Zero-Rated Goods

What are 'Zero-Rated Goods '

In countries that use a value-added tax (VAT), zero-rated goods are products on which VAT is not levied. Examples of goods that may be zero-rated include many types of foods and beverages, exported goods, donated goods sold by charity shops, equipment for the disabled, prescription medications, water and sewage services, books and other printed publications, and children's clothing.

BREAKING DOWN 'Zero-Rated Goods '

Most countries have a domestic VAT mandated by the government, which is required for goods and services. VAT is included in the total price of goods sold in a country, and VAT is charged in addition to sales tax in most transactions.

Designation of Zero-Rated Goods

Countries with a VAT can designate certain goods as zero-rated goods. Zero-rated goods are typically individualized items. Countries often designate goods as zero-rated because the goods are leading contributors to other manufactured goods and thus a leading part of a broader supply chain. Many food items are designated as zero-rated goods; these food items are sold with a 0% value added tax.

In many situations, buyers use zero-rated goods in production, and the buyer benefits from paying a lower price for the goods without the tax. A manufactured food provider may use the zero-rated goods in the manufacturing of a food product. When the product is sold to a buyer, the manufactured goods include a VAT that results from the inclusion of zero-rated goods in production.

Overall, the absence of VAT on zero-rated goods results in a lower total purchase price for these goods. Zero-rated goods can save buyers a significant amount of money. In the United Kingdom, for example, the standard VAT rate levied on most goods is 17.5%, and the reduced rate is 5%.

International Dealings with Zero-Rated Goods

Most zero-rated goods also do not require the payment of international VAT. International VAT is required for most goods in addition to import or export tariffs. International VAT is charged when a consumer brings a good from one country to another, either individually or from a shipment. Internationally designated zero-rated goods bear no burden from international VAT, so the cost of transporting them internationally is lower.

Exempt Goods

Some goods and services are also reported as exempt from VAT. These exempt goods and services are typically a focused group of goods and services provided by a seller that do not require any VAT obligations from the selling business. Examples of exempt goods include insurance, education, training and charity fundraising.

RELATED TERMS
  1. Value-Added Tax - VAT

    A type of consumption tax that is placed on a product whenever ...
  2. Goods and Services Tax - GST

    A Canadian value-added tax levied on most goods and services ...
  3. Consumer Goods Sector

    A category of stocks and companies that relate to items purchased ...
  4. Hidden Taxes

    Taxes that are indirectly assessed upon consumer goods without ...
  5. Normal Good

    An economic term used to describe the quantity demanded for a ...
  6. Drawback

    Any form of tax or tariff that is rebated to the payor. This ...
Related Articles
  1. Personal Finance

    Value-Added Tax (VAT)

    Value-added tax, or VAT, is a tax on the added value of a good as it moves through the supply chain to the end consumer. In effect, the tax is levied on the gross margin at each point in the ...
  2. Retirement

    Is Living in Europe Cheaper than in America?

    Learn how living in Europe has financial advantages over living in the United States. Discover the benefits to take advantage of when it makes financial sense.
  3. Markets

    Macroeconomics: International Trade

    By Stephen Simpson International trade is the exchange of goods, services and capital across national borders. It is a multi-trillion dollar activity, central to the GDP of many countries, and ...
  4. Markets

    Growth and Politics In Exports

    An export is a good or service that is shipped from one country to another for sale or trade.
  5. Investing

    What are Capital Goods?

    Capital goods are assets with a useful life of more than one year that are used for the production of income.
  6. Markets

    Hamburger Economics: The Big Mac Index

    In theory, PPP stands up much better than it does in reality. Find out how to evaluate currencies according to the price of a Big Mac.
  7. Retirement

    What Countries Get For Their High Taxes

    Are there advantages to having the highest taxes in the world? Let's take a look at what the citizens in these countries get for their money.
  8. Personal Finance

    Cruz's America: More Fair or a $3 Trillion Mistake?

    As part of his presidential campaign, Ted Cruz has proposed a flat individual and business tax. Will it work?
  9. Markets

    Warning: the Economy (and Your Tax Bill) Could Look Vastly Different by 2015

    In the summer of 2015, either one or both political parties will begin the search for their next presidential candidate (depending on whether Mitt Romney wins the election this fall). By that ...
  10. Markets

    What is an Intermediate Good?

    An intermediate good is a good or service that is used in the production of a final good or finished product.
RELATED FAQS
  1. What are some of the arguments for and against a Value Added Tax (VAT)?

    Find out about the advantages and disadvantages of a value-added tax, which could get rid of the federal deficit despite ... Read Answer >>
  2. How will a value added tax impact the government budget?

    Learn about the potential budgetary impacts of a value-added tax system in the United States, and how the VAT might harm ... Read Answer >>
  3. What are some of the arguments against a value added tax (VAT)?

    Discover some of the arguments against a value-added tax. Like other tax systems, the value-added tax has strengths and weaknesses. Read Answer >>
  4. Do financial advisors charge VATs?

    Understand what types of actions on behalf of a financial advisor constitute a value-added tax (VAT). Learn how to avoid ... Read Answer >>
  5. How are industrial goods different from consumer goods?

    Understand the difference between industrial goods and consumer goods, and learn the different types of industrial goods ... Read Answer >>
  6. What is the difference between a capital good and a consumer good?

    Learn to differentiate between capital goods and consumer goods, and see why capital goods require savings and investment ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center