Concept Definition
What is VAT exemption?
VAT exemption means a supply falls outside the scope of VAT entirely. Exempt suppliers do not charge VAT and cannot recover input VAT on costs attributable to exempt activities. Common exempt supplies include financial services, insurance, healthcare, and education. Exemption rules vary by jurisdiction.
What supplies are typically VAT exempt?
EU VAT Directive Article 132 lists mandatory exemptions. Common exempt categories include:
- Financial and insurance services
- Healthcare and medical services
- Education provided by recognized institutions
- Postal services
- Certain cultural and sporting activities
- Letting of residential property
Frequently Asked Questions
- Does an exempt business need to register for VAT?
- A business making only exempt supplies is generally not required to register for VAT and does not charge VAT. However, it also cannot recover input VAT. Partially exempt businesses must apportion input VAT between taxable and exempt activities.
- How is exemption noted on an invoice?
- An exempt invoice should reference the legal basis for exemption (e.g., Article 132 of the EU VAT Directive). In UBL and CII, the TaxCategory element uses code E for exempt, and the TaxExemptionReason element should cite the legal provision.