When the new Paddington film opens in the UK next month, audiences will have little idea that the eponymous bear’s adventures were played out in part in Colombia, rather than his traditional home in neighbouring darkest Peru.
This ursine scandal — which prompted outrage among lawmakers in Peru about the financial incentives for filming over the border — highlights the crucial role played by tax credits being offered for international productions by countries from Abu Dhabi to Australia.
“It’s an international arms race,” said Sir Peter Bazalgette, the veteran television executive and producer who advises the British government on creative industries policy.
“Technology has meant that you can shoot pretty much anything anywhere so productions have become much more promiscuous.”
After a century of making movies and TV in Hollywood, the world’s biggest studios, streamers and production houses are being lured by ever increasing tax breaks from overseas governments.
Without such incentives, movie executives warn, many productions would struggle given the high costs for labour and facilities in markets such as California. Studios and streamers are eager to find ways to keep costs lower after a bruising three years, first in the pandemic and then from the Hollywood strikes.
Now, high inflation in the US has sparked a feeding frenzy among rival locations in Europe, the Middle East and Asia, which are seeking to capitalise on their often cheaper locations with significant financial lures.
“Tax credits are massively important,” said Jane Turton, chief executive of production group All3Media, which makes Call the Midwife and The Traitors as well as Squid Game: The Challenge.
“The creative is always the number one priority but I am not sure you can create a sustainable drama business without the benefit of at least some sort of support,” she said. “Every major production company will have at least one senior member of the team whose job it is to understand how to use the various models available in different countries and states. Funding drama is especially challenging at the moment and expertise in finding incentives and support is critical.”
Amazon MGM Studios filmed the first season of The Rings Of Power in New Zealand and the second mainly in the UK, with both countries offering financial incentive schemes. Some of the show was also filmed in the Canary Islands, which offer an even bigger 50 per cent tax rebate on eligible costs.
Last year, Malta paid a large incentive to a subsidiary company of Paramount to attract the production of the latest Gladiator film as part of its tax rebate scheme, according to the Times of Malta.
These financial lures are becoming more attractive as governments fight to secure production for their countries. Earlier this month at Mipcom, the annual trade show for the television industry in Cannes, the Abu Dhabi Film Commission boosted its tax rebate for the world’s film production industry to fuel interest in shooting in the emirate.
The existing cashback rebate has supported more than 150 major productions since 2013, according to Sameer Al Jaberi, head of Abu Dhabi Film Commission, including films in the Mission Impossible series. A tax rebate starting at 35 per cent will, the ADFC said, “entice further production from Hollywood, Bollywood and the Arab world to shoot in Abu Dhabi”.
Al Jaberi told the Financial Times that the scheme had led to a “huge impact on our economy” with every dirham paid leading to more than three dirhams back into the economy.
In the UK, one of the first decisions by the new Labour government was to extend tax reliefs for independent, first-time productions. The Irish government has also announced new tax incentives for films in its 2025 budget.
Australia this summer boosted its tax incentives for foreign movies and TV series. Kate Marks, head of Australian locations marketing agency Ausfilm, said that this “will provide certainty for international productions” in the country, which had already attracted movies such as The Fall Guy and Kingdom of the Planet of the Apes.
For host nations, film and TV production helps drive the economy, providing jobs and training, which in turn can help develop a more vibrant domestic industry. Tax credits often come with a stipulation that the production must have a local writer or director, or be certified as an official co-production.
A study on the economic impact of Spanish tax rebates by the Spain Film Commission this month found that every euro invested in the programme led to €9 in economic impact.
The study estimated that an average of 7,080 jobs had been supported across Spain’s wider economy, with productions in the country including Wes Anderson’s Asteroid City and Netflix shows The Crown and Kaos.
“Markets where [subscriber growth] aligns with favourable local production incentives are a particular sweet spot — we’ve seen this in territories like Spain, for example, which offers attractive tax credits and the promise of exportability for Spanish-language content to the wider global market,” said Alice Thorpe, research manager at Ampere Analysis.
Marco Bassetti, chief executive of Banijay Entertainment, the world’s biggest independent production group with more than 120 production houses in 21 territories, said that the competition for productions between countries, regions or states had never been fiercer.
Many of the countries that offer financial lures also have access to high-quality production crews and facilities, he said, with no discernible difference between them.
However, Bassetti added that incentives are only part of the package, with the wider cost of production also a factor. The US has become expensive — for crews, casting and equipment — compared to other countries, he said. “Being an international production company, we can see a huge difference in packages,” he added.
However, some countries have natural advantages, producers say, that offset some of the incentives offered elsewhere. Media analyst Claire Enders said that tax credits were “incredibly important” to lure production but added that the larger studios also wanted access to talented actors and technicians, a common language and world-class facilities only available in developed countries such as the UK.
“After the strikes, Hollywood realised that it needed alternatives — the UK has become the second home for them,” she said.
Bazalgette said that “if the UK had not introduced tax credits under former prime minister Gordon Brown, then the massive growth in the industry in the UK over the past 15 years would not have happened”.
Movie producers say that they can also “stack” tax credits by filming in multiple countries, such as through French, German and Italian co-productions.
High costs for making movies and TV shows in the US, meanwhile, have put the country — and especially California — at a competitive disadvantage. Any visitor to LA will be familiar with Uber drivers — often second-jobbing as out of work actors — complaining that LA is losing its movie business.
California has its own financial offers, through a $330mn-a-year film and television tax incentive programme. But there are concerns that this is now falling short of those elsewhere: entertainment production in the Greater Los Angeles area fell 5 per cent in the third quarter, according to the latest report from FilmLA, the film office of California.
FilmLA said that this was surprising given that in 2023, “a double industry strike had for the most part paused most scripted production” — in other words, creating a more favourable base for comparison.
Nearly a quarter of shooting days recorded for TV dramas came from incentive-linked projects, showing their importance. FilmLA president Paul Audley said that while “California’s film incentive is a proven jobs creator . . . the programme lacks is funding and eligibility criteria that reflect the outputs of the industry in 2024”.
He added: “Just as our competitors continue to innovate, California must do the same.”