A legal change turns music and theater into a haven for investors.

Neither technology, nor renewable energy, nor pharmaceuticals. Not even infrastructure. There are investors in Spain today who seek maximum returns in culture. Thanks to a legislative change made in 2021, private investment in musical, dance, circus, and theater shows is growing, adding to film production, which already enjoyed high returns of up to 20% for private investors through Corporate Tax deductions since the passage of the Film Law of 2007.

“Without this formula, we wouldn't have been able to put on shows like Singing in the Rain, The Producers , or La Cage aux Folles ,” Jordi Sellas, theater producer and director of the Ideal space, explains to La Vanguardia . “It's a very useful tool that we've used since the law reform was passed. It's a good alternative given that we don't have adequate patronage regulations that allow us to channel private investment toward culture and the arts,” he adds.

He also states that the performing arts sector "worked hard to promote this reform, as the previous regulations were very fragile, but now there is legal certainty." However, he insists that this regulation, included in Article 36 of the Corporate Income Tax Law, "should not be the last step." "Hopefully, in the future we will have a good patronage law," he insists.

Isabel Vidal, general director of Grup Focus and the theater association Adetca, agrees with Sellas on the effectiveness of this legal tool: “There are many producers who use it. It's a practice that's already well established in the sector and is functioning normally,” she points out. “The reform has increased security, but no one gives dollars for nothing, and investors should seek professional advice. If done well, it's a profitable investment.”

Treasury and patronage

Another legislative reform, approved in April 2023, gave patrons a boost. The new regulation of the Patronage Law included tax reductions for individuals and companies that support cultural initiatives such as music, architecture, and the arts with their donations. Under the previous regulations, which dated back to 1994, although they had been reformed in 2002 and 2014, individuals who provided financial support to non-profit cultural foundations were already entitled to deductions when filing their income tax returns. The first €150 was eligible for an 80% deduction on personal income tax, and the remaining donation was also eligible for a 35% tax discount. Under the new law, which has been in effect for two years, the first €250 of the donation enjoys an 80% deduction. The remaining amount is eligible for a 40% tax deduction. Something similar happens when companies make contributions to non-profit cultural organizations. Previously, these donations enjoyed a 35% corporate tax deduction. The new law raised this discount to 40%.

The Film Law, explains Roger Moreno, head of the tax department at QY Abogados, a Barcelona-based firm specializing in entertainment law, already stipulated that "investments in audiovisual productions such as feature films, short films, fiction series, animation, or documentaries would entitle the producer to a generous deduction on Corporate Tax."

The tax authorities were generous with the audiovisual sector, but neglected other cultural areas such as music and theater. A gap that the legislator attempted to address by extending deductions under this same tax to the production and exhibition of live performing arts and musical shows.

"However, these deductions were channeled through very complex transactions," Moreno adds. Things were resolved with a legislative amendment in 2021 that "allowed all investors in film, musical, or theatrical shows to access the deductions in a clear and secure manner, expressly approved by law through an instrument called a financing contract," the lawyer adds.

The success of this mechanism has been such that in 2022, deductions for this concept increased by 61%, according to data from the Tax Agency. "It's a form of patronage that allows producers or promoters to transfer the deduction they have generated to third parties, thus rewarding investment in culture with significant tax benefits," he says.

How does this formula work? The producer or promoter of a film, concert, dance show, circus, or theater performance is entitled to a significant deduction on corporate tax. And the law allows them to assign it to a third party through this financing agreement.

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This third party, which thus becomes a patron, must be a commercial company, entrepreneur, or professional. These potential investors can allocate a significant portion of their Personal Income Tax or Corporate Tax contributions to promoting culture, depending on their tax status.

“I decided to invest in this product in 2023,” explains a professional who helped launch a new music festival. “I made a €50,000 contribution in December. I recouped my investment and made a €10,000 profit in just seven months.” However, as with any artistic project, there is a risk factor, as a production can be canceled. And deductions aren't applicable until the project is completed, which in the case of a film can be several years.

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The film industry continues to receive better treatment. The law allows the deduction base to include all production costs, which is not the case with musical or theatrical shows, where, for example, the cost of a soccer stadium rented for a major concert is not allowed to be deducted.

The legislator plans to narrow this gap with a new regulation expected to be approved this year, which will bring music and theater closer to film by broadening the range of potential investors. The possibility of allowing other cultural actors, such as artists or venues, to generate and transfer the deduction to third parties is also being studied.

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Aitor Fernández, of TaxDown, proposes that salaried employees also be able to invest. “Most of our clients are professionals who pay income tax, and it's difficult for them to access these investments because they have to pay a very high tax rate,” he says. Fernández believes this new type of patronage could be democratized if “production companies accepted many investors who invested small amounts” in their music festivals or theater shows.