EXEMPT TRANSACTIONS


Where specific provision of law so permits, certain economic activities which would normally be subject to VAT are exempt from tax. The principal activities or persons that are exempted from VAT are: certain insurance, banking and financial activities, certain not-for-profit activities of Not-For-Profit Associations, doctors and other medical professionals, athletes, and lessors of unfurnished premises and certain furnished premises. In addition, rentals of agricultural land and buildings may be exempt from VAT. While the sale of used goods by the enterprise that used them is exempt, where the initial purchase, importation or supplying by the legal entity to itself of said goods gave rise to a total or partial VAT credit, which is virtually most cases, such exemption does not apply. The exemption of economic activities from VAT necessarily entails the loss of the right to claim a tax credit for the VAT paid by the taxpayer upon the acquisition of goods or services related to such exempt activities.

It is important to make the distinction between goods and services which are exempt from VAT and goods and services which are exonerated from VAT. This latter category includes, inter alia, those economic activities which relate to foreign commerce, such as international transportation, the exportation of goods, intra-Community delivery, and the rendering of services relating to goods to be exported or goods which are imported pursuant to the temporary admissions procedure. If an economic activity is exonerated from VAT, not only does it give rise to no VAT liability, as is the case with exempt transactions, but, in addition, it permits the person engaging therein to claim a VAT credit equal to the amount of VAT it paid on the goods or services it acquired in order to engage therein.

Finally, certain of the economic activities which are exempt from VAT can, at the election of the taxpayer, be made subject to tax. Such an election may be advantageous for a taxpayer that incurs substantial business and capital expenses because he will be able to claim a tax credit equal to the amount of VAT he pays on the goods or services he uses in his business; moreover, where such an election is made, the taxpayer is exempt from payroll tax. A drawback to such an election, however, is the consequent increase in the price charged by the taxpayer which is detrimental to purchasers not entitled to claim a VAT credit.