An Overview of Chinese Art Law: Collectors on Tiptoes
Transition from Irrationality to Maturity
The Chinese art market is continuing its restructuring which started from 2015. While its global share shrunk with a 5.21% reduction in 2018, the market is moving towards maturity and leaving the days of much-hyped bidding behind. The latest report from the European Fine Art Foundation (TEFAF) indicates that artwork trading through auctions in China no longer is deemed as an investment vehicle. Chinese secondary-market sales is less irrational than it was in 2011, when turnover hit a record US$ 5.1 billion for fine art and antiques in mainland auctions.
According to the report, a new generation of collectors is shaping a different landscape of Chinese art market. There is a steady progress for Chinese oil paintings and contemporary art. As a young market, it has a clear potential for academic and marketing growth. Although sales figures indicate that Chinese calligraphy and painting market is plummeting, there were still eight contemporary works in the 2018 top 100, and three of them were sold for over $10 million. Such phenomenon demonstrates that investors’ attention is slowly shifting to artistic value.
An Outline of Chinese Art Law on the Purchase and Export of Artworks
The term “artwork”, according to Article 1 of Interim Provisions on the Importation and Exportation of Artwork, refers to paintings, works of calligraphy, seal cuttings, sculptures and carvings, artistic photographs, installation art, industrial art and the limited replicas of the above-mentioned works. It does not encompass cultural relics that are governed by the Relics Protection Law and its associated laws and regulations, e.g. ancient tombs, ancient architectural structures and cave temples.
Restrictions on cross-border artwork sales
Any artworks created after 1911 are controlled according to the lists of artists issued by the State Administration of Cultural Heritage (SACH). While these artworks can be freely sold domestically, the export is subject to prior examination and approval of the related authorities. As for other artworks which are not part of the list, nor fall into the category of cultural relics, the export of a reasonable number of pieces for personal use should be declared to customs beforehand. In the case of export for public purposes, the exporter must entrust a qualified export agency to assist with the application process.
It is worth noting that Beijing, Shanghai and Xiamen have established free-ports for artworks, the principle of which is to promote free entry and exit.
Tax on artwork transaction
Capital gains tax is levied as a kind of income tax under the Circular Regarding Strengthening and Regulating the Imposition of Individual Income Tax on Incomes Derived from Auctions by Individuals. The sale of an artwork by someone other than its creator is considered to be a transfer of property – which is taxable. When the sale is made at auction, the basic expenses for taxation should be evidenced by formal documents.
Regarding the value-added tax, the Provisional Regulations of the PRC on Value-added Tax (VAT) provides that the VAT rate is 17%. The VAT for exported goods, however, is 0%. Moreover, there is no wealth tax levied in China.
Future Prospective: Keep Up with Tax Reform
As the Chinese art market matures, cumbersome supervisory procedure and heavy tax burden have created hurdles to foreign collectors who are interested in Chinese art market. Even though significant tax breaks are unlikely, it is feasible that Beijing reduces tax and currency restrictions that have limited the art market’s growth.
We shall be happy to assist you with any queries on the transfer of artworks in- and out of China, and subsequent tax issues.
 Tim Schneider, The Much-Hyped Chinese Art Market’s Best Days May Already Be Gone, <https://news.artnet.com/market/tefaf-chinese-art-market-1488982>
 TEFAF, Art Dealer Finance 2018, < https://amr.tefaf.com/assets/uploads/TEFAF-Art_Market_Report.pdf >