Significant inflation increases have impacted most of the world’s economies, with the UK still above 10% in 2023. This increase means a reduction in the purchasing power of consumers. Together with increases in the cost of raw materials, this has created uncertainty regarding growth of entire industrial departments and reduced profit margins for companies.
VAT implications for art
When we think about fine paintings, elegant furniture or statues, these can be valuable financially and generally increase in value over time.
However, investing in art may have certain VAT implications and, in the near future, it is one of the areas included as part of:
- The checks and the proposal of the extension of OSS’ single VAT registration and,
- The review of the applicable VAT rates, as per the last EU VAT Directive 2022/542 approved last April 2022 and to be implemented in the 27 EU Member States by 31 December 2024.
Reduced VAT rates for art in Europe
Following Brexit, France’s art market has increased, with a 7% global market share and $4.7bn in total sales in 2021.
One of the key factors of France’s success is the favourable reduced VAT rate of 5.5% for works of art.
Italy has a reduced VAT rate of 10% for art under certain conditions, and in the UK, the rate is 5%.
Along with general VAT rates rules, several existing derogations allow certain EU Member States to apply lower rates. Specific geographical features, social reasons for the benefit of the final consumer, or general interest justify these lower rates.
This creates a complicated map of VAT rates for operators to navigate.
What will happen in 2025?
There are two significant VAT changes due in 2025 that could impact the art sector:
Simplification of VAT reporting and supporting documentation
Second-hand goods supplied under the margin schemes, works of art, collectors’ items and antiques will be subject to distance selling rules as of 1 January 2025. These rules make these goods subject to VAT in the Member State of arrival.
If works of art or antiques are not transported or dispatched, or if the transport starts and ends in the same Member State, the supply will be subject to VAT in the place where the customer is established, has their permanent address or usually resides.
This extension of the single VAT registration under the One Stop Shop (OSS) scheme will allow a company to register for VAT uniquely in one EU Member State and report their B2C supplies in quarterly VAT Returns
Harmonization of VAT rates
The EU Directive 2022/542 of 5 April 2022 (that amends previous Directives 2006/112/EC and EU 2020/285), on rates of value added tax, aims to “safeguard the functioning of the internal market and avoid distortions of competition“. The Directive will enter into force on 1 January 2025.
This will require the application of the standard VAT rate to art. This potential change has already raised some concerns in the art market in France.
Italy views this change as an opportunity, with Undersecretary for Culture Vittorio Sgarbi saying that Italy intends to implement the EU directive that reduces VAT on the import of works of art from 10% to 5%.
The changes are ongoing and we will keep you updated on developments to art VAT rates across Europe as they unfold.
Need to discuss reduced VAT rates for art in Europe? Speak to our team of tax experts about how the upcoming changes could affect your business.