Cultural production and distribution is generally taxed on the same basis as regular tax regulations on income from other activities. However, some special agreements have been passed by the Parliament in order to improve the economic working conditions of the cultural system, through tax regulations specially targeted to artists themselves, specific exemptions on corporate taxes for investment in culture, laws on private foundations of public utility and VAT exemptions:
Act nr. 1062 of December the 17th 2002 on tax equalisation of income from artistic creation made it possible for artists to split their income over different tax years; for example artists with a maximum income of up to 539 000 DKK per year can store the amount for up to 10 years for later taxation. This does not count for performing artists.
Tax exceptions in the cultural field
Until 2002 only certain specific awards, e.g. The Nobel Price was tax exempted. In 2002 (Act No. 391, June 6 2002) this exemption was extended to all awards, if the award was given as a sign of recognition of the artist’s merits. The condition was that the award was not been applied for and that it was a one-time payment. Act no. 538 of 6 June 2007 further extended this exemption, so that awards from private companies were included.
Furthermore The Law on Tax Exceptions in the Cultural Field (Act nr. 138, passed by the Parliament, December 20, 2004) made it easier for private companies to deduct investments in the arts. When a company buys a painting, up to 25% of the price can be deducted for tax purposes. Most recently, Act nr. 1389 of 20 December 2004 also made it possible for private companies and funds to donate gifts to public supported cultural institutions. Conditions attached are that the gift must be donated without any application and a maximum of 25% of the donation can be deducted for tax purposes.
Law on taxation funds
The Law on Taxation of Funds (Act no.145 of 19 March 1986) was introduced to take effect from the tax year 1987. It was part of the tax reform of 19 June 1985. Since then a number of adjustments have been made, but the principles from the 1986 law remain intact. The main principle is as follows:
According to the Law on Taxation of Funds, funds are taxed by rules, which are in principle similar to those applicable to joint-stock-companies. In order to avoid hindering a fund from looking after such interests as are stated in its statutes, the Law on Taxation of Funds comprises a number of exceptional rules on rights to tax deduction of division of profits and deposits:
- the fund may, according to rules similar to those governing limited companies, deduct operational costs. Expenses for sponsorships that are part of the fund’s operations in reaching its aims may then be deducted as operational expenses;
- there is no tax limit on the amount a fund may give out for sponsorship. However, the sponsored amount may not exceed the taxable income assessed after the normal rules;
- a distribution may be tax deductible either as an unspecified charity, as a distribution for the common good or as a statutory distribution. If it is the latter, then a condition for tax deduction is that the receiver of the distribution is taxed;
- furthermore, the fund may deduct an amount corresponding to 25% of a year’s distribution to the common good for consolidation purposes; and
- if the economic conditions within a fund disallows the implementation of a project in one go, there is the possibility of setting aside deductible funds for later distribution for the purpose of common good. If the purpose is cultural or artistic, it may be permitted that deposits are made to non-specified projects that have to be realised within a period not exceeding 15 years.
Thus, funds have wider access to tax deduction for grants to cultural activities than private corporations, because there is no tax limit to the amount a fund may give out for sponsorship.
Although the Law on Tax Exceptions in the Cultural Field (Act nr. 138, passed by the Parliament, 20 December 2004, see above) has made it easier for private companies to deduct investments in the arts and to donate gifts to public supported cultural institutions, only a maximum of 25% can be deducted for tax purposes, e.g. when a company buys a painting or donates money to a local music school.
But funds cannot both deduct donations to cultural purposes according to the Law on Taxation of Funds and then also according to the Law on Tax Exceptions in the Cultural Fields rules of tax deduction for gifts to cultural institutions.
VAT exemptions: The Danish rate of VAT on cultural services and goods is 25%; e.g. Books and music CD’s are taxed at 25%. But a few exceptions do exist:
- in the case of a first-time sale of an artist’s own works, the artist and the artist’s heirs may sell VAT-entitled works at a reduced price corresponding to 20% of the VAT taxation base (VAT Law §30, 3) inserted through Law No.375 of May 1994);
- an artist or the artist’s heirs, who sell their own works of art for the first time, do not have to register for VAT when the sale does not exceed DKK 300 000 either in the current or the previous calendar year (VAT Law §49, 2, No 2, inserted through Law No 375 of May 1994, changed through Law No 291 of May 2002);
- on imports of artefacts, the VAT calculation base is 20% of the base applicable for importing from non-EU countries;
- sports activities and sports arrangements are exempted from VAT – VAT Law No 375 of 1994;
- cultural institutions, including libraries, zoological gardens etc. are exempt from VAT, including closely associated goods deliveries. The exemption does not include radio and television broadcasts, cinema-and theatre performances or concerts or similar arrangements.(VAT Law § 13, 1, No 6, Law No 375 of May 1994);
- fees received from writing-and composing work, as well as other artistic activities, is exempt from VAT. The exemption does not include sale of art artefacts. (VAT Law No 375 of May 1994);
- deliveries of goods and services in connection with charity arrangements and collecting and sale of used goods of small value is, under certain conditions, free from VAT duty (VAT Law 375 of May 1994); and
- charitable societies’ sale of goods and benefits in connection with activities are, under certain conditions, exempt from VAT (VAT Law No 375 of May 1994).