In selling works of art, the question sometimes arises of what type of consideration should be charged for the artwork. This is especially significant in terms of taxation and pensions.
Sale of a work of art
When a finished work of art is sold (for example, from an exhibition), the consideration received for the sale is a purchase price. This is true even if the seller him- or herself has created the work of art and most of the purchase price is based on the value of this work contribution.
The purchase price is not a consideration for work performed, and no tax is withheld or social security or pension-insurance contribution recovered for the purchase price. The value-added tax levied on the purchase price depends on whether the seller of the artwork is liable to pay value-added tax for the sale or not. Separate instructions on VAT can be found in the section Value-added tax instructions for visual artists.
Payment for labour on a commissioned work
Sale for the acquisition of a commissioned piece of artwork is normally not considered a sale of goods, and the consideration paid for the commissioned work is not regarded as a purchase price. If a consideration has actually been paid for a work performance, it is regarded as a payment for labour. This usually is the case for commissioned works. For example, the consideration paid for a portrait commissioned from an artist is specified in express instructions of the tax authorities as being paid for labour.
If the recipient of the payment for labour is recorded in the prepayment register, no tax is withheld on the payment. If the recipient of that payment is not recorded in the prepayment register, the tax is withheld for the portion of the consideration that is a payment for labour. For the payment to be made, the artist must provide a tax card for the commissioner of the work.
No employer’s social-security contributions are made for the payment of labour. The need for pension-insurance contributions for a payment for labour depends on the situation. Usually, they are not required. However, municipal pension-insurance contributions do get levied for payments for work paid for by municipalities, unless the performer of the work has self-employed person’s YEL pension insurance. It should be noted that municipal pension-insurance contributions are made only for the portion of the consideration that is a payment for the work performed. This is why the amount made up of material costs, outsourcing-service costs, and similar costs should be itemised in the commissioning contract with regard to payments for work that are made by municipalities.
Wages for commissioned works
Alternatively, work by commission may be carried out in an employment relationship, although this is rarely done. Employment usually entails management and supervision by the employer, which does not suit commissioned artistic work very well.
In addition to tax withholdings, there must usually be employer’s social-security contributions paid for the wages. Also, the statutory employee pension-insurance payments (TyEL) associated with the wages for commissioned work under an employment relationship will be levied.
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