VAT and records
Zero-rated supply
A zero-rated supply is a sale taxed at a VAT rate of 0% instead of 15%, for example an export of goods. The sale is still invoiced and recorded as a VAT sale, but the buyer is charged no VAT. It differs from an exempt supply, which sits outside VAT charging.
What it means
The standard VAT rate is 15%, but some supplies carry a rate of zero. Exports of goods are the usual example. The sale is a taxable sale like any other, so it goes through your invoicing system and onto your records; the difference is only that the VAT line on the invoice shows 0% and the buyer pays no VAT. The invoice and the record look as usual, with a single figure changed.
Getting the label right matters. If a standard sale is wrongly entered at 0%, your output VAT is understated and the shortfall is yours to deal with later. If a zero-rated sale is charged 15%, your customer overpays. A zero-rated supply is also not the same as an exempt supply, and the difference can affect how input VAT on your costs is treated, so ask your accountant when a case is unclear.
A wholesaler ships a container of goods to a buyer outside the Kingdom. The export invoice shows VAT at 0%, and that sale is still included in the wholesaler's VAT figures for the period. The next invoice, a local sale to a shop in the city, goes back to the standard 15%. The rate follows the type of sale on each invoice, not the business as a whole.
In practice
- List which of your sales, such as exports of goods, may be zero-rated.
- Set the VAT category on each product or customer before you invoice.
- Confirm doubtful cases with an accountant or the Authority before using 0%.
- Check that a sample invoice shows VAT at 0%, not a blank or 15%.
Questions about Zero-rated supply
What is the difference between a zero-rated and an exempt supply?
A zero-rated sale is taxed at 0%, while an exempt supply is outside VAT charging altogether. Both leave no VAT on the invoice, yet the two are treated differently, including for the input VAT on your costs. Classify each sale carefully and ask an accountant whenever you are unsure which applies.
Which sales are zero-rated?
Exports of goods are the standard example, but the full list comes from the VAT rules, not from a general guide. Before applying 0% to a type of sale, confirm with an accountant or the Authority that it qualifies, and keep the paperwork that supports your reasoning.
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