Most artistic professions are classified under the freelance professions. Freelancers are subject to income tax in Germany, i.e. they have to file an annual income tax return and pay income tax, provided that their income exceeds the basic exemption rate.
Value added tax (small business regulation)
In addition, freelancers must pay value added tax. However, freelancers can take advantage of the small business regulation. Small entrepreneurs who did not earn more than 17,500 euros in the previous year (valid up to and including 2019, from 2020 the amount increases to 22,000 euros) and who are not expected to earn more than 50,000 euros in the current year can decide for themselves whether they levy and pay VAT.
On the situation of art sales, with different VAT rates of 7% (for artists) and 19% (for galleries and the art trade):
- Artists subject to VAT sell from their studio to private individuals or institutions including 7% VAT. (Those who fall under the small business regulation write their invoices without VAT!)
- Artists generally agree with galleries or the art trade on a net price for their works and receive 50% of this (or as agreed). The 19% levied by the dealers is added to the final price for the customers. This results in the final price of the work.Those who are not subject to VAT (small business regulation) charge the dealer for the work without VAT, while those subject to VAT charge the gallery + 7% VAT. (Regardless of the type of collaboration between artists and gallery owners or dealers, whether on commission or as agents, a contractual agreement should always be concluded for the works of art in question).
Example calculation: a work of art costs 2,000 euros incl. VAT
1. Sale from the studio: (artist is subject to VAT)
VAT payers sell directly to customers for 2,000.00 euros. Their income is 1,869.16 euros, and 7% = 130.84 euros VAT must be reported to the tax office. In the VAT return, VAT paid for materials, studio costs etc. can be declared against VAT (from the revenues) collected.
2. Sale from the studio: (artist is a small business owner)
Small business owners sell directly to the customer for 2,000 euros. Taxes paid for materials, studio costs etc. cannot be claimed back.
3. Sale through a gallery: (artist is subject to VAT)
The gallery sells to the customer for 2,000 euros. The gallery owner pays 19% = 319.33 euros VAT: 2,000.00 - 319.33 = 1680.67 euros (net).
In this example, artists subject to VAT receive 50% of net + 7% VAT from the gallery owner: 840.33 + 58.82 = 899.15 euros. *1 (7% VAT must be paid.) Taxes paid for materials, studio costs etc. can be offset.
*1 The reduced VAT rate of 7% on the sale of works from the artist to the gallery owner is retained in this example. (This also applies to stage and costume designers)
4. Sale in the gallery: (artist is a small business owner)
The gallery sells to the customer for 2,000 euros, reports 19% VAT = 319.33 euros to the tax office and keeps 840.33 Euro. The gallery is eligible for any input tax deduction. Artist receives 50% of the final price (2,000 euros), the net price = 840.33 euros. (Invoice without VAT for small business regulation)
A significant relief for artists and the art trade would be the requested but still outstanding "decree of application" for a profit margin tax regulation by the federal states.
Artists print for their own artistic production: Please note that 7% VAT must be charged for the sale of one' s own artistic print products. *2
Artists print for their colleagues and sell the work or charge for it: 19% VAT is payable on the service, on both the printing of the artwork and the sale.
As from 1 January 2020, the following applies: No VAT will be levied if the turnover in the previous year was no higher than 22,000 euros and is not expected to exceed 50,000 euros in the current year (§ 19 Abs.1 Satz 1 UStG German VAT Act). Previously, the limit for the previous year was 17,500 euros.
Those who do not want to manage without VAT simply need to go on submitting advance VAT returns or declarations.
Previously, a lump sum of 12 euros could be taken into account for one-day external activities without overnight stays–if the absence from home or the first place of work was more than eight hours; for more than 24 hours, the lump sum was 24 euros. As from 2020, both flat rates have been increased: for an absence of more than eight hours to 14 euros, and for 24 hours to 28 euros.