VAT rates on art: Europe Moves Forward, Italy Stays Behind

On 3 February 2025, the Italian Parliament approved the Decreto Legge Cultura. The Italian art market had been holding its breath for months hoping for, at least, a reduction of the current 22% VAT rate on art sales to match their European counterparts.  As this blog explains, following the almost complete demise of the VAT margin schemes in the EU (but not in the UK), from January 2025, several EU countries have reduced their main rate of VAT on art, antiques and  collector's items including France (5.5%), Germany (7%) and Luxembourg (8%).

Italy, however, got a resounding niente.

Why is this important? The EU VAT Directive

On 5 April 2022, Council Directive (EU) 2022/542 was adopted, introducing significant changes to VAT taxation within the EU.

A pivotal development for the art market was the introduction of significant limitations on the use of the VAT margin schemes.

Previously, the dealer’s margin scheme allowed art dealers to apply VAT only on the margin between an artwork’s purchase and resale price. Say the dealer bought a work of art for €1,500 and sold it for €2,000. Under the margin scheme, the dealer would charge VAT on the difference, i.e. €500.  A similar VAT scheme for auctioneers allowed auctioneers to account for VAT on a margin equal to the value of the services supplied, and not the hammer price of the goods.

The Directive made significant changes to the VAT margin scheme for works of art, collector's items, and antiques, effective from 1 January 2025.  Notably, the Directive has made it impossible to combine a reduced VAT rate on purchase with the application of a margin VAT mechanism on resale.  Given that most works of art, antiques and collectible items were bought and sold under the margin scheme, going forward, they must be sold with VAT on the full price.  This also applies to items that were imported from outside the EU and brought into free circulation by the buyer, resulting in the buyer paying the lower rate of import VAT (in EU countries which apply a lower rate of import VAT for works of art, antiques and collectible items than the standard rate of VAT on sales).

The evisceration of the margin scheme meant that, in order to remain competitive, Member States were encouraged to reduce their VAT rates on art, collector’s items, and antiquities, by 2025.

Many Member States, rightfully, seized this opportunity.

France is set to solidify its dominance in the European art market having now implemented a reduced VAT rate of 5.5% on the price of works of art, antiques and collector’s items. Previously, this favourable rate was limited to artworks imported into France or sold directly by the artist. With this change, France aims to reinforce its status as a premier art hub in Europe. The capital, Paris, has seen a resurgence in international galleries post-Brexit, making this VAT reduction a strategic move to maintain its competitive edge.

Germany is also taking steps to enhance its art market competitiveness having now reinstated a 7% VAT rate on the price of works of art, antiques and collectors’ items. This adjustment brings Germany back to its pre-2014 VAT rates.

Italy, on the other hand, remains stubbornly frozen in time, treating the art market as an afterthought rather than a strategic industry.  On 3 February 2025, the Lower Chamber of the Italian Parliament blessed the government’s decision to maintain the rate of VAT on works of art, antiques and collector’s items at 22%, making artworks 16.5% more expensive in Italy than in France.  The Italian Senate is expected to follow suit, resulting in the Decreto Legge Cultura becoming law in the next few weeks.

The outcome is that international galleries with outposts in Italy may show art in Italy but sales are unlikely to take place there.  Equally, international galleries showing art at Italian art fairs will not be encouraged to conclude sales at the fair, merely displaying the art there but concluding the sale across the border.  International auction houses are unlikely to rush to organise auctions in Italy. 

The reluctance to reform is not just a cultural loss, it’s an economic blunder.  Smaller Italian galleries and auction houses will be most affected, forced to continue to sell locally unless they can afford to de-localise sales by opening outposts in the UK (where the attractive margin schemes continue to apply), or in France, Germany or other EU countries that from 1 January 2025, have lowered the rate of VAT on art, antiques and collector’s items.