An explanation of a zero-rated supply under the Value Added Tax


19-September-2011

• Standard rate supplies:  15% - Applies on most supplies of goods and services.
• Zero-rate supplies: 0%

What is a zero rated supply?
Under the Value Added Tax system zero-rated applies to goods and services that are deemed to be taxable but for economic reasons are free of Vat. Zero-rating is generally used to enable Vat registered exporters, manufacturers and suppliers of zero-rated goods and services to claim refund of the excess input tax incurred in dealing with zero-rated supplies.  This means that the final price charged to the consumer does not include Vat. However the Vat paid on the inputs used to make the zero-rated supplies are deducted, which means that there is no residual Vat in the final price.

Below is a list of some zero rated Supplies as per the second schedule of the Vat Act 2010
• Export of goods
• Goods delivered to an operator of international transport services for the purpose of carrying the goods outside Seychelles
• Supply of goods by an individual farmer or fisherman as registered with the ministry responsible for Agriculture and Fisheries
• Supply of public utility
For a complete list of zero-rated supplies refer to of the Value Added Tax Act, 2010, which can be downloaded from the SRC website (www.src.gov.sc).
 
Zero-rated and exempt supplies, both mean that there are no Vat charged on the supplies, so what is the difference?
The general input tax deduction rule is that input tax claims can only be made if it is incurred for the making of taxable supplies. When making taxable supplies, including zero-rated ones, a business is allowed to reclaim input tax credit, which is not the case for exempt supplies.

However, it happens that businesses supply both zero-rated and exempt supplies in the course of their businesses. In such a situation their rights to claim an input tax credit will be limited.  In cases where the input tax cannot be directly identified as incurred in the making of either taxable or exempt supplies, the input tax has to be apportioned. This is known as Input Tax Apportionment.

Input tax apportionment is calculated as follows:
                                                             Value of taxable supplies
Input tax apportionment  =      
                                                                         Value of total supplies *
(*) Total supplies means Taxable supplies (the standard and the zero-rated supplies) + exempt supplies.
Is it important to keep records of zero-rated supplies?
A Vat registered business must keep full and true records of all business transactions which enable accurate calculation of Vat liability or repayment. In particular these records shall clearly reflect the distinction between taxable supplies (including zero-rated) and exempt supplies transactions.  All records and accounts must be preserved for a period of 7 years from the date of the latest tax period to which they refer to as required by law.
For more information
You can contact Seychelles Revenue Commission on 4293737 or email us at This email address is being protected from spambots. You need JavaScript enabled to view it. . The Value Added Tax Act, 2010 is available on the Seychelles Revenue Commission website (www.src.gov.sc).

Submitted by the Seychelles Revenue Commission

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