Taxation and Financing
LEASE WITH PURCHASE OPTION OF WORKS OF ART
NexeArt Capital offers companies and independent professionals wishing to acquire a work of art the possibility of financing it by means of a lease with purchase option (L.P.O.) contract.
The lease with purchase option :
the L.P.O. offers you the possibility to bring art into your offices, to enhance your professional assets and to capitalise for the future.
Who can benefit from it ?
- Companies subject to corporation tax, either by law or by option.
- Individual companies subject to income tax.
- More generally, it is necessary to be able to enter the price of the work in a special reserve account on the liabilities side of the company’s balance sheet.
The company must exhibit the work of art and must communicate the location of the exhibition:
- In a place accessible free of charge to the public or to employees; on the company’s premises, (example: it cannot be a personal office, a personal residence or a place reserved only for the company’s clients);
- Or during events organised by the company or by a museum, a local authority or a public establishment to which the property has been entrusted or in a museum to which the property is deposited;
- Permanently for 5 years (period corresponding to the year of acquisition and the 4 following years).
The advantages of the L.P.O. :
- No personal contribution
- The investment is spread over several months in order to spread the costs.
- Rents are considered as operating expenses that are 100% deductible from taxable income.
- For companies subject to income tax, under the heading of industrial and commercial profits, the deduction of rents as operating expenses is also possible according to the same rules as for companies subject to income tax.
- By exercising the purchase option, for 5% of the amount financed you become the owner of the work.
Leasing allows you to smooth out the expenditure over the duration of the contract defined beforehand.
Professionals, companies and liberal professions can lease works of art and benefit from a promise to sell from the financier :
- The company rents the work(s) over a period of 13 to 60 months
- The company defiscalises the totality of the monthly instalments for the fitting out and decoration of interior spaces
- The company recovers the vat (if it is subject to it)
- At the end of the rental contract, the financier undertakes to sell you the work of art for its residual value
ACQUISITION OF ORIGINAL WORKS BY LIVING ARTISTS AND SPONSORSHIP
Purchase of works by living artists :
Companies that acquire works by living artists and register them in a fixed asset account may deduct from the taxable income of the year of acquisition and the four following years, in equal fractions, a sum equal to the acquisition price, the deduction thus made for each year not exceeding the limit of 0.5% of turnover, less the payments made in respect of corporate sponsorship (Art. 238 Bis AB of the CGI) or up to €20,000, an alternative ceiling for the purchase of works of art, the amount of the purchase is deductible from the result of the year of acquisition and over the four following years (i.e. spread over 5 years) in equal fractions = division of the price of the work by 5.
SAVINGS ON WEALTH TAX :
In application of article 885 i of the general tax code (cgi), works of art are not subject to the ISF/IFI.
As such, the amounts spent on their acquisition do not have to be included in the ISF/IFI declaration and are therefore not taxable.
Example: an individual has assets of €1,000,000. if he invests €100,000 in works of art, his taxable assets will be reduced to €900,000.
Ultimately, there will be a tax saving due to his investment in art.
Let us also remember that the principle of dation in payment allows certain tax debts to be discharged directly by the handing over of works of art. (This payment in kind is governed by the malraux law of 1968).
NexeArt Capital has set up a solution with its tax advisor to help you make a highly profitable investment, build up an artistic heritage while saving tax.
SELLING YOUR COLLECTION
Works of art are subject to an advantageous capital gains tax due to the possibility of choosing between two options:
- Flat-rate taxation at 6.5% of the sale price
- Or taxation according to the regime of capital gains on movable property
Flat-rate tax on works of art:
It is possible to pay a flat-rate tax of 6.5% (including the crds of 0.5%). This flat-rate tax is equivalent to the taxation of the capital gain.
The possibility of opting for taxation under the general regime for capital gains on movable property remains.
The option for the general regime will be interesting if the art object has been held for more than 22 years (total exemption) or if it is the result of an inheritance of less than 2 years and is the object of an auction (indeed, the transfer value retained is then the valuation retained in the inheritance. The capital gain is de facto non-existent).
The general regime for capital gains on furnished property:
In this case, it is necessary to determine the amount of the capital gain.
This is equal to the difference between the sale price net of expenses (commission involved, for example) and the acquisition price net of acquisition and renovation expenses.
The seller will then have to pay a 31.5% tax on the capital gain with an allowance of 5% per year after the second year. In other words, the capital gain is totally exempt after 22 years of ownership.
NexeArt Capital and its advisers will help you choose the most suitable solution.