Take-aways:
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To be on the safe side, always declare your art portfolio in the “other assets” section of a Swiss tax report at an unknown or acquisition value.
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Talk to a tax expert like Dominique if your art portfolio grows to six digits, you start putting your art in storage as you run out of space, or if you sell regularly from your art portfolio.
Speaking of art collecting, have you ever had that shy thought in the back of your mind, whispering: “But what about the taxes?” And then perhaps let it go again, quickly. Well, as my grandmother always said: “Better the devil you know”. That’s why we spoke to Swiss tax expert Dominique Kipfer, who has the answers to all your art & tax questions you (n)ever thought about.
Dominique, should we art collectors even care about potential tax implications?
It always depends. For instance - why are you collecting art? If you’re just buying art to support artists and have something to put on the wall, not making a big financial stretch - nevermind - it usually can be considered household goods. That changes if you buy more expensive works or with the intention to sell your art at some point or foster a big collection - but it is a thin line.
Straight up front, what’s the worst that can happen taxwise if we don’t do it right?
Tax evasion and heavy taxation on the profits that are realized upon selling one or several artworks. The same can happen to heirs who want to sell art that they have inherited - without knowing that their parents did not declare. Inheritance is a frequent reason why art gets sold in the first place - some people have no clue what their parents have hanging on the wall.
Yes, they say most art coming to auction is due to either death, divorce or disaster. But back to the living, how do I know if I need to declare my art in my tax reporting?
Unfortunately the answer is not so simple. In Switzerland, different cantons have different or no guidelines on when you have to declare what as an asset. I would say it depends on the art you collect and the purpose of your collection. Generally, it is better to declare a lump sum amount than not declaring at all.
Let’s make up an example: I buy young contemporary art from galleries and sometimes directly from artists for around 10’000 bucks a year. What do I have to do tax-wise?
Generally, declare it - in particular if you want to build a proper collection, want to re-sell your art at some point, if the artwork is worth a lot in relation to your overall assets, or if you start to insure your art. In case you really only want to hang it on the wall and the mentioned points do not hold true - you can consider it as household goods and do not have to declare it - but it is a thin line…
How do I do that in a Swiss tax declaration?
There is a section for remaining assets (“Übrige Vermögenswerte"). There you can list it as “art” at market value. Since you might not know the market value you can also list it for the acquisition value, which is what you have paid for it when you bought it. You can also declare the insurance value if the art is insured.
Does all art that is insured need to be declared?
No, it’s not a must. But art that is insured often has a certain value, which is an indication for declaring it - therefore, I always say that if you like it that much to insure - put it into the tax return.
In my example, I also add NFTs to my collection that I have bought for let’s say CHF 800 in total, with different crypto currencies from different platforms. What about the tax there?
In theory, this needs to be declared at market value, but do NFTs really have a market value, meaning will money be earned with NFTs in the future? If you believe in it, you can put your tokens into the securities register (“Wertschriftenverzeichnis”) at market value or asset value “pro memoriam”, similar to stocks. If you want to learn more about the taxation of crypto assets, you can read the working paper the Swiss government issued.
Back to physical art. What happens if I collected art for many years, but never put anything in my tax declaration?
You might get an issue once you or your heirs want to sell your art. You suddenly have more wealth - and the tax authorities will spot this and start to ask questions. It’s better to declare everything from the beginning - just in case.
Do taxes even apply if I sell my art and make a profit?
No, that would count as a capital profit, which is tax-free in Switzerland. However, there is a big exception to this - in case you are dealing with art, then you need to pay taxes on the profits. Again here - the question is when you would qualify as “dealing with art” and trigger a taxation as self employment.
What distinguishes a private art collector that sells some of their work for profit and an art dealer?
If you can be identified from the outside as an art dealer, if you start to professionally and visibly deal with your privately held art, it becomes a gainful occupation. Then you will need to pay social insurance and income tax on the gain realised.
What if I have an artwork at home that in 30 years is suddenly worth millions, but I have no idea that it will ever be worth anything?
This happens again and again, like a few years ago to a Swiss lady who inherited this Giacometti painting and for decades thought it was just kitchen decoration. When she realized it was worth more, she sold it for two million. But since she had not declared it as an asset, she was charged with tax evasion. To avoid this, she could have just listed the work as “other assets” for an unknown value. If the tax authorities don’t further investigate, you’re out of the woods.
Oh, I would love to inherit a two-million Giacometti! Speaking of, do I have to pay tax if I inherit art or get it as a present?
If a donation or inheritance is subject to taxation depends on various factors - the canton where the donee or testator lives as well as the relationship between you and the donee or testator - and the value of the donation or inheritance. Generally, gifts and inheritance to your direct children are tax exempt in Switzerland - in all other cases - you have to check the cantonal law. Smaller gifts (Gelegenheitsgeschenke) are usually exempt from taxation. In any case, you have to declare the gift and inheritance in the tax return, whereas there are in addition separate returns for gift and inheritance.
Some people like to buy art to save or avoid taxes. Is that a good idea?
That doesn’t really work in my opinion and is not efficient long term tax planning. What may be special about art is that its valuation is a bit more hard to tell, given it is not regularly traded. If you collect art properly you declare the market value at a low estimate to reduce tax on capital. But that’s only relevant for larger amounts, say from six digit value onwards since only then the wealth tax starts kicking in.
What about other countries? What if my art is abroad or if I pay tax in two or more countries?
If you have art abroad, you have to likewise declare it in Switzerland since you are subject to taxation on your worldwide assets. What always is forgotten is that if you ship your art abroad you might have to pay customs and VAT in the importing country, which varies a lot from country to country so better check that first.
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Dominique Kipfer is a Swiss certified tax expert, advising individuals and corporations in Swiss and international tax matters as a tax director at PKF. She has over 15 years of experience and a law and economics Master degree from the University of St. Gallen. Her favorite painter is Schang Hutter and she likes modern art.