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Taxation and Customs Union

VAT Exemptions

Supplies of goods or services that are exempt from VAT 

VAT Exemptions

The VAT Directive prescribes several categories of supplies of goods and services that EU countries must exempt from VAT and supplies that they may choose to exempt. 

Supplies that must be exempt include activities in the public interest such as medical care and social services, as well as most financial and insurance services and certain supplies of land and buildings. Exemptions also exist for intra-EU supplies and exports of goods outside the EU.

Types of Exemptions

For zero-rated supplies, see VAT Rates - reduced rates.

Exemptions for consumers

There is yet another category of exempt transactions, such as the exemption for sales of new means of transport dispatched or transported to the customer’s EU country. However, in this case, VAT is still collected, as the customer is liable for the payment of VAT in their own EU country. 

These exemptions were created to preserve EU countries’ VAT receipts in the country of consumption, rather than of sale.

FAQ

Frequently asked questions about VAT Exemptions

What happens to input VAT for an exempt supply? 

In most cases, if a supply is exempt from VAT, it is not allowed to deduct the VAT paid (input VAT) on goods and services purchased in order to make that supply. 
 
Example: Public postal services are exempt from VAT. Hence, people who send a parcel via public post are not charged VAT, but the post office has paid VAT on its inputs: the vans it uses, the post boxes it buys, and all the other things. It cannot reclaim or deduct this VAT. Thus, a part of the postage for sending the parcel represents paying for this ‘hidden’ VAT.  

Is zero-rating the same as exemption? 

No. 
 
For some exempt transactions, such as the export of goods from the EU to third countries and for intra-EU supplies, there is a right to deduct input VAT. These are sometimes called ‘zero-rated’ transactions since the result is that there is no residual VAT in the final price. 
 
However, it is important to distinguish between these transactions, which are best described as ‘exemptions with a right to deduct’, and ‘true’ zero-rated transactions. 
 
Zero-rated transactions cover specific goods or services (e.g. books). This means that the final price charged to the consumer does not include VAT, but it also means that the VAT paid on the inputs that go towards producing the book are deductible, so there is no residual (or ‘hidden’) VAT in the final price.