VAT exemption or zero rate: what is the difference?
Written by Ilias Aarrass6 min read · Published on · Last reviewed on 
In short
With the zero rate you are still inside the VAT system and can fully reclaim VAT on your own purchases; with an exemption you are outside it and that VAT becomes a cost.
- The zero rate mainly applies to cross-border trade: goods to an EU business with a valid VAT number and exports outside the EU.
- Exemptions apply per profession or activity, such as healthcare, education, financial services, letting of property and journalism.
- Under the zero rate you keep filing returns and submit an EU sales listing for EU supplies; under an exemption usually not.
- The small business scheme is essentially an exemption you opt into: after deregistering you can only rejoin after the rest of that calendar year plus the year after.
Two entrepreneurs both send an invoice without VAT. One gets money back from the tax authorities at quarter end, the other does not. The difference lies in why there is no VAT: zero-rated or exempt. To your client it makes no difference; to you it decides whether you can deduct VAT on all your business purchases.
The difference in one table
Both produce an invoice without VAT. The distinction sits entirely on your side: what may you do with the VAT you pay on your own purchases?
| Zero rate (0%) | Exemption | |
|---|---|---|
| VAT on your invoice | None | None |
| Reclaim VAT on purchases | Yes, in full | No |
| File a VAT return | Yes | Usually not |
| VAT ID on your invoice | Yes | Not required |
When does the zero rate apply?
The zero rate exists mainly for cross-border trade. Supplying goods to a business in another EU country with a valid VAT number means you charge zero per cent. The same applies to exports outside the EU.
Your invoice then states your client's VAT number and the reason for the zero rate. You keep filing returns, declare the turnover in the right box and, for EU supplies, submit an EC sales list. See VAT and clients abroad.
Do not confuse the zero rate with the reverse charge. There the VAT liability shifts to your client and your invoice states VAT reverse-charged. When to reverse-charge VAT explains that.
When are you exempt?
Exemptions exist per profession or activity. The legislator decided certain services stay outside VAT, usually because they serve a social purpose.
- Healthcare by BIG-registered providers; see VAT exemption in healthcare
- Education by recognised institutions and certain forms of tutoring
- Financial services and insurance; see VAT on bank charges
- Letting of immovable property, with exceptions
- Journalism and certain cultural services
What it costs or saves you
If you are exempt, you pay VAT on your laptop, software and office rent without ever seeing it back. That VAT has become a cost for you. Factor it into your rate: see setting your hourly rate.
Same turnover, different outcome
- Turnover
- € 60,000 without VAT
- Business purchases incl. VAT
- € 12,100 (of which € 2,100 VAT)
- Under the zero rate
- € 2,100 back from the tax office
- Under an exemption
- € 0 back
Result: € 2,100 difference on exactly the same turnover and costs
And the small business scheme?
The small business scheme is a third variant, and at heart it is an exemption you opt into. Once registered you charge no VAT and can reclaim none either. That can suit someone with few purchases; it almost never suits someone who invests a lot.
Do the maths before signing up, because deregistering locks you out for the rest of that calendar year plus the year after it. See the small business scheme.
Frequently asked questions
What is the difference between a VAT exemption and the zero rate?
Either way your invoice shows no VAT. Under the zero rate you may still reclaim VAT on your own purchases; under an exemption you may not, so that VAT becomes a cost for you.
When may I use the zero rate?
Mainly for cross-border supplies: goods to a business in another EU country with a valid VAT number, or exports outside the EU. You state your client's VAT number and the reason on the invoice.
Do I file VAT returns if I am exempt?
Usually not, because you fall outside the VAT system. If you also perform taxed activities you do file, and must split your input VAT between the taxed and exempt parts.
Is the small business scheme an exemption?
Essentially yes: you charge no VAT and can reclaim none. The difference is that you opt into it yourself, and that after deregistering you must wait out the rest of that calendar year plus the year after it before rejoining.
Sources
- VAT exemptions by sectorBelastingdienst · belastingdienst.nl
- Deregistering from the KOR and when you can rejoinBelastingdienst · belastingdienst.nl
Sources checked on
This article provides general information based on the rules known for 2026 and does not replace personal tax advice. For your specific situation, we're happy to take a look with you.
