What Does Zero Rated Mean?
Zero Rated refers to a value added tax treatment applying a rate of zero to taxable supplies, with categories defined by national VAT law.
Also known as: Zero-rated supply, 0% VAT rate.
How Zero Rated works
Zero Rated treatment applies when a taxable supply falls into a category which the VAT law taxes at zero, such as certain exports, foods or international services in many systems, and the supplier charges no VAT while the supply remains taxable. Because the supply is taxable, input VAT on related costs can generally be reclaimed, according to HMRC guidance. Registration and reporting obligations still apply to the supplier. Categories and conditions differ by country.
Zero Rated vs Exempt Supply
Unlike an Exempt Supply, a Zero Rated supply stays within the VAT system, so the supplier can generally recover input VAT on related costs.
Example
Illustrative example: A registered business in Country A exports goods to a customer in Country B. The export is Zero Rated in Country A, so no VAT is charged on the invoice, while the business reclaims the VAT paid on its packaging and transport costs, subject to export evidence requirements.
Common misconception
Myth: Zero-rated and exempt mean the same thing because no VAT appears on the invoice.
Reality: A Zero Rated supply is taxable at zero and generally allows input VAT recovery, whereas an exempt supply sits outside the charge and generally blocks recovery, as HMRC guidance explains.
Frequently asked questions
What does zero-rated mean for VAT?
Zero Rated means a supply is taxable for VAT at a rate of zero, so no VAT is charged to the customer but the supply counts as taxable for registration and recovery.
Can VAT be reclaimed on zero-rated sales?
A registered business making Zero Rated supplies can generally reclaim input VAT on related costs, subject to local restrictions, unlike a business making exempt supplies.
Related terms
- Value Added Tax (VAT) — Tax system defining zero-rated supplies
- VAT Registration — Required even for zero-rated suppliers
- Zero Tax Rate — Income tax concept often confused with zero-rating
Related guides
- VAT on digital services: Ethiopia — VAT treatment of cross-border digital services
Sources
Last verified: 2026-10-09. This entry is general information, not tax or legal advice; rules vary by country and change over time.
