The VAT Act includes a list of suppliers of goods or services that are taxed at zero percent. The majority of the products are related to exports and international transportation, although other specified goods used for farming, the sale of a company as a going concern, some essential foodstuffs, gasoline subject to the fuel levy, and considered supplies by welfare organizations are also zero-rated.
A vendor’s zero-rated supply is subject to VAT, but at a 0% rate. A zero-rated supply is one in which the vendor does not charge VAT on the consideration for the supply and instead receives a refund or credit for the VAT paid on taxable supplies used in the production of the zero-rated supplies.
Supplies that are exempt
In addition to zero-rated sales, the VAT Act includes a list of VAT-exempt supplies of goods or services. While all fee-based financial services are subject to VAT, interest is not. Residential rents, non-international passenger transit by road or rail, and educational services are also exempt.
A vendor who makes an exempt supply does not charge VAT on the supply and is not entitled to a deduction or credit for the VAT paid on goods and services supplied for the production of the exempt supply. As a result, vendors treat the VAT they pay and do not receive a deduction or credit for as another expense that they recover in the consideration they charge for providing the exempt delivery.
What does it mean to be VAT exempt?
If your organization only sells certain categories of goods and services, it will be considered VAT exempt. This means that you will be unable to reclaim VAT on any costs incurred when making VAT-exempt transactions. Consider the VAT on your accountant’s fees.
What is the distinction between no VAT and VAT exemption?
Exempt items are not the same as zero-rated supplies. VAT is not added to the selling price in either situation, although zero-rated goods or services are VAT taxable – at 0%.
