5.1.5 Tax laws
As of January 2005, authors lost their rights to a 40% income tax deduction on material expenses. This deduction has been reduced to 10%, with no possibilities to justify actual costs. If an author registers his or her activities regularly the reduction is 25%. Self-employed people in the field of culture continue to have the right to deduct 40% from their income tax base, if they earn less than ca. 25 000 euros. If they exceed this amount, they must provide accounts and receipts to justify the actual costs. A new Law on Income Tax, which is going to be in force from 1 January 2007, entails some changes. A 2% deduction for purchasing certain goods and services (including books, paintings, investment in monuments) will be replaced with a new measure which will designate 0.5% to purposes of public interest (culture is included). A new Law on Corporate Tax introduced a 0.3% deduction for donations to various good causes and also a special deduction for culture of 0.2% of taxable income, with the possibility of averaging over a three year period.
VAT was introduced on 1 June 1999. The reduced 8.5% rate is used to tax books, while CDs, videocassettes are exposed to the normal 20% VAT rate due to harmonisation with EU Directives. The reduced rate also applies to cinema tickets and entertainment events. Cultural services of non-profit cultural organisations are exempt from paying VAT. The same right can be extended to artists if their turnover does not exceed ca. 25 000 euros per year and if they decide that they prefer to be exempt; a seemingly difficult decision. Gifts to museums, libraries and archives are exempt from excise duty.