VAT Article 6: Exemptions

Essentially every supply is subject to VAT unless it falls within the scope of any of the exemptions.  This implies that exemptions are exceptions to the general rule and therefore should be interpreted strictly, ensuring their intended affect.  Yes, there are two broad classes of exemptions – we have the exempt with credit supplies and exempt without credit supplies.

On the supply side there are no dissimilarities between exempt with credit supplies and exempt without credit supplies since no VAT is charged in both cases. However, on the purchase side, while no input VAT may be deducted by businesses carrying out exempt without credit supplies, input VAT may be recovered by businesses carrying out exempt with credit supplies.

Yes. Certain financial services businesses which transact with customers established outside of the EU have a right to deduct input VAT on their purchases.

Effectively any VAT on expenses which is directly attributable to: supplies to costumers established outside the EU is deductible in full; supplies to customers within the EU is not deductible; supplies which are not attributable directly to customers in the EU and customers outside the EU is recovered on a partial attribution basis.

Let’s say the financial services business has the following numbers:

Supplies to EU customers: EUR 100,000

Supplies to non- EU customers: EUR 100,000

Total Supplies: EUR 200,000

Recovery Ratio : 50%

VAT on purchases attributable to EU customers: EUR 20,000 – NOT Recoverable

VAT on purchases attributable to non-EU customers: EUR 10,000 – Fully Recoverable

VAT on purchases which may not be attributed: EUR 30,000 –  50% Recoverable