Zero-rated is used for goods and services that you don’t add VAT or GST to when you sell them to clients.
VAT or GST is often referred to as consumption tax. You have to register for consumption tax when you earn above a certain threshold, which is set by the tax authorities in your country.
After you’re registered for consumption tax, you should add VAT or GST to your invoices. Some goods or services are excepted or exempt from VAT and GST and shouldn’t have tax added to them.
Zero-rated is a term used for products that are exempt.
The difference between excepted and exempt
You shouldn’t add tax to tax excepted products and services, and if you only sell these kinds of items, you can’t register for consumption tax, even if you reach the threshold.
Tax exempt products and services—also called zero-rated—shouldn’t have any tax added to them either, but in these cases you need to specify the 0% tax rate on your invoices. You can also register for consumption tax, even if you only sell tax exempted products and services.
Everyone who’s registered for consumption tax has to report to the tax authorities how much tax they’ve claimed from clients and how much tax they’ve paid to suppliers. In your case, you’ll always pay more tax than you claim—since you claim none—so you’ll get the difference refunded.
Businesses that aren’t registered—for example those that sell tax excepted items—don’t have to report consumption tax, but they can’t receive tax refunds either.
See also: What do I do about tax on my invoice?
Examples of zero-rated goods and services
Which products and services that are excepted and exempt varies from country to country.
Examples of items that are usually—but not always zero-rated—include groceries, health-care services, exports, and some educational services. If you want advice about your products and services, you should reach out to an accountant or a tax advisor.