Zero-rated or exempt? The difference that changes your VAT

A zero-rated supply and an exempt supply both mean the customer pays no VAT. The difference is on your side of the return.

Zero-rated (0%)

The supply is taxable at a rate of zero. You report it in your return and keep the right to deduct input VAT. Examples:

• Exports of goods and services outside the GCC, with proof of export.
• International transport of goods and passengers.
• Qualifying medicines and medical equipment.
• Investment-grade gold, silver and platinum.

Exempt

The supply is outside the tax. You cannot deduct input VAT on costs linked to it. Examples:

• Residential property rental.
• Certain margin-based financial services.
• Life insurance.

Why it matters

Treating an exempt supply as zero-rated overstates your input VAT — a common source of assessments. Each category has conditions, so check them before you invoice.