- Published: Wednesday, 01 October 2014 14:25
Unlike taxable supplies (including zero-rated supplies) exempt supplies are goods and services which are not subject to VAT and not included in the VAT return. Registered persons first must understand that differentiation is a key factor when determining zero-rated and exempt supplies. Zero-rated supplies are taxable subject to VAT at zero percentage (0%). Exempt supplies are not taxable for VAT purposes and therefore do not form part of business VAT.
In Vanuatu a supply of goods or services is an exempt supply if it is of a type specified in the First Schedule of the Value Added Tax Act No.12 of 1998 (Cap 247). The First Schedule exempts the following supplies from VAT:
- financial services;
- donated goods or services supplied by any non-profit body;
- residential rental accommodation;
- the sale of certain residential rental dwellings;
- the supply of education by approved educational institutions.
It is important to note that exemptions are based on the status of the supply not the status of the supplier, for example a bank generally makes exempt supplies in the form of financial services, however it is possible that banks may also make taxable supplies e.g. commercial property rental.
Five things to remember about exempt supplies
- You don’t include VAT in the price of exempt goods or services;
- You are not eligible to claim input tax credits in acquiring exempt supplies;
- You don’t include the value of the exempt supplies in your taxable turnover when establishing your VAT registration threshold;
- If you only supply exempt goods or services, you don’t have to register for VAT purposes;
- You must make the relevant VAT adjustments if your business is engaged in both taxable and exempt supplies.
Registered persons should contact the VAT Office for clarification if not sure of the VAT implication on a particular supply.