March 22, 2013

Beijing’s Planned Tax-Free Art Haven Will Likely Boost Domestic Market

Freeport Expected To Boost Collector Confidence & Spur Sales

Sotheby's will hold auctions at the freeport starting next year

While Hong Kong and Singapore continue efforts to become cultural, as well as financial, powerhouses, details continue to emerge about Beijing’s planned freeport, an attempt to position the Chinese capital as a leading regional art hub and assuage collector concerns about high punitive import taxes for artwork. As the Art Newspaper wrote last summer, the state-owned Beijing Gehua Cultural Development Group‘s sprawling 83,000 square meter “Beijing Freeport of Culture” complex is expected to be tax-exempt and will be located next to the Beijing Capital International Airport. Initial partners in the project will include Sotheby’s, which held its first mainland China auction last fall in partnership with Gehua, and will conduct auctions in the Freeport after its partial opening in 2014.

Designed with the aim of encouraging collectors and companies to store their art in Beijing, the freeport may, according to one anonymous source, “have a huge impact on the Chinese art world” and help Beijing challenge Hong Kong’s rising status. For the project, Gehua is collaborating with the Swiss holding company Euroasia, which previously worked on the Singapore freeport. As Tony Reynard, the chairman of the Singapore Freeport Pte company, told the Art Newspaper last year of the new complex, “There is a huge domestic market in China but the freeport in Beijing will also be important for the international market as import tax will be greatly reduced or even scrapped at the facility.”

As the Wall Street Journal adds this week:

While a contract has yet to be signed, both said they are confident they will be able to complete a deal soon and have a facility running by 2014.

“At first, it seemed quite odd to build a Freeport in China. We didn’t see who would use it,” said [Reynard of Euroasia]. “After exploration, we saw more opportunities.”

Mr. Reynard’s company is banking on demand from Chinese collectors who wish to avoid the hefty duties and levies on importing valuable art. Imported works of art are subject to a 34% tax of the purchased value.

Many wealthy Chinese collectors who have bought art in Hong Kong or abroad have smuggled their works or played down the value of the works to customs to lessen the tax blow, but the Chinese government has begun to crack down on the evasion. In May, it arrested the German manager of an art shipping company on allegations of tax fraud. Authorities also demanded receipts from auction houses Christie’s and Sotheby’s as part of the investigation. The auction houses weren’t implicated and the German manager’s case is still pending.

Kevin Ching, president of Sotheby’s Asia, said “the current Chinese tax regime for the importation and sale of art is onerous and complex,” noting that the Freeport could be a convenient way for trading art.

Beijing's freeport is expected to be built by the Capital International Airport

If the Beijing freeport does open according to plan next year, it could prove an important factor in easing current anxieties of some mainland Chinese collectors about high import taxes and ultimately help the development of the Chinese art market as a whole. Currently, with Chinese collector concerns remaining high about punitive taxes — and the government’s focus on the art market intensifying — collectors continue to spend millions on Chinese art at auction houses in New York, London and Hong Kong, regularly storing auction purchases overseas as well.

These anxieties about the ongoing tax crackdown in mainland China have dampened Chinese collector enthusiasm at some recent auctions in the Mainland as well as Hong Kong. But with the opening of the Beijing freeport, Chinese collectors would have the ability to bring their overseas purchases to mainland China to hold at the facility before deciding their next steps — hang onto the works for the long term or pay duties then fill private museums or show off their collections at home. Erasing this intermediate concern could, ultimately, be a good thing for Chinese collectors and the Hong Kong and mainland auction markets as a whole.

Down the line, speculation remains that the Chinese government may ultimately hammer out tax compromises with major art collectors, to offer incentives in exchange for the donation of works to public arts institutions at some point. Until that point, the opening of the Beijing freeport would allow collectors to “repatriate” overseas purchases and hold them, tax-free, in China while awaiting Beijing’s slow moves.

Art / Auction / Business & Finance / Investment / Market Trends / Policy
Tag: Art, art collector, art hub, auction... , More
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