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VAT Exempt (Art11) vs Charging VAT ( Art10)

VAT Exempt (Art11) vs Charging VAT ( Art10) Will you opt for less hassle or more profit and cashflow?

Pros of being VAT Exempt

  • Easy to start with
  • Only one simple VAT return per year just indicating total sales, purchases and capital goods.
  • Simpler book- keeping i.e no need to distinguish between the VAT and Net element in your book-keeping. As no VAT owed or claimed.
  • Therefore being Exempt results in less Admin and Accountancy Fees.
  • Can offer more competitive prices if your clients are consumers (Since these can’t claim back VAT).

Example:  if “Peppi” your competitor next door charges €118  ( €100+€18 VAT)  for a service , you can charge €100 for the same service !  

Technically you’re earning the same amount as Peppi. However, since you’re VAT exempt you don’t need to charge VAT, and unlike Peppi you do not need to add a further €18 on top.

However the consumers will see that for the same service you’re charging €18 less than your competitor!

Guess for which bargain service they will be going today! (And which supplier they will be calling “Ħalliel!”)

  • You get to keep all the money you charge clients since none of it is VATABLE…

Cons of being VAT Exempt

  • Cannot claim back any VAT suffered on all expenses or products for re-sale.


Take the same example above, only instead of a service, you sold a product.         For which the supplier charged you €59  ( €50 + €9 VAT) . 


Therefore your gross profit on a sale would be €41.  (Sale of €100 minus supplier’s €59 charge). Being exempt means you cannot claim the €9 VAT back.


On the other hand assuming your competitor has the same supplier,  Peppi’ s gross profit would be higher at €50 since he can claim back the €9 VAT charged by the supplier in his VAT return .

 Your advantage is only due to the fact that you can potentially sell more as consumers choose your cheaper €100 product then his €118. Possibly good way to enter the market.



  • Could be Temporary especially if your successful – as if you jump the VAT threshold capping in Sales in any 12 calendar months, you will still be obliged by Law to switch to ART10  ( Services €20,000 , Products €35,000)


  • If temporary – you could really lose out on claiming large amounts of Input VAT on the big initial investment when starting out.



  • If your customers are Art 10 businesses, then being VAT exempt won’t make you more competitive.


  • If your services and products fall under a cheap VAT rate of either 5% or 7%, then being exempt would result in losing out claiming the 18% VAT on expenses. When in reality the low Vat rate you would charge consumers wouldn’t really make a difference at all in being competitive!



In our opinion and as mentioned in a similar article, whether you really better off as Exempt depends mostly on three important factors

  • Who your lovely clients are.
  • What expenses will you incur your first year as well as the years after.
  • Projected Sales

If your clients are ART 10 businesses than you might as well immediately register under Art 10.  These business will claim and VAT you charge them and you will collect the VAT from them. BUT now this means you can also claim back any VAT suppliers would charge you!

Yes , they’ll be slightly more paperwork involved BUT this will be more than covered with an excellent cashflow “ROI” on the VAT savings you will make daily!  VAT suffered cannot be claimed back on business expenses such as marketing and advertising, telephone bills , laptops , equipment , motor expenses (if commercial) and so many other expenses!

Projected Sales – So you decided to start as exempt, and spent around initially €35,400 on assets, furnishing, signage, repairs and maintenance etc to start your business.  Three months later business is doing great and due to exceeding the VAT threshold, you have to register under ART 10. In this case – You might as well could have registered under ART 10 and claimed the €5,400 VAT (18% on the initial €35,400) .

Reason being you still had to switch to Art 10 at a later stage, but since you were Exempt at the time of the €35,400 investment, the sad thing that you cannot claim back the VAT.

Still a firm believer in being VAT exempt? This could actually be the right option for you , but just don’t take it for granted. Do your homework, know your business and know your figures and seek professional advice where unsure. As you can see some businesses are better off being under Art 10 to be in a position to claim VAT despite what is commonly believed.

For a second opinion from people who love analyzing your potential start-up to help you hit the ground running, guns blazing with the odds stacked in your favor contact us here