Zero-Rated-Supplies-in-VAT-GST

What is a Zero Rated Supply in VAT & GST?

In zero rated supply, the taxable person is not required to charge VAT to its customer. At the same time, the taxpayer is allowed to claim related input on such supplies.

The supply does not carry any additional VAT. Generally, people confuse between zero rated supply and exempt supply. Both are different and have different implications on the transactions.

Examples of zero rated supply

Let’s understand the zero rated supply with an example.

ABC Limited provides advertisement services to a charity organization. As per UK VAT law, this supply is zero rated. Therefore, while issuing the invoice, ABC Limited will apply zero VAT on the supply and will not charge any VAT.

Generally, tax authorities allow the taxpayers to zero rated the exports. The reason being the consumption of the goods are intended to be outside the country.

Additionally, in some cases, tax payers can zero rate local supplies as prescribed by the tax authorities. The reason of applying zero rating on domestic supplies is to give relief on specific items so that the tax cost doesn’t transfer to the consumer. Examples include certain medicines, education, residential property, etc. 

Is zero rated supply a taxable supply

Yes, zero rated supply comes under taxable supplies. Being taxable supply gives the zero rating a privilege to claim any related input.

Difference between exempt supply and zero rated supply

In zero rated supply, taxable person has the right to claim related input. For instance, Advertising services to charities are zero rated and the taxable person will not charge any VAT. However, the VAT incurred on the expenses in relation to these advertising services is claimable.

On the contrary, in exempt supplies, the taxable person doesn’t charge VAT and cannot claim any related input on the expenses.

Invoice for zero-rated supply

The taxable person is required to issue zero rated invoice because the supply is taxable in nature. 

What is zero rate in finance

Zero rating is largely used in tax context. However, you may hear this term in financial markets where the companies issue bond with zero rate coupon bonds. That is entirely different concept comparing to tax. In zero rate coupon bond, the issuer dont pay any interest. It gives guarantee for a fixed return at the maturity of the bond.

What are zero rated products

It depends on the tax authority of the country. For instance, in UK, Food and Drink for human consumption is zero rated. Whereas, in Saudi Arabia, certain medicines are declared zero rated. Therefore, you need to check the relevant VAT/ GST regulations to identify the zero rated products and services. 

Leave a Comment

Your email address will not be published. Required fields are marked *