these enticing incentives.

As the world watches, Israel is poised to maintain its reputation as a tech powerhouse with innovation-friendly policies that will reverberate throughout the global investment landscape.

If you would like more information about Israel’s new Angels Law or Israeli tax matters in general then please get in touch.

The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article..