Yes, zero-rated means that the goods or services are technically subject to VAT, but the rate applied is 0 % 0 % , resulting in no VAT being charged to the final consumer. While no VAT is charged, these items are still "taxable," allowing businesses to reclaim the VAT they paid on expenses (input tax) related to these sales.
While zero-rated supplies are subject to VAT at a 0% rate, an exempt supply is not incorporated into the taxable turnover and is not subject to VAT at all. These differences substantially impact businesses and consumers, particularly in the context of reclaiming input VAT.
The terms 'No VAT', 'Zero-Rated', and 'VAT Exempt' are all used to describe goods and services that aren't subject to VAT, but there are some important differences between these terms. 'No VAT' means that the goods or services being sold aren't subject to VAT because the seller is not registered for VAT.
Zero-rated sales refer to transactions where goods are sold without any sales tax applied, effectively taxed at a rate of 0%. This means that while the items are technically taxable, the tax rate is zero. Common examples of zero-rated sales include basic groceries, prescription drugs, and certain medical devices.
Key takeaways:
You can still reclaim VAT on zero-rated supplies if you've bought things necessary for your business. Whether you're eligible for zero-rated VAT depends on a number of factors, like whether you're registered for VAT and whether the goods and services you provide are eligible.
Some countries won't refund after the fact, so check with the Foreign Embassies & Consulates office of the country you visited. Also. the United States does not participate in the VAT tax refund, and U.S. Customs and Border Protection officers are not mandated to stamp VAT tax forms.
You cannot reclaim VAT for: anything that's only for personal use. goods and services your business uses to make VAT -exempt supplies. the cost of entertaining or providing hospitality to people you do business with (for example theatre or sports tickets)
Zero-rated VAT means that supplies are taxable at a rate of 0%. Businesses can reclaim VAT incurred on costs related to zero-rated supplies. In contrast to zero-rated items, exempt items do not appear in a business's taxable turnover. Exempt goods and services include health, education, and insurance.
Zero-rated supplies are supplies that are not subject to GST in certain situations. A rate of 0% applies to these supplies. For example, a New Zealand architect designs a building to be constructed on an overseas property for an overseas client.
The VAT Act sets out specific supplies of goods or services that are exempt from VAT. Examples of exempt supplies include financial services, residential rentals, non-international passenger transport by road or rail, and educational services.
Eligibility: Typically, businesses with annual gross sales or receipts below the VAT threshold—set at PHP 3 million as of 2025—are classified as non-VAT. Tax Obligation: These entities remit a 3% percentage tax to the Bureau of Internal Revenue (BIR) rather than the 12% VAT, streamlining their compliance process.
The only major economy without VAT is the United States. This is because each state in the U.S. has its own sales tax regime, with some cities or counties additionally levying a sales tax, rather than a federal sales tax.
While no output VAT is collected from the customer, the seller is a VAT-registered person. The significant advantage is that businesses making zero-rated sales can claim input VAT on their purchases attributable to these sales. This input VAT can then be refunded or credited against other internal revenue taxes.
You charge zero rate on goods and services if you export them, depending on where in the UK you are supplying them from and where they're going to. Zero rate means you must still account for and charge VAT (for example, you must include it on your invoices) but the rate you use is 0%.
For US companies, VAT applies when selling to UK businesses or consumers, whether through physical goods or digital services. The tax implications depend on whether sales are business-to-business (B2B) or business-to-consumer (B2C), as well as the nature of the goods or services supplied.
'Zero Rated Expenses' in Xero VAT is designed for Zero Rated supplies (eg food) whereas 'No VAT' is designed for transactions that are 'Outside the Scope of VAT'. There is an important difference to the accuracy of the VAT between the two although there is no impact on the VAT liability.
Under Australian GST law some sales are GST-free. This term is generally the same as: zero rated (in other countries with VAT/GST systems) exempt (in countries with sales tax systems).
Zero-rated goods, in countries that use value-added tax (VAT), are products that are taxed at a 0% VAT rate, meaning no tax is charged on their sale. These goods are often essential items, such as basic food staples, books, or children's clothing, designated as zero-rated to make them more affordable for consumers.
Thus users of zero-rated services might benefit from its introduction, while non-users may find that their prices rise or download limits fall. The introduction of zero rating may also involve upselling as the ISP could limit zero- rated offers to more expensive plans.
Zero-rated goods and services are those that are taxable but at a rate of 0%. This means that the customer does not have to pay any VAT as it is charged at a rate of 0%, but because the supply is taxable, the supplier can reclaim VAT paid on the costs of making that supply.
Total up the ESP for the VAT period. If your goods are standard rated at 20% divide the total ESP by 6. If they're zero rated, deduct the total ESP from your total sales. This will give you your sales at 20%.
This isn't just your profit; it's the total value of everything you sell that isn't exempt from VAT. That includes items at the standard rate (20%), reduced rate (5%), and even the zero rate (0%). A lot of people get caught out thinking zero-rated sales don't count towards the threshold, but they absolutely do.
For any significant purchase, even at a boutique shop, it's always worth asking about a VAT refund. The precise details of getting your money back will depend on how a particular shop organizes its refund process. In most cases, you'll present your refund documents at the airport on the way home (explained later).
Small business owners can claim back VAT on products and services shared between the business and also used personally. If you run your business from home, you can claim back a proportion of VAT on services such as utilities and broadband.
VAT-registered businesses charge their customers VAT on sales. They also pay VAT when they buy goods or services for their business. The difference between what you've charged and what you've paid is either paid to HMRC or reclaimed.