Concept Definition
What is zero-rate VAT?
Zero-rate VAT is a 0% tax rate applied to specific supplies. Unlike exempt supplies, zero-rated supplies are still taxable transactions, meaning the supplier can recover input VAT on related costs. Common zero-rated supplies include exports, certain food items, and intra-EU supplies of goods to VAT-registered buyers.
What is the difference between zero-rated and VAT-exempt?
Zero-rated and exempt supplies both result in 0% VAT charged to the customer, but they differ in input VAT recovery rights:
- Zero-rated: Supply is taxable at 0%. Supplier can recover input VAT on costs related to the supply.
- Exempt: Supply is outside the VAT system. Supplier cannot recover input VAT on costs related to the exempt supply.
- Invoice impact: Zero-rated invoices show 0% VAT. Exempt invoices should not show a VAT rate but must note the exemption reason.
Frequently Asked Questions
- Are exports always zero-rated?
- In most VAT systems, exports of goods to non-EU countries are zero-rated, allowing the exporter to recover input VAT. The zero-rating requires evidence of export (customs declaration, transport documents). Services exported outside the EU are typically outside the scope of VAT, not zero-rated.
- How is zero-rate VAT shown on an invoice?
- A zero-rated invoice shows the VAT rate as 0% and the VAT amount as 0. The invoice should include the reason for zero-rating (export, intra-EU supply, reverse charge). In UBL and CII, the TaxCategory element uses code Z for zero-rated.