Exempt supplies are not taxable supplies for VAT purposes. Therefore, VAT is not charged on exempt supplies and the supplier is prevented from recovering any VAT on expenses incurred in making those exempt supplies.
Selling an exempt supply is like a bad thing for the business 
You cannot claim your related input VAT (incurred) on such supplies.
The following supplies are exempt from VAT:
- Financial services which are not conducted for an explicit fee, discount, commission, rebate or similar type of consideration, including life insurance and reinsurance of life insurance.
- Residential buildings, other than the residential buildings which are specifically zero-rated.
- Bare land
- Local passenger
Exempt supplies refer to goods or services that are not subject to value-added tax (VAT). In many countries, including the European Union, certain types of goods and services are exempt from VAT as they are considered to be essential or have social or cultural value, and exempting them from VAT ensures they remain accessible to all.
There are several types of exempt supplies, and the specific types of exempt supplies vary by country. Some common examples of exempt supplies include healthcare services, education and training, cultural and sporting activities, financial services, and insurance services. In some cases, certain types of supplies may be partially exempt, meaning that they are subject to VAT, but at a reduced rate.
Exempt supplies are treated differently from zero-rated supplies, which are also not subject to VAT. Zero-rated supplies are taxable supplies, but the VAT rate applied is 0%. This means that VAT can be reclaimed on any input tax incurred in making those supplies. In contrast, no VAT can be reclaimed on input tax related to exempt supplies.
The treatment of exempt supplies can have important implications for businesses, particularly those that provide both exempt and taxable supplies. For example, a business that provides healthcare services, which are exempt from VAT, but also sells medical equipment, which is subject to VAT, may not be able to reclaim all of the input tax incurred on the purchase of that equipment. This can result in a higher cost for the business and may affect their pricing strategy.
In summary, exempt supplies are goods or services that are not subject to VAT. This is typically because they are considered essential or have social or cultural value. The treatment of exempt supplies can vary by country and can have important implications for businesses that provide both exempt and taxable supplies. Understanding the rules regarding exempt supplies is important for businesses to ensure they comply with the law and manage their tax obligations effectively.