Since 1 January 2021, new rules, including a free trade agreement(1), have governed the relationship between the European Union and the United Kingdom. While the UK is to be considered a third country, i.e. a non-EU member, from 1 February 2020, in accordance with the Withdrawal Agreement(2), a transitional period was put in place during which relationships for citizens, consumers and businesses were not altered, as they were still subject to the application of EU law. As this transitional period ended on 31 December 2020, EU law no longer applies to this third country, which is no longer part of the European single market and no longer belongs to the EU customs and tax territory. Consequently, repercussions in many economic fields must be taken into account, including the art market.
The purpose of this article is to briefly outline the main post-Brexit consequences that are likely to impact the circulation of artworks or cultural goods by answering the main practical questions that those involved in the Luxembourg art market are asking themselves in terms of formalities to be completed, taxes to be paid or legislation to be applied.
> The Return of Customs Formalities
As a reminder, the Trade and Cooperation Agreement of 24 December 2020 now subjects trade in goods between the UK and the EU to the following two main rules: no tariffs and quotas, but the re-introduction of customs formalities. This means that when art market objects move between an EU country, such as Luxembourg, and the UK, there is no tax, but there is an obligation to complete all the new formalities required, in particular an import or export declaration. As of 1 January 2021, the UK has re-established its own customs formalities for importing and exporting goods, with nomenclature for identifying goods that differ from that used in the EU. The formalities concerning the movement of people (valid passport as from 1 October 2021, or even a visa) must also be respected.
> The Implementation of the Regulation on the Export of Cultural Goods
Regulation (EC) No 116/2009 of 18 December 2008 concerns the export of cultural goods from the Community to third countries. It concerns only exports from the Community and applies when the Community's external borders are crossed. It incorporates the solutions introduced by the Council Regulation of 9 December 19923 as it was no longer possible to have systematic checks within the Community's borders, with internal customs barriers disappearing, exit formalities and uniform checks had to be required when crossing external borders. This objective of control on exit from the EU territory led to the creation of a common, easily identifiable document, called an export licence in the 1992 regulation, and then an export authorisation in the 2008 regulation. As the United Kingdom is now considered as a third country in relation to the EU, any cultural goods leaving the EU customs territory for the United Kingdom (and the Channel Islands and the Isle of Man) must be granted an export licence within the meaning of Article 2, Section1 of the Regulation of 18 December 2008. This export licence is issued at the request of the person concerned (Article 2) by the competent authority of the Member State in whose territory the cultural goods are located and may be refused if the cultural goods in question are covered by legislation protecting national treasures of artistic, historical or archaeological value in the Member State concerned (Article 2, Section 2).
> The Application of VAT on Imports
Brexit has led to EU VAT rules no longer being applicable in the UK from 1st January 2021. Thus, as Directive 2006/112/EC of 28 November 2006 on the common VAT system can no longer be applied, the movement of goods between the United Kingdom and one of the EU Member States, such as Luxembourg, is subject to the rules on imports and exports for VAT purposes. Consequently, import VAT is payable in Luxembourg in the case of the dispatch of a work of art, a collector's item or an antique from the United Kingdom to that Member State. The Luxembourg rate applicable is the reduced rate provided for in Article 40, Section 1, Item 1(b) of the VAT law of 12 February 1979 and amounts to 8 %. It should be noted that the VAT rate on imported works of art in the UK is 5%, which is relatively low compared to the various rates applicable in the EU. And it is perfectly conceivable that, as it is no longer subject to EU customs and tax regulations, the United Kingdom will adopt a lower rate, or even abolish all taxation on the import of works of art into its territory, as is already the case for Hong Kong and New York.
> Restrictions on the Introduction and Import of Cultural Goods
Having become a third country in relation to the EU, the UK is directly affected by the application of Regulation (EU) 2019/880 of 17 April 2019 on the introduction and import of cultural goods4. The purpose of the Regulation is to establish common rules for EU Member States on trade with third countries to ensure effective protection against illicit trade in cultural goods, to preserve the cultural heritage of humanity and to prevent the financing of terrorism and money laundering through the sale of looted cultural goods to buyers in the Union. Consequently, by application of Article 3, Section 1, the introduction into the EU from the United Kingdom of illegally exported cultural goods originating in that country or in any other third country has been prohibited since the end of the transitional period. With regard to the import of cultural goods, the Regulation provides in the medium term (after the creation of the centralised electronic system provided for in Article 8 of the Regulation and by 28 June 2025 at the latest) for the introduction of an import licence or importer's declaration system, with goods being divided up according to their nature, age and value.
> The Special Situation of Northern Ireland
With the transition period over, the Ireland/Northern Ireland Protocol (or "IE/NI Protocol") of 31 January 2020 applies for an initial period of four years, with the possibility of being renewed or not in 2025 by the Northern Ireland Assembly. In short, it allows "Northern Ireland to remain part of the UK customs territory while enjoying the benefits of the single market"5. In its communication to stakeholders dated 17 December 2020, the Commission takes care to set out the various solutions applicable in the event of the export, import or introduction of cultural goods where Northern Ireland is concerned. For example, a movement of cultural goods from the EU to Northern Ireland is not an export for the purposes of Regulation 116/2009, so the rules in force between EU Member States should be applied.
For the moment, in an art market still impacted by the coronavirus pandemic, it is difficult to measure the real consequences of Brexit, as all the issues are still far from being settled from an economic or legal standpoint. As the movement of works of art between the EU and the UK becomes more complicated (formalities, restrictions, cost), the market will adapt. It is expected that the point of entry for artworks in free circulation in EU territory will no longer be the United Kingdom, but a Member State, which also has a low rate. To strengthen its position in a global market, the United Kingdom is considering establishing one or more free ports. To remain attractive, it would be in Luxembourg's interest to lower its import VAT rate and to promote its free port.
1. Trade and Cooperation Agreement dated 24 December 2020 signed by the European Union and the European Atomic Energy Community on the one hand, and the United Kingdom of Great Britain and Northern Ireland on the other.
2. Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, OJEU L 29 of 31 Jan. 2020.
3. OJEC L 395, 31 Dec, p. 1.
4. OJEU L 151/1, 7.6.2019.
5. Michel Barnier, 27 January 2020, Belfast.