Second passage of incentive for cinema will remain active through 2013.

It’s official, the Italian film industry will continue to offer tax credits for foreign and local productions – as well as relief to exhibitors as they work to digitize Italy’s 4,000 some screens, thanks to the second passage of the incentive for cinema, which will remain active through 2013.

The second round of incentives was secured on Saturday after both houses of the Italian parliament signed off on the nation’s fiscal package. Now, only Italy’s President Giorgio Napolitano must sign it into law, which he should do next week.

It wasn’t easy to keep the incentive on the agenda of Italian lawmakers. Due to Italy’s massive public debt, cinema was a hard sell. In fact, lawmakers put off a decision when the first round of incentives expired in December 2010, simply extending the existing incentive through June 2011.

It gained passage for the full three-year term because it will be funded by a bizarre ‘ticket tax’ wherein one Euro, or approximately $1.38 of each cinema ticket– will go to funding the sector.

Exhibitors protested this tax, with Paolo Protti, president of Agis, Italy’s main entertainment organization saying the government was essentially reaching into citizen’s pockets. He called the move “dangerous” and “counter productive.” Producers, like Riccardo Tozzi of Cattleya who is president of producers organization Anica agreed it was not the best of solutions, but also said “there was no immediate solution,” when the idea came forth earlier this month.

Cinema tickets average at $9 (euros 6.50) here nation wide, costing slightly more in the capital and for 3D. By July, filmgoers will pay one Euro more. In 2010, admissions amounted to just under 110 million tickets - now this amount in euros will go back into the sector.

Producers that want to utilise the tax credit will find they benefit while the cameras are rolling. To obtain the credit, films are subject to a cultural text and, foreign producers must work with an Italian production service company that obtains a tax credit Italian social security and withholding taxes for its Italian employees, such as cast and crew.

And, thanks to a separate EU law in vigor as of 2011, foreign producers no longer have to pay VAT – creating an additional 20% savings off Italian spend, an extra boost in helping offset the strong euro.

The Tourist, shot in Italy in 2010, is one of eight US films that utilized the credit. It received the maximum credit of $6.9 (E5m). Other films to utilize Italy’s tax credit have included Summit Entertainment’s Letters To Juliet, The Weinstein Company’s Nine, Focus Features’ The American, and New Line Cinema/Warner Bros’The Rite.

The tax credit is also offering advantages to straight Italian co-productions and now allows non-film businesses to invest in production. Italy’s Intesa bank invested $3.4m (Euros 2.5 m) into Sean Penn starring This Must Be The Place, the upcoming film directed by Paolo Sorrentino.

Additionally, the Italian portion of the co production can obtain 15% tax credit of the overall cost of production for up to $4.8m (Euros 3.5m).