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For nearly a year, European art dealers and market watchers have been sounding the alarm over a new European Union rule, Directive 2022/542, that aims to standardize member-states’ notoriously complex value-added tax system. On January 1, the directive finally went into effect, though the response for member-states has been far from uniform.
Directive 2022/542 allows member-states to reduce taxes on art sales provided that the rate is over 5 percent, though at the same time they must ditch their previous, more complex taxing system. For the new system, France and Germany have slashed or kept their VAT on art sales to 5.5 and 7 percent, respectively, while others, like the Netherlands, have plans to raise it, and still others, like Belgium and Italy, have not yet announced what they will do. The EU governing body is not expected to punish members for not getting their VAT act together by the January 1 deadline, and for now, those tardy countries can continue with their previous taxing system. But the new VAT system, which leaves some of the specifics up to each country, stands to be a major boon on some regional art markets, while harming others.
As Austrian dealer Thaddaeus Ropac told ARTnews recently, variations in VAT rates can have an outsized effect on local art scenes, and even the success of individual artists’ gallery shows. “If [collectors] know an artist they’re looking into is having an opening in a country where the VAT rate is lower, they will definitely be attracted to that place,” Ropac said, noting how Germany’s previous VAT of 19 percent was a major challenge for artists and dealers in the country. “Of course it will change things.”
Since Brexit, France accounts for over 50 percent of all European art sales and between 6 and 9 percent of global auctions, per various reports, making it the fourth largest art seller in the world and the largest in the EU. Germany is next on that list, with around 2.5 percent of global art auction sales in 2023, according to an Artprice report published last year. Both of those countries have led the way on the VAT reforms: France’s new 5.5 percent VAT on art transactions is more favorable than its most recent “margin system,” which allowed sellers in France to charge a higher, 20 percent VAT solely on profits from resold artworks, rather than the total value—so long as the same work was recently sold by the artist or on the primary market. (Several EU countries still have that system in place.) Germany drastically slashed its VAT from 19 percent, down to its pre-2014 rate of 7 percent,
That is the risk Belgium is facing, where officials have floated the idea of imposing a 21 percent VAT on artworks, and doing away with the current, no longer EU-approved margin system on top of a reduced VAT of 6 percent for direct sales by artists or imports. The Belgian government is still out on what to do.
The proposal to raise the overall VAT, which has since been blocked, is tantamount to “killing the market” in Belgium, according to Patrick Mestdagh, a Belgian antique dealer and president of the country’s Royal Chamber of Art Dealers (ROCAD). He told ARTnews that art imports are resold at small profit margins for dealers, so taxing an entire artwork at 21 percent would severely hurt business, particularly in the mid-market range.
“A problem will occur immediately, because France, with its 5.5 percent VAT, has an advantage, and for the same object, the difference in price will be huge between France and Belgium,” Mestdagh said. Art is moveable, “so it would be relatively easy for a dealer to sell from France, or to settle in France. So all the major actors will disappear, and the [Belgian] art market revenue will just melt away like ice in the sun,” he said.
ROCAD has been lobbying the Belgian government to lower the VAT, along with other local organizations, including art fairs BRAFA and Art Brussels, who stand to be directly impacted. It also issued a petition last April, calling for a return to the old VAT rate of 6 percent, signed by over 7,000 people, including dealers and artists.
A spokesperson for Belgian finance minister Vincent Van Peteghem told ARTnews, “There have been several constructive consultations with the [art market] sector to hear their concerns,” and that new EU regulations would have to be left to the next government, which has yet to be formed since elections in June of last year.
Before the new directive came into effect this year, it was only possible for member states to charge reduced VAT on imported art, antiques, collectors’ items, and art sold directly by the artist. The new rule allows countries to apply a reduced VAT across the board, if desired, if it is consistent. Inversely, they could also opt to maintain or raise a standard VAT rate.
France’s now simplified, 5.5 percent VAT “is totally beneficial for the whole sector, because even museums will be able to benefit from this harmonization of the French rate,” Gaëlle de Saint Pierre, co-general delegate of the Comité Professionnel des Galeries d’Art (CPGA) in Paris, told ARTnews. The CPGA was among the organizations that lobbied the French government to lower the VAT.
“It will really allow for a more transparent, clearer system, that had been pretty complex for professionals until now,” de Saint-Pierre added.
“We were really hoping that France was going to be a sort of leader in this, and that other countries would fall in line, because we would like to have a level playing field,” said Erika Bochereau, secretary general of the the Confédéreation Internationale des Négociants en Oeuvres d’Art (CINOA), which represents thousands of entities in the art trade. Instead, “the risk is unfair competition and discrepancies in the EU art market,” notably for art fairs, for whom the VAT makes “a huge difference,” she said. “We’re watching it carefully, but there’s nothing that can actually be done on an international level.”
Bochereau pointed to the Netherlands, where the government abolished its reduced 9 percent VAT rate for cultural goods, including imported art objects, artworks sold by their creator, and others. Instead, those items will become subject to a VAT rate of 21 percent starting next year. In Italy, there had been hopes that the government would approve the art sector’s requests to lower the VAT on secondary art sales from 22 percent to between 5 and 10 percent, but locals aren’t holding their breath.
Giuseppe Calabi, a lawyer and chairman of the Art, Cultural Institutions, and Heritage Law Committee of the International Bar Association (IBA), told ARTnews the Italian government has “no room for this reduction” in VAT on art. Calabi, who also serves as an executive committee member on Gruppo Apollo, an Italian art industry association, said the group will continue pushing for “anything between 5 and 10 percent” standard VAT, but that it’s an uphill battle. The country also currently uses the margin system, plus a special, reduced VAT of 10 percent.
“Italy plays the role of Cinderella in the EU art market, because we have great potential, but the [Italian] tax regime and regulatory framework are quite punitive for collectors and art dealers, so there is no good news from this part of Europe,” Calabi said. “Galleries are already considering moving to France or Monaco, or Switzerland, or other jurisdictions where it is easier to work with less regulatory constraints and more favorable tax regimes … this will certainly not do any good for the Italian art market.”
Arguments in favor of maintaining a high VAT claim artwork is a luxury good deserving of ordinary, higher VAT rates. However, opponents to that view say art is also a cultural good, and a lower VAT will benefit artists and cultural institutions—not to mention the economic gains associated with jobs created by a thriving arts sector. “The indirect economic impact on the sector is far greater than the economic impact of the VAT,” economist Clare McAndrews wrote in a 2023 report. That report estimated that a 5.5 percent VAT in France across art transactions could lead to revenue contributions to government coffers ranging from 38 million euros to over 618 million euros.
As for competition with neighbors, de Saint-Pierre of Paris’s CPGA said she has little doubt that the new, low VAT regulation has already helped Paris hold onto a growing list of international galleries who have been settling in the French capital over recent years. She expects more to follow.