On June 26, the Luxembourg Government Council approved a bill to apply a reduced VAT rate of 8% on transactions involving works of art, collections, or antiques. This marks a significant step forward for the local art market. This decision stems from the joint efforts of LAFA and VAT Solutions, which have recently held extensive discussions with the Ministry of Culture and the Ministry of Finance to emphasize the importance of this measure for the Luxembourg art sector.
Impact of Directive 2022/542 on the Luxembourg Art Market
The European Union Directive 2022/542, adopted in April 2022, aims to standardize VAT rates across the 27 Member States. This directive also plans to abolish the margin scheme from January 1, 2025, for artworks purchased or imported with a reduced VAT rate. The goal is to create a harmonized fiscal framework, simplifying rules and reducing disparities between countries. However, strict application of this directive without national adaptation could have had negative, even devastating, consequences for the Luxembourg art market.
Risks for the Luxembourg Art Market
The Luxembourg art market has experienced remarkable growth over the past decade. New galleries have recently emerged, local galleries are increasingly integrating into the international circuit, and European-recognized fairs are also organized on national territory, allowing local players to integrate more into the global art market. However, the rigid application of Directive 2022/542 could have hampered this momentum. An increase in VAT on the import and sale of artworks would have made them significantly more expensive, deterring buyers and reducing local sales in galleries and fairs. This change would have led to a revenue loss, decreased tax receipts, and a negative impact on national cultural tourism.
Proposals by LAFA and VAT Solutions
LAFA and VAT Solutions alerted the Ministry of Culture and the Ministry of Finance to the potential consequences of this directive. Thanks to these interventions, the Government decided to include sales of art objects, collections, or antiques in Appendix A of the VAT law, allowing a reduced rate of 8% on all transactions involving artworks. This approach is inspired by similar measures taken by other European countries, such as France, which maintains a reduced rate of 5.5%, and Germany, which will apply a rate of 7%.
Future Perspectives and Actions
The arguments of LAFA and VAT Solutions were well received by political representatives, particularly by the Ministry of Culture and the Ministry of Finance, who favorably presented them to the Government Council on June 26. Including sales of art objects, collections, or antiques in Appendix A of the VAT Law is a key step in maintaining a favorable and competitive environment for the Luxembourg art market. This measure will continue to promote the development of the local art market, ensuring its growth and attractiveness.
Conclusion
In conclusion, Directive 2022/542 presented significant challenges for the art market in Luxembourg. However, thanks to the actions of LAFA and VAT Solutions, and with appropriate national adaptation, including the forthcoming inclusion of sales of art objects, collections, or antiques in Appendix A of the VAT law, it is possible to mitigate these impacts and continue to foster a dynamic and competitive art market. LAFA remains committed to defending the interests of its members and will continue to work closely with the authorities to ensure a prosperous future for the art sector in Luxembourg.
Next Steps
The VAT reform approved by the Government Council will follow the usual legislative process. LAFA and VAT Solutions will closely monitor future developments in this area and inform LAFA members. Practical tools and VAT training designed and conducted by VAT Solutions will be offered to LAFA members to help them manage the transition period effectively and integrate the new VAT rules into their daily practice from January 1, 2025.