"Without VAT": Exemption, Zero Rate and Input VAT Credit

Three grounds for "without VAT" and how to document them

• The seller is not a VAT payer — it applies turnover tax (aggregate income no more than 1 billion soums, Article 461 of the Tax Code); the e-invoice (ESF) and the contract say "without VAT".
• Exempt turnover under Article 243 — the seller is a VAT payer, but the specific transaction is exempt; the e-invoice states the exemption, and input VAT must be accounted for separately (Article 268).
• Zero rate (exports and equivalent transactions, Article 260) — this is taxable turnover: input VAT is credited and may be refunded.

What the buyer loses

A buyer that is a VAT payer can credit the tax only if the supplier is registered as a VAT payer and the tax is shown separately on the invoice (Article 266). Buying "without VAT", it gets no credit, so compare prices net of tax.

Three different situations

First, the company is not a payer of the tax and therefore does not show it on documents. Second, the transaction is exempt from taxation. Third, the zero rate applies.

On the invoice the entry looks similar, but the tax consequences differ fundamentally, especially for input credits.

• non-payer of the tax
• exempt transaction
• zero rate
• separate accounting for mixed transactions
• preparation of primary documents

Why this matters for the input credit

The right to credit input tax depends on how the outgoing transaction is classified. The approach differs between exemption and the zero rate.

A classification error leads either to losing the credit or to a dispute with inspectors — both cost money.

Separate accounting

If a company carries out both taxable and non-taxable transactions, separate accounting is required. The methodology is set out in the accounting policy.

The lists of exempt transactions and the rules for applying rates are set by tax legislation and change from time to time — always check against the current version.

How this is reflected in documents

Exemption, the zero rate and ordinary sales are documented differently in primary documents and invoices. A documentation error causes a problem not at the time of shipment but later, when input credits are reviewed.

That is why it is better to verify document templates once when a new line of business starts than to redo them in batches retroactively.

What inspectors look at first

Inspectors are interested in the chain: entitlement to the exemption, supporting documents and correct allocation of input tax. If even one link is documented carelessly, the whole chain comes into question.

Transactions the company itself has classified as non-taxable get separate attention — here the burden of justification lies with the business.

• contracts and their subject matter
• primary shipping documents
• evidence of the grounds for the exemption
• the separate accounting methodology
• calculation of the amounts allocated

What to do when the sales mix changes

When the share of exempt transactions changes noticeably, the previous separate accounting methodology no longer reflects reality. That is a reason to revise the accounting policy, not to fit the calculation to the familiar scheme.

It is best to make the revision at the boundary of a period and document it, so inspectors have no question about why the approach changed.

What to prepare before a consultation

To make the discussion concrete, collect in advance the contracts for the disputed transactions, samples of the documents issued and a description of how input tax is currently allocated.

This is often enough to see the source of the problem: usually it lies not in the exemption itself but in documentation that does not match the stated grounds.

If the documents are scattered, we start by organising them — without that, any conclusions would be guesswork.

Common misconceptions

A common misconception is that exemption and the zero rate are the same thing. Their consequences for input tax are different, and this is where money is most often lost.

The second misconception is that only large companies need separate accounting. It is required for anyone with both taxable and non-taxable transactions, regardless of size.

Specialist support

We analyse how transactions are classified, review documents and support VAT refunds. Leader Audit has helped clients recover more than 200 billion soums in tax.

13 years of practice.