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.