VAT on Art: A Simplified Explanation (More or Less)

The news is significant: on Friday, June 20, 2025, it was finally announced that VAT on art will decrease from 22% to 5%. However, among industry insiders, there are several questions on certain issues that deserve clarification.

The Two Art Markets

First of all, it's important to understand that art is a sector with two distinct markets: Primary market: new works, fresh from the artist's studio Secondary market: "used" works that have already undergone at least one sale (typically by deceased artists, but not necessarily)

Margin VAT: How it Works

The European legislator has always favored the secondary market. While in the primary market VAT is (was) 22%, in the secondary market it is calculated at 22% only on the margin.

Let's look at a practical example:

Primary market: I buy a work from an artist for 100 euros + VAT To earn 100 euros, the price to the client will be 244 euros (200 list price + 44 VAT)

Secondary market with margin scheme: I buy a work from a private individual for 100 euros (VAT exempt) I resell it for 200 euros using Article 36 of the margin scheme The VAT I pay is approximately 18.04 euros (22% of the 100 euro margin) My net profit is 81.96 euros To earn 100 euros as in the primary market, I would have to sell for 222 euros. 222 against 244 euros: a significant advantage that has made the margin scheme very popular.

When an operator buys a "used" work from another operator, they can sell it with a regular invoice, still under Article 36, acting like a private individual and paying 22% of their margin.

The Problem of Imports. The Italian and European Anomaly

In Italy and other European countries, there has always been a major distortion that favored non-European galleries. The rule: if a work is sold directly by an artist or imported from non-EU countries, it can benefit from a reduced VAT of 10%.

This concession created a strong penalty for European galleries: Same work from a US gallery owner: 220 euros (200 + 10% import) Work from an Italian gallery owner with a list price of 200 + VAT: 244 euros

The Distorting Consequences

The Italian gallery owner can pay 10% VAT at customs upon purchase, but must always sell at 22%. This led to: Strong depression of European gallery owners compared to overseas ones Illegal parallel market: merchants without a VAT number purchase works clearing them at 10% and resell them as private individuals Example: they buy for 100 to sell for 200 Final price: 210 euros tax-free vs 244 euros + taxes for the regular merchant

Recent anti-money laundering laws (KYC) have little effect on private merchants, while customs remains "a sieve" where undervalued invoices pass through.

The Paradox of Artists

Artists can also invoice at 10%, but this advantage is only real if they sell directly to private individuals. If they sell to a gallery owner, the latter must still apply 22% to the final customer, nullifying the benefit. Result: gallery owners are at a fiscal competitive disadvantage both against artists and against non-EU competitors.

European Differences

The disadvantage also applies between European countries: France: Import VAT 5.5% – Sales VAT ~20% (until 2024) Germany: Import VAT 7% – Sales VAT ~20% (until 2024) Belgium: Import VAT 6% – Sales VAT ~20% (until 2024)

The Turning Point of 2022

In 2022, the European Community allowed member states to lower the VAT rate on certain goods, including art. France and Germany reacted quickly, bringing the sales VAT down to 5.5% and 7% respectively, finally aligning it with the import rate.

The Domino Effect

This eliminated competition with non-EU galleries, but created a new problem: unfair competition with other member states like Italy. Example of a 200 euro work: French private individual clearing customs in France: 211 euros French private individual buying in a gallery in Paris: 211 euros Private individual clearing customs in Italy: 220 euros Private individual buying in a gallery in Rome: 244 euros

A disaster: 211 against 244 euros. Now the Italian government has rebalanced the situation: a private individual in Italy pays 210 euros, whether they clear customs or buy in Rome or Milan.

What Doesn't Change: The Margin Scheme

The margin scheme should remain unchanged. If I sell under the margin scheme, even for imports, the VAT remains at 22% of the margin. So, to earn 100 euros on a work bought for 100, I still have to sell it for 222 euros.

Options for Imported Works

The legislator allows for new imported works to be sold under the margin scheme as well. When importing a work for 100 euros, I pay 10% at customs and can choose:

Option 1 – Explicit VAT: I recover 10% as input VAT credit I apply 22% on sale (now reduced to 5%)

Option 2 – Margin Scheme: I do not recover the 10%, which increases the cost of the work to 110 euros To earn 100 euros, I must sell for 232 euros

The New Balance

Before the reform: Explicit VAT: 244 euros to the customer Margin scheme: 232 euros to the customer Convenience: margin

After the reform: Explicit VAT: 210 euros to the customer Margin scheme: 227 euros to the customer (if import VAT drops to 5%) Convenience: explicit VAT

The final customer benefits in any case.

Still Open Questions

Will import VAT drop from 10% to 5%? Will artists' VAT drop to 5%? When will the new VAT be active? Can we confirm that nothing will change for the margin scheme?

We asked for comments from Dr. Commercialista Gianluca Fidanza and Lawyer Simone Facchinetti, co-author of the book "Arte e Fisco".

The Experts' Opinion

According to Dr. Fidanza, the new legislation should lead to: Import VAT reduced to 5% (from the current 10%) VAT at 5% also for artists (from the current 10%)

Lawyer Simone Facchinetti provides a more detailed overview:

Regulatory aspects and timing: As of June 21, 2025, the decree-law has not yet been published in the Official Gazette Article 8 of the omnibus decree provides for reduced VAT at 5% on the entire art supply chain Includes all exchanges: from imports to direct sales by artists Also includes digital artworks, as the decree refers to "objects of art, antiques and collectibles" The measure will come into force immediately upon publication in the Official Gazette (expected in the coming days) The decree must be converted into Law by Parliament within 60 days to remain effective

Competitive impacts: With this measure, Italy will be able to excel in the sector, competing at European and global levels VAT at 5% is the lowest so far introduced in the EU according to Directive no. 542/2022

Margin scheme and new rules: The margin scheme remains unchanged if the work is bought from a private individual Important: if the work at any stage benefits from the reduced rate, the possibility of adopting the margin scheme is lost

Advantages for international collectors: Foreign collectors who purchase in Italy will benefit from the reduced VAT Foreign collectors residing in Italy who purchase abroad with higher VAT can request a refund of the difference Also applies to shipments from abroad to Italy (the delivery state criterion prevails)

Future prospects: In the coming months, a Bill on the Code of Cultural Heritage could arrive in Parliament Focus on enhancement, digital innovation, and simplification of circulation

Purpose of the reform: As specified in the preamble of the decree, the objective is "to support the Italian artistic sector and operators throughout the national supply chain, who are facing increasing international competition", with the awareness that the tax reduction will lead to "the relaunch of an extremely important sector, attracting artists, collectors, and investors from all over the world at the same time."

Lawyer Facchinetti concludes by emphasizing that "in a period and international geopolitical scenario that is unstable, and in the volatile financial markets, art can always represent a diversification of investments (helped in this case by the reduced VAT to 5%) and an emotion that one does not give up."

These interpretations by the experts, if confirmed, would complete the rebalancing of the Italian art market compared to its European competitors.