Zero-Rated Supply and Exempt Supply

Here's a breakdown of the difference between a zero-rated supply and an exempt supply in VAT:


Zero-Rated Supply

* Zero-rated supplies are taxable supplies. But it is taxed at 0% VAT. However, you can still reclaim any VAT you incurred on related purchases. 
* Conditions: There are specific conditions that must be met for a supply to be zero-rated. These conditions typically involve supplying goods or services outside the EU or to a diplomat.

Exempt Supply

* Tax treatment: The good or service is outside the scope of VAT altogether. This means you don't charge VAT and you can't reclaim any VAT you incurred on related purchases.
* Conditions: Exempt supplies are a narrower category than zero-rated supplies. Common examples include education, financial services and some medical services.

In short:

* Zero-rated supplies are still part of the VAT system but taxed at 0%. Can reclaim input VAT
* Exempt supplies are completely outside the VAT system and hence exempt. Can't reclaim input VAT

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