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What are exemptions? Are there different classes of 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.

You mention exemptions with credit and exemptions without credit. What is the difference between them? Are there any exceptions?

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.

Are there any businesses engaged in providing exempt without credit supplies which have a right to deduct input VAT?

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

So, how does a financial services business with customers established both within and outside of the EU deal with input VAT?

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.

You mention partial attribution basis. Can you give us an example?

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

Matthew Zampa


Christabel Spiteri

VAT Leader

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