What business operations are exempted from VAT?
Basically, all kinds of selling of goods and services is subject to VAT if the activity of selling is a conduct of business. However, the Value Added Tax Act contains detailed provisions on the categories of sales that are exempted from VAT.
The exempted categories can include:
- healthcare services and medical services
- (business relating to) social services
- general education and vocational training services, university education, and basic education in the Arts
- financial services, insurance services
- activities that involve fees paid to certain performers
- copyright fees
- selling real estate and offering it for rent
- postal services
- certain other goods and services (such as lottery events)
If you have a sales transaction falling into the above categories, you cannot add VAT to the invoice and you cannot claim VAT deductions for any purchases relating to the transactions.
However, please note that there are other sales transactions that are not subject to VAT but for which VAT deductions can be claimed if purchases relating to them have been made. These sales are called “zero-rated”. Examples of zero-rated selling include international commercial transactions with goods and services. Consequently, business activities under a zero-rate VAT scheme are different from VAT-exempt activities. This page only contains guidance on the latter.
When can you register for VAT even if your operation is a VAT-exempt activity?
Businesses can in some circumstances seek VAT registration voluntarily even if their activities are exempted from VAT:
- Your operation is regarded as small-scale i.e. the turnover for the accounting period (12 months) does not exceed the threshold for small business.
- You own real estate property and the circumstances where you rent it out fulfil a set of requirements, for example, your tenant uses the real estate or a part of it for their own VAT-liable activities on a regular basis.
- Your activity is the selling of performances, and the parties that organise the events pay you compensation for the performances. The performers in question may be musicians, masters of ceremonies, sportspersons, other comparable professionals who perform for the public. These performers may sell their services by themselves, or there may be an agent company that sells the performances. In these circumstances, such a seller (either the performer or their agent) can seek VAT registration. Note: When VAT registration is in effect, the entire operation of the VAT-registered business is subject to VAT taxation even if annual turnover does not exceed the threshold for small business.
- You are an entity promoting the public good and receive income that is not treated as business income subject to taxation, but the entity wishes to seek VAT registration voluntarily.
If you are not registered for VAT
If you do not register for VAT or apply for entry in the VAT register
- you cannot deduct the VAT of your purchases
- you do not need to file VAT returns or pay VAT
- you do not need to add the VAT amount to the price of the goods and services you sell.