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Pay Less Taxes with Art

07.01.2022

In this blog you can learn more about art and the tax advantages it brings. Discover how your art collection can be not only aesthetic, but also a significant asset under the right circumstances.

Art can be much more than a wall decoration. Under the right circumstances your art collection can become a valuable asset. Whether you're purchasing it for business reasons or offering it to a charity, it is possible to acquire tax advantages.

A work of art is systematically exempt from EWB (Fortune Solidarity Tax). An artwork sold for less than 5000 Euros is automatically exempt from tax. Over 5000 Euros, the item sold will be taxed at 5%.

Artwork from top artists from Eastern Europe, fine art, modern art, art shop

Lovers of paintings or antique furniture, you like to shop in art galleries or antique dealers. But did you know that behind your passion lies a profitable patrimonial operation?

According to article 8551 of the General Tax Code: ”objects of antiques, art or collectors’ items are not included in the tax bases for the Solidarity Tax on wealth”. The work of art or collection can thus allow its owner not to cross the fateful bar of 1.3 million euros which obliges him to declare all his patrimony.

Inheritance

Artworks can be valued at only 5% of the inheritance in a succession. It only concerns objects intended for the ornamental decoration of apartments, such as furniture, knick knacks or paintings; there must be no public sale within two years of the death, and no regular inventory must be produced. A masterpiece or a piece of furniture worth several tens of thousands of euros can therefore be taxed at a much lower value.

Pay tax in kind?

Art can be used to pay estate taxes or EWB. This process is called dation en paiement and few people know about it. You propose an offer to the Consolidated Revenue Fund that contains the valuation of assets offered for payment. When the administrative process is over, the work is given to the approval committee, which may or may not give their permission. The donation gives you two benefits: pay the tax with an art piece and an important delay to satisfy your tax duties.

Maybe it is time for a donation…

One of the most noteworthy tax write-offs accessible to art collectors is the capacity to write off the value of the artwork you give as a charitable commitment. Once you give art pieces to a not-for-profit organization, you ordinarily get to deduct its fair market value at the time of the donation instead of what you paid for it, so in case the art goes up in value while you own it, it will lead to a really big deduction for you. You need to own the art for one year or more to be able to write off an expanded value, and you'll write off only up to 30 percent of adjusted gross income in appreciated assets unless you subtract the appreciation from the item's fair market value in claiming the deduction.

Artwork from top artists from Eastern Europe, fine art, modern art, art shop

Decorating your office with art upgrades your space and “downgrades” you taxes

In case you have a home office for which you claim a home office deduction or in case you own a business for which you pay for an office, the cost of purchasing art for it could be a tax write-off. The IRS in general gives you the opportunity to write off all of your office expenditures against your business' profits. You can claim the purchase of some art pieces with other office decorations as well. However, it may need to be depreciated. In case the artwork is "valuable and treasured," it's not depreciable.

Specifically

The data above was gathered regarding EU countries. Let’s now present some interesting facts about specific countries in the EU.

Switzerland

In Switzerland there are duty-free warehouses that are used to temporarily store goods on which no tax or duty has been paid. The main advantages of a duty-free warehouse are:
• Temporary storage: artworks can be stored in the customs territory without paying import tax
• Credit function: for art pieces which are going to be sold in the customs territory, import duties only need to be paid after the end of stockpiling (definitive customs declaration)

Artwork from top artists from Eastern Europe, fine art, modern art, art shop

Geneva Freeport

Luxembourg

The law of 28 July 2011, in line with the provisions set out in VAT Directive 2006/112/EC, introduces a VAT suspension system in Luxembourg for specific transactions, and in particular a VAT exemption for: ‘Intra-Community deliveries and purchases of goods intended to be placed in a free zone or free warehouse’.

Although the VAT suspension system enables professionals to conduct transactions without VAT pre-financing issues or any other VAT compliance obligations (such as VAT registration in Luxembourg), all these transactions will be conducted under the responsibility of approved operators in order to prevent any risk of fraud.

In turn, these approved operators will have a number of obligations to an appropriate authority, which would be the Luxembourg Customs and Excise Department. This tax regime is essentially ‘suspensive’, meaning that the various exemptions are only valid for the time during which the goods are stored in the Freeport covered by the system. VAT will subsequently become payable when they leave these locations.

France

Net Wealth tax:
Art assets are excluded from the NWT tax base.

Income tax:
Income tax for individuals is levied at rates of up to 45%. There are also two further contributions:
• An additional social security contribution of 15.5% (CSG and CRDS)
• A high income contribution, e.g. for a married taxpayer, 3% of the difference between EUR 500,000 and EUR 1 million, and 4% of the amount exceeding EUR 1 million.

Corporate tax:
Corporate tax rate is 33.33% for companies. There is a mechanism allowing for the taxable deduction of purchases of works of art of living artists over five years.

Capital gains tax:
5% tax on sales exceeding EUR 5,000 made by individuals. Possibility to opt for the ordinary scheme of capital gains.

Gift and estate tax:
Same taxation for gift and estate tax. Rate according to family relationship. Tax rates range from 5% to 45% (more than EUR 1,805,677) with a deduction of EUR 100,000. 60% rate beyond the fourth degree of family relationships.

Keep in mind

Investing in art has tax implications one should be aware of. Understanding these implications can make the difference between a good and a bad investment. Each transaction should be considered independently, as there is no standard recipe to determine which transaction can generate tax liabilities or not. The standard question of ‘ What are the tax implications’ will always be answered with ‘it depends’ or ‘on what?’ even by experts in the field.

Some of the questions you should be able to answer:

Am I an individual investor or a corporate investor?
Where am I a tax resident?
Where am I buying from?
Who am I buying from and what is their tax regime?
With what purpose? What do I plan to do with the piece of art?

If you want to know, even more, check our more detailed guide on how to buy art for yourself and for your office. We are always here to help you to find the right artwork, you can book an appointment with us, and remember, enjoy yourself while in the process!