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Brussels, 28 April 1999

European Commission adopts report on VAT and the art market

The European Commission has adopted a report on the application of the special VAT regime for works of art introduced from 1 January 1995 (Directive 94/5/EC). It concludes that these arrangements do not have a significant adverse effect on the competitiveness of the European Union's (EU) art market compared to the art markets of non-EU countries. The EU art market shows continued growth, even if not at the same pace as total art sales worldwide (mainly because of the very substantial increase of art sales in South East Asia, Eastern Europe and Latin America). Within the EU, art market growth is uneven, with the United Kingdom (61% of EU sales) powering ahead of other Member States. The Commission considers therefore that there is no basis for prolonging the UK derogation (which expires on 30 June 1999) permitting imports of works of art to be subject to VAT at a rate lower than the minimum rate of 5%. The purpose of this transitional measure was to provide an intermediate period to allow the sector to adapt to the application of common rules.

In 1994, the EU adopted a Directive introducing special VAT arrangements relating to second-hand goods, including works of art (7th VAT Directive). At that time, the Commission agreed that it would re-examine the impact that these special arrangements had on the competitiveness of the EU art market compared to the art markets of countries outside the EU. The report adopted today is the result of that re-examination. It is based on an independent study undertaken for the Commission which collected all relevant facts on the art market and summarises the views expressed by the European art market (including associations representing the interests of the trade) and by Member States.

The Commission has found no evidence to suggest that application of VAT has an impact on the competitiveness of the EU vis-à-vis the markets of countries outside the EU (see annex). In practical terms, the effect of VAT is rather neutral, because VAT applies irrespective of whether goods are purchased within the EU or outside (see background below). Temporary importation into the EU of works of art in view of their possible sale within two years is allowed without payment of VAT when the goods are subsequently exported.

The standard rate of VAT in the EU is between 15% and 25%, the average rate being 18%. This compares with a sales tax in New York State, the major art market in the United States, of 8.5% charged on the full price.

However, taking into account that, in the EU, VAT is charged on the margin, rather than the full sale price, a private individual who is not a taxable person for VAT would have to purchase a work of art on which the vendor made a profit approaching 50% before the purchaser began to pay more tax than a resident of New York State.

The value of sales of works of art in the largest EU market, that of the UK, increased by more than the worldwide average between 1993/4 and 1996/7 (50% in the UK against 36% worldwide). This increase, which was reflected in sales by both dealers and auction houses, came during a period in which the rate of VAT on imports in the United Kingdom went from 0% to 2.5%, which indicates that there are no real grounds for concern.


For VAT purposes, works of art are treated like any other goods. An EU resident pays VAT on works of art wherever he buys them within the EU. On bringing works of art which he has purchased in a non-EU country into the EU, he will pay VAT not only on the full value of the item, but also on the costs incurred in respect of the carriage and insurance from the country of purchase to the EU. An EU resident intending to purchase a work of art will not therefore gain a tax advantage by purchasing it in a country outside the EU.

Existing VAT legislation allows Member States to apply the reduced rate of VAT (which cannot be lower than 5%), to imports of works of art, collectors' items and antiques. If Member States apply this option, they are also allowed to apply the reduced rate of not less than 5% to supplies works of art which are:

  • sold for the first time by the artists themselves or their successors

  • sold on an occasional basis by a taxable person other than a dealer (e.g. companies which have acquired works of art as an investment) where these works of art have been imported by the taxable person himself or where they have been supplied to him by their creator or his successors or where they have entitled him to full deduction of the value added tax.

In fact, the UK which is the largest EU art market, has chosen to apply not the reduced rate but the standard rate of 17.5% to all works of art sold for the first time by the artists themselves and to imports of works of art created after 1 April 1973. The UK has chosen to apply the low rate (2.5% until 30 June 1999, thereafter 5%) only to imports of works of art which were created prior to 1 April 1973.

With the expiration on 30 June 1999 of the derogation granted to the UK to apply a lower VAT rate than the reduced rate, all Member States have the option of applying "their" low rate of VAT, or the minimum reduced rate of 5% specifically to the importation of works of art if they so wish. It is of course up to Member States to make this decision.


Chart 1: Sales of works of art between 1993/94 and 1996/97 in million €

Chart 2: Sales of works of art in the Community between 1993/94 and 1996/97

[Graphic in PDF & Word format]

[Graphic in PDF & Word format]

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