Registered persons first must understand that differentiation is a key factor when determining zero-rated and exempt supplies. Zero-rated supplies are taxable subject to VAT at zero percentage (0%). Exempt supplies are not taxable for VAT purposes and therefore do not form part of business VAT.
In Vanuatu a supply of goods or services is an exempt supply if it is of a type specified in the First Schedule of the Value Added Tax Act No.12 of 1998 (Cap 247). The First Schedule exempts the following supplies from VAT:
- financial services;
- donated goods or services supplied by any non-profit body;
- residential rental accommodation;
- the sale of certain residential rental dwellings;
- the supply of education by approved educational institutions.
It is important to note that exemptions are based on the status of the supply not the status of the supplier, for example a bank generally makes exempt supplies in the form of financial services, however it is possible that banks may also make taxable supplies e.g. commercial property rental.
Five things to remember about exempt supplies
- You don’t include VAT in the price of exempt goods or services;
- You are not eligible to claim input tax credits in acquiring exempt supplies;
- You don’t include the value of the exempt supplies in your taxable turnover when establishing your VAT registration threshold;
- If you only supply exempt goods or services, you don’t have to register for VAT purposes;
- You must make the relevant VAT adjustments if your business is engaged in both taxable and exempt supplies.
Registered persons should contact the VAT Office for clarification if not sure of the VAT implication on a particular supply.
With regards private expenses the VAT Office would like to remind registered persons that when a business expense is incurre\d and a proportion of the expense will be used for private consumption, the amount of VAT credit claimed must be adjusted. Only the amount of expenditure used in deriving the taxable income of the business is allowable and input tax credit should only be claimed on that amount.
The VAT Office through its audit program established that one of the common discrepancies identified is the VAT claimed on registered person’s private expenses. These expenses are paid for the benefit of the owners of the business or their families, and do not form part of the registered person’s taxable activity nor do they assist in generating taxable income for the business. These expenses includes private medical bills, private mobile phone bills, personal food or groceries, claims on fuel for the owner’s motor vehicle used to travel to and from work every day, personal entertainment expenses etc.
The VAT Office encourages registered persons to have clear understanding while claiming input tax credits and contact the VAT Office if in doubt.
For more information on any VAT issues, please contact the VAT Office by phone: 00(678) 24573 and 00(678) 37517 (Santo), visit us at our Office in Carnot Street, Port Vila or email us.
