How does partial exemption work

  • Overview

The need to apply a partial exemption approach arises where a registered business acquires goods or services which are used in their business for making both taxable and exempt supplies.


To the extent that your acquisitions can be directly traced to one activity or another then VAT recovery should be assessed on this direct attribution approach. For example, if you purchase two desks and one is used in that part of the business making taxable supplies then the VAT paid on acquiring that desk is fully recoverable, where the other desk is used in that part making only exempt supplies the VAT cannot be recovered. However, were the desk to go to the Finance function which provides services to both your taxable and exempt business functions then direct attribution is not possible, and you are required to assess your VAT recovery proportion based on the formula outlined by the VAT law.


Presently a system of apportion is required using an input VAT approach by calculating the percentage of Recoverable Tax calculated to the sum of Recoverable Tax and non-Recoverable Tax for the Tax Period and apply this percentage to the VAT which relates to both the taxable and exempt activities.


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