VAT exemption

Certain services are exempt from VAT, particularly those deemed to serve the public interest under the EU’s Sixth VAT Directive. These exemptions aim to make such services more affordable for citizens by not imposing VAT.

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Examples of VAT-exempt services include:

  • Health and medical care, including dental and psychological services;
  • Social welfare services;
  • Education, excluding courses conducted for profit;
  • Activities of associations;
  • Amateur sports;
  • Cultural and artistic activities;
  • Residential leasing;
  • The supply of second-hand real property;
  • Passenger transport;
  • And others.

The scope of the exemptions is not always easy to define. For instance, scheduled bus services are VAT-exempt, whereas tourist bus services are not. Certain healthcare treatments are VAT-exempt, while others are not, due to a lack of medical relevance or the provider’s lack of accredited qualifications.

It may seem intuitive for a business to seek VAT exemption for its turnover. However, whether this is advantageous depends significantly on the business’s customer base and cost structure.

PrivatRevision can assist in determining whether a service qualifies as VAT-liable or VAT-exempt. We can also guide businesses in either avoiding VAT liability or becoming VAT-liable, depending on their interests.

It is a condition for claiming VAT deductions on expenses that those expenses relate to VAT-liable activities. For this reason, many otherwise VAT-exempt businesses may in fact benefit from having a VAT-liable element.  For instance, a psychologist providing services to a corporate client (who can reclaim input VAT) may have an interest in those services being treated as VAT-liable. This allows the psychologist to claim VAT deductions on a portion of their own expenses.

Where a business carries out both VAT-liable and VAT-exempt activities, it is required to calculate VAT deductions according to the pro-rata principle. Under this system, input VAT may only be deducted in proportion to the share of turnover that is VAT-liable.

For real estate investors, VAT planning can involve substantial financial implications—particularly in determining whether the supply of real property or the leasing of commercial premises should be structured as taxable or exempt, depending on the expected cost structure.

Let PrivatRevision’s VAT experts guide you through your options if you operate a wholly or partially VAT-exempt business or have considerations regarding VAT liability or exemptions.