There is much confusion over the new VAT rules due to come into force on January 1st 1993 as part of the European Single Market.

Artlaw has been trying to unravel a complex and developing situation with a view to presenting readers with a clear statement of the VAT scheme operating in the UK from January 1st 1993. We have succeeded, in part, and present here the latest information we have been able to glean.

Currently, VAT is charged at different rates and in different ways in all European Community member states. In the UK there are two rates: 17.5 per cent standard rate and zero rate on some items, for example, books and children’s clothes; in Germany, there are two rates, in Belgium there are three. Most member states have special VAT rules for antiques and artworks, Some countries allow VAT to be charged at a reduced rate. In Germany the rate is 7 per cent, in Belgium and the Netherlands 6 per cent. In France VAT is paid at the standard rate, but only on 30 per cent of the value of the value of the artwork.

In the UK the standard rate of VAT need only be charged by an art dealer on the margin of profits, not the total price or, in relation to a studio sale by artists if they are registered for VAT. But the UK is unique in not charging VAT on works imported into the country, except on contemporary works of art executed after 1973. These differences hamper the operation of free competition across the Single European Market Goods, including artworks and antiques, are obviously likely to be less expensive in a country where tax is charged at a lower rate or not charged at all. Therefore to promote free competition the European Commission wants to harmonise VAT rates throughout the European Community by 1997. In the short term, however, new transitional rules have been adopted.

The transitional rules focus on three areas:

  1. There are new procedures for how, and, when VAT is required to be charged on exports to other EC states.
  2. The harmonisation process for VAT rates is commenced by putting VAT into two broad rate bands:
    1. a standard rate of not less than 15 per cent (which means, for now, our 17.5 per cent.)
    2. a reduced rate of not less than 15 per cent (This rate may apply to cultural events and exhibitions, if the national government so provides; however, this transitional provision does not apply to artworks or antiques.
  3. The European Community must adopt further VAT rules concerning art, antiques and second-hand goods by December 31 1992. No specific rules for art and antiques have yet been adopted despite the efforts of an EC Working Group and meeting of the EC Council of Finance Ministers.

Accordingly, no-one yet knows what will happen to art and antiques in the single market, but current EC proposals for VAT rules on art and antiques are:

  1. VAT to be paid only on the margin of profit
  2. A rate of 5 per cent to be charged on imports into the EC to cover antiques and both contemporary and older works of art. (That is, no distinction between pre- and post-1973 works.) The current EC proposals would mean that while only 5 per cent VAT will be levied on contemporary artwork imported from a non-EC country (such as the USA), British artists contracted to sell through British dealers and galleries will continue to have the rate of 17.5 per cent charged on their works. This is clearly unfair to British artists, though, clearly, not to those contracted to dealers elsewhere in the European Community. It is generally acknowledged that the UK is the art dealing capital of Europe, with some 75 per cent of the European art trade being conducted here. In 1990, exports of artworks were worth over £1.5bn – hence the interest of the government. However, it is also generally accepted that the UK’s current VAT rules on imports of art and antiques is the single largest factor determining the UK’s pre-eminence in the market place.

If the UK had to charge VAT on imports, many fear that trade would be lost to the UK and Switzerland. (Geneva, for example, has become the centre of the European jewellery market, in part because import taxes are levied on jewellery entering Britain.) London art dealers claim that they do not want special exemptions for the UK, but that their proposed VAT exemption on imports should cover all EC countries. They also argue that if the VAT directive comes into force as currently drafted it will be impossible to have an international art market anywhere within the single market. The EC will have eradicated differences between VAT in member slates and created a level playing field for art dealers within Europe, but at the expense of diminishing the European share of the world art trade. The situation remains fluid. But whatever emerges, the final situation may offer makers of contemporary artwork significant opportunities to organise their affairs with dealers and galleries in the EC to their own best advantage. This is the current situation as we understand it. We have simplified an extremely complicated legal and regulatory scheme. Please do not rely on this article for practical purposes; for more information contact: Customs and Excise, Single Market Unit, 11th Floor, 22 Upper Ground, London SEI, tel: 071 865 5031.

How and when VAT is paid
From January 1st 1993 border controls will be abolished, VAT will no longer be paid at the border of the importing EC country. Instead there are two new systems – which one is used depends on whether the buyer is VAT-registered.

  1. If the buyer is VAT registered, the seller in one EC country need charge no VAT, all he or she must do is take the buyer’s VAT number. The buyer then returns to his/her own EC country and pays VAT through his/her normal VAT returns.
  2. If the buyer is not VAT-registered, the seller charges VAT at the national rate (in the UK 17.5 per cent) and the buyer pays it before returning to his/her own EC country.

For more information contact
European Commission 071 973 1992.

© Henry Lydiate 1993



This article is from the Artlaw Archive of Henry Lydiate's columns published in Art Monthly since 1976, and may contain out of date material. The article is for information only, and not for the purpose of providing legal advice. Readers should consult a solicitor for legal advice on specific matters. Artists can get free online legal information from Artquest.