Exempt Supply
Category: tax
Supplies not subject to VAT where the seller cannot reclaim input tax on related costs.
VAT-exempt supplies are goods and services on which no VAT is charged, and the seller cannot reclaim related input VAT. Unlike zero-rated supplies, exempt supplies do not allow input tax recovery. Common exempt supplies include financial services, insurance, education, and healthcare in most VAT jurisdictions. Sellers dealing primarily in exempt supplies may face higher effective costs due to irrecoverable input VAT.
Examples
- • Financial services (loans, currency exchange) are typically VAT-exempt in the EU, meaning banks cannot reclaim VAT on their operating costs.
- • Educational services provided by recognized institutions are VAT-exempt in most EU countries and the UK.
- • A seller mixing taxable and exempt supplies must apply partial exemption rules to determine how much input VAT can be reclaimed.