Buying fine art and using it as a tax deduction is possible and becoming increasingly popular as a tax write-off method for companies and private individuals. Artalistic – a leading online platform for buying and selling fine art – covers the ins and outs of getting the best possible tax deduction on artwork.
Buying art & tax deductions: Top tips on how to get the best tax write-off on your fine art
Tax deductions on artwork for private individuals
Please note that the following information pertains to tax deductions for individuals living in France.
Just like real estate investments, art can be a wise way to invest your money that can also be financially profitable. This is entirely possible if you are a private individual looking to make tax write-offs on art you have purchased. This method of receiving tax deductions is especially popular with companies. However, in France, fine art is not included among the things that are taxable under the Impôt sur la Fortune Immobilière (the IFI or Real Estate Wealth Tax). Therefore, all French taxpayers who have invested in fine art are entitled to a tax exemption.
Top tips for private individuals concerning tax write-offs for art purchases
People subject to the IFI tax may benefit greatly from purchasing fine art. The pieces of art that are purchased are completely exempt from taxes and do not need to be mentioned on your tax return.
NB: works of art can also be used to settle inheritance taxes in France by using a process called datation de paiement, which can be very useful in certain circumstances when you may need to meet unexpected tax obligations.
What types of art are eligible?
The works of art eligible for tax exemption are defined by article 98 A of the French General Tax Code. Companies looking to buy art can also use the following list of tax-deductible art:
- Paintings, drawings, watercolors, gouaches, pastels and monotypes.
- Engravings, (woodcut, linoleum, intaglio, silk-screens) and limited-edition lithographs.
- Signed and numbered photographs taken by the artist that have been printed by them or under their supervision. They must be part of a limited-edition series of less than 30 prints, all formats and media are included.
- Sculptures with a limited edition of 8 copies, created by the artist or his beneficiaries.
- Handmade tapestries.
All art that is considered "collectable " can also be used as a tax write off.
Selling fine art and taxation of capital gains
Only fine art that was sold for more than 5,000 euros will be subject to taxation. When reselling your work of art, you can decide between the following two tax options:
- Flat-rate tax on the sale price at a rate of 6.5% (11.5% for artwork that contains precious metals)
- Taxation of capital gains on transferable securities: the tax is levied on the difference between the purchase price and the sale price. The tax rate for capital gains is 36.2%. However, a tax deduction of 5% is applied each year once you have owned the piece for two years. In the long term (more than 20 years), a complete tax exemption on capital gain is therefore possible.
Companies buying fine art & tax deductions
Please note that the following information pertains to tax deductions for companies and freelancers based in France.
In France, companies are able to get tax deductions when you purchase works of art. An increasing number of companies are reaping the benefits of this advantageous situation and even making it part of their comprehensive policy. Let’s get a closer look at how to get a tax write-off while embellishing your work spaces.
French law n°2003-709 from August 1, 2003 indicates that companies or freelance professionals that purchase original works of art created by a living artists can get tax exemptions on these works of art.
For this tax exemption, the expenditure must be deducted from the industrial and commercial profits (Bénéfices industriels et commerciaux BIC).
Make sure that you actually qualify! This method can only be used by companies that are subject to company taxes as well as companies and freelancers subject to category BIC income taxes. However, companies subject to income tax in the category of non-commercial profits (bénéfices industriels et commerciaux BNC) are excluded from this tax exemption.
Why buying fine art for tax write-offs is advantageous for companies
For companies, the financial benefit of investing in art is extremely advantageous, especially because you can choose which option best suits your situation:
- A deduction of up to 0.50% of the turnover excluding tax
- A deduction of 20,000 euros
To summarize, a company can deduct the price the work of art was purchased for over a time period of 5 years. In other words, the company can deduct one fifth of the price of the work each year within the limit of 0.5% of the company’s turnover (excluding tax) or 20,000 euros. The amount to be taken into account is the price of the work of art excluding tax. In both cases, the tax deduction can never exceed 5% of the company's annual turnover.
If a company invests in a work of art with a tax write-off as the ultimate incentive, it is responsible for the following:
- To record the artwork as a fixed asset in its accounting
- To allocate the amount of the tax deductions to a special account that will be recorded on the liability side of the balance sheet. Tax authorities provide a document for this purpose that must be sent in with their annual filing.
The law stipulates that when purchasing or leasing a work of art, it must be displayed where those visiting the place of work can see it for at least five years, starting from the date of purchase. The artwork may not be placed in a private office or in a space reserved only for company employees or clients. The works of art must be on display for public viewing.