The 2014 budget has been published with modifications concerning tax laws for personal property. Since investment diamonds are considered personal property, we have decided to give a summary of the changes in French law that went into effect January 1st, 2014.
Diamonds fall under which tax category?
In France, personal property is comprised of artwork, collectors items, antiques, precious metal (tokens, gold and silver coins), and jewelry. Investment diamonds fall under the category of jewelry and equivalents (meaning loose diamonds not set in jewelry). Industrial diamonds (of lesser quality) do not fall under this category.
NB: It is interesting to note that even though investment diamonds fall under the jewelry category, loose (not set in jewelry) diamonds are a better investment than diamonds mounted in jewelry settings. This is because the spread (the difference in purchase price and resale price) of jewelry is huge as jewelry’s main purpose is not to be resold.
The VAT (Value Added Tax) and Investment Diamonds
As for all types of jewelry, the VAT applies to investment diamonds. Beware, because the purchase of a diamond without an invoice (implying without paying the VAT) is illegal and the penalties can be heavy for both the buyer and seller.
The fiscal regulation for investment diamonds: a choice
For taxes on capital gains there are two types of regulations possible.
One can choose which type based on the advantages of each type.
– A flat-rate tax of 6.5%
– A tax carried out on the capital gains per transfer: 34.5% on the capital gains made during the first three years, then a gradually decreasing tax with a total exemption after 22 years (previously this exemption happened after 12 years). This is usually the more advantageous option.
Tip: It is possible to avoid taxes by buying and selling diamonds in an amount less than 5000 euros. Some companies offer solutions such as “shares” of diamonds that allow for transactions less than this amount.
Solutions for buying without the VAT
As we have seen, in France, the VAT applies to diamonds, unless they are in a freeport zone where products are not subject to the VAT.
For diamonds stored in freeport zones, the VAT is applied only to the services such as storage fees or commissions, but not to the diamonds themselves.
As explained (in French) in this article in Express, “The freeport system is used notably by merchants or forwarding agents in customs, who rent spaces to store goods without paying the customs tariffs or the VAT for the duration of the storage [in the freeport zone.]”
There are also platforms for investment in diamonds or precious metals that store their products in the Geneva Free Ports for example to allow their clients to avoid the VAT.
Buying investment diamonds with a lightened fiscal regime is possible!
Official link for French taxes on personal property.
To see our article concerning US tax laws, click here.