In both cases, there is no need for calculation of the tax value, because it is either 0 or nonexistent (we will get to that). Also, both are applied to whole specific groups of products or when specific conditions are met.
Although the difference between exception and exemption may seem hard to catch at first glance, the two special fiscal permissions differ significantly.
The most important difference is the application of both mechanisms. The exception is like the override of VAT regulations – they simply do not apply for certain goods and products. Hence there is no tax rate. In case of exemption, the provisions from the VAT Act do apply, but the tax rate is fixed to a 0 percent value.
Further aspects follow from this division. In the case of the exception, the entrepreneur does not have to report the turnover, because there is no VAT rate charged for goods and services sold. The sales should not be registered in the VAT register. On the other hand, if there’s no tax calculated, an entrepreneur cannot expect to use deduction of costs for the services or goods he purchased that are compatible with the company’s or business’ lineament.
The exemption, as it utilizes a 0% VAT rate, gives the business owners the right to get back the VAT amount paid for goods and services for work purposes. Regarding annual VAT settlements, exempted goods/services must be listed as separate items, not to be confused with regular sales. In other words, companies that sell goods/services that are exempt from the VAT duty should not add VAT on their invoices, but they still have the right to deduct VAT on products and services they have purchased for operation.
Below we list examples of industries covered by exception regulations:
Most important exemption examples include: