China, Film Financing and Television Programming: A Taxation Guide

China, Film Financing and Television Programming

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In China, the government traditionally monopolizes the film industry so that only state-owned film studios may engage in the production and distribution of films. However, with China’s accession to the World Trade Organization (WTO), the restrictions over film production and distribution are being slowly relaxed. 

China became a member of the WTO at the end of 2001, but it did not make any commitments to open up the film production sector to foreign investors. However, China has undertaken to import 20 films a year for release on a revenue-sharing basis immediately after its accession to the WTO. This may expose state-owned film studios to greater competition. 

The film industry is regulated by the State Administration of Radio, Film, and Television (SARFT). To promote the film industry, SARFT issued the Provisional Rules on Operation Qualifications for Entry into Film Production, Distribution, and Exhibition (Film Market Entry Rules) on October 29, 2003, which was later superseded by a revised version on November 10, 2004. According to this set of rules, effective December 1, 2003, foreign investors may incorporate a film production company in the form of an equity joint venture or cooperative joint venture with China film production companies. However, the investors are required to have controlling interests in the equity joint venture or cooperative joint venture. 

Warner China Film HG Corporation, incorporated in December 2004, was the first China-foreign equity joint venture established in China for film production. However, the attempt to allow foreign investment in film production was suspended shortly thereafter. In July 2005, the PRC Ministry of Culture, SARFT, and several other government agencies jointly issued a circular, Opinions on Foreign Investment in Culture Related Areas (Opinions), which prohibits foreign investors from establishing or investing in film production companies in China. The prohibition of foreign investment in the film production industry is reemphasized under the prevailing National Foreign Investment Catalogue Guide, which provides guidance on the industries that encourage, restrict, or prohibit foreign investments under the current Chinese regulatory framework. As a result, foreign investors may only participate in the cooperation of films with Chinese film production companies on a project basis, and the majority of the cooperations are in the form of joint production, assisted production, or contracted production.

Foreign investments are also prohibited in the China film distribution industry, with the exception of Hong Kong and Macau investors, which are permitted to establish wholly owned subsidiaries in China for the distribution of China-made films, owing to the supplementary provisions to the Film Market Entry Rules issued by the SARFT on March 7, 2005 and effective from January 1, 2005. Currently, the production, distribution, releasing/showing, importation, and exportation of films in China are subject to approval by the relevant authorities, mainly the SARFT.  

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