What is the difference between zero-rated and exempt VAT supplies in Zambia?

Both zero-rated and exempt supplies have no VAT charged to the customer. The critical difference is input VAT recovery. Zero-rated suppliers can reclaim all input VAT paid on their business purchases — making it highly valuable for exporters. Exempt suppliers cannot reclaim input VAT on purchases related to their exempt supplies — the VAT becomes a cost they must absorb. Zero-rated supplies also count towards the K800,000 VAT registration threshold; exempt supplies do not.

What are zero-rated supplies in Zambia?

Zero-rated supplies in Zambia (under the Value Added Tax Zero-Rating Order) include: exports of goods from Zambia; basic foodstuffs (mealie meal, fresh milk, bread, salt, fresh meat, sugar); agricultural inputs (fertilizers, seeds, pesticides, animal feed, tractors, irrigation equipment); medicines and pharmaceuticals (from approved companies); energy-saving and solar equipment; printed books and educational materials; international freight transport; supplies to diplomatic missions and aid agencies (via LPO); and aircraft stores.

What are exempt supplies in Zambia?

Exempt supplies in Zambia (under the Value Added Tax Exemption Order) include: financial and insurance services; medical and health services by registered practitioners; educational services; residential property rental; water supply services; public passenger transport (bus, ferry — not taxis); air travel (domestic and international); domestic kerosene (paraffin); treated and untreated mosquito nets; labour union subscriptions; funeral services; infant cereals and infant formula; and natural resource royalties and fees.

Do exempt supplies count towards the VAT registration threshold in Zambia?

No. Exempt supplies are excluded from the VAT registration threshold calculation. Only taxable supplies (standard-rated at 16% and zero-rated at 0%) count towards the K800,000 annual threshold and K200,000 quarterly threshold. A business could have total turnover well above K800,000 but if most of it is from exempt supplies, it may not be required to register for VAT.

What is partial exemption in Zambia VAT?

A partially exempt business makes both taxable supplies (standard-rated or zero-rated) and exempt supplies. It cannot claim all its input VAT — only the portion attributable to taxable supplies. Inputs directly linked to taxable supplies are fully claimable. Inputs directly linked to exempt supplies are not claimable. Overheads and non-attributable inputs are split using an apportionment formula: (Taxable supplies ÷ Total supplies) × Non-attributable input VAT.

Can a business dealing only in exempt supplies register for VAT in Zambia?

No. Businesses that exclusively supply exempt goods or services cannot register for VAT in Zambia — mandatory or voluntary. Without VAT registration, they also cannot reclaim any input VAT on their business purchases. If a business begins making taxable supplies above the registration thresholds, it then becomes required to register.

Zero-Rated vs Exempt VAT Supplies in Zambia (2026)

The One Difference That Matters — and Why It Costs Money

Every Zambian business owner who deals with non-standard supplies should be able to state this from memory: zero-rated and exempt supplies both result in zero VAT charged to the customer. But only zero-rated suppliers can reclaim input VAT.

This single distinction — invisible on the customer's receipt — is the most financially significant VAT concept in Zambia. Here is why it matters so much:

When you buy goods or services from a VAT-registered supplier, you pay 16% VAT on those purchases. That VAT you pay is called input VAT. If you are a zero-rated supplier, ZRA refunds this input VAT to you — your business recovers every kwacha of VAT it spent on inputs. If you are an exempt supplier, you absorb that 16% as a real cost — it reduces your profit margin permanently.

For a private school buying K500,000 of equipment per year and paying K80,000 in input VAT, that distinction is K80,000 in unrecoverable cost every single year. For an exporter — zero-rated — that same K80,000 would be refunded by ZRA.

Zero-Rated

VAT charged to customer

✅ Can reclaim ALL input VAT

📊 Still a taxable supply

📋 Must register if above K800k threshold

📑 Must issue Smart Invoices

💰 Zero-rated counts toward threshold

Exempt

VAT charged to customer

❌ CANNOT reclaim input VAT

🚫 NOT a taxable supply

🚫 Cannot register for VAT (if exempt only)

📑 No Smart Invoice required (exempt only)

💰 Exempt does NOT count toward threshold

📌

The legal source of this difference. Both categories are defined in subsidiary legislation under the Value Added Tax Act, Chapter 331 of the Laws of Zambia. Zero-rated supplies are listed in the Value Added Tax (Zero-Rating) Order. Exempt supplies are listed in the Value Added Tax (Exemption) Order. Both are Statutory Instruments issued by the Minister of Finance and updated by annual Budget Acts. Always check the consolidated version of each SI at zra.org.zm or Parliament's website.

Side-by-Side Comparison of All Key Attributes

Attribute	Zero-Rated (0%)	Exempt
VAT rate charged to customer	0% — you charge nothing	None — no VAT at all
Can reclaim input VAT?	✓ Yes — fully	✗ No — cannot reclaim
Is it a taxable supply?	Yes — taxable at 0%	No — outside the VAT system
Counts toward K800k VAT threshold?	✓ Yes	✗ No
Can register for VAT?	✓ Yes (must if above threshold)	✗ No (if exclusively exempt)
Smart Invoice required?	✓ Yes	Only if also making taxable supplies
Must issue VAT invoice?	Yes — showing 0% rate	Issue invoice showing exempt status
Legal source	VAT (Zero-Rating) Order	VAT (Exemption) Order
Who benefits most?	Exporters, agricultural input suppliers, book publishers, pharmaceutical companies	Private schools, clinics, residential landlords, banks, transport operators

Complete List of Zero-Rated Supplies in Zambia

Zero-rated supplies are defined in the Value Added Tax (Zero-Rating) Order. The list below is sourced from ZRA's official VAT Liability Guide and covers all major categories. Always check the latest consolidated SI — annual Budget Acts may add, remove, or adjust specific items.

🟦 Zero-Rated Supplies

Value Added Tax (Zero-Rating) Order · VAT Act Cap. 331

0% VAT · Input VAT Reclaimable ✓

🌍 Group 1 — Exports

Goods exported from Zambia — sold directly to a business abroad by or on behalf of the supplier
Requires proof: export documents (SAD 500), certificate of shipment, evidence payment landed in a Zambian bank. Services physically performed in Zambia are standard-rated even if the customer is foreign.
International road and air freight transport services (import, export, and transit)
Only covers international freight. Domestic freight within Zambia is standard-rated. Ancillary transit services also standard-rated.
Transshipment and pipeline services
Linked to international goods movement.

🌾 Group 2 — Basic Foodstuffs

Mealie meal (roller and breakfast)
Zambia's staple food — consistently zero-rated.
Fresh milk (not flavoured or processed)
Bread (standard loaves)
Confectionaries (biscuits, cakes, doughnuts, scones, fritters) are standard-rated.
Salt
Sugar (refined and unrefined)
Fresh meat (uncooked) — beef, pork, poultry, goat
Cooked or processed meat (e.g., sausages, tinned meats) is standard-rated.
Fresh vegetables and fresh fruit (unprocessed)
Cooking oil
Dried beans, kapenta (small dried fish)

🚜 Group 3 — Agricultural Inputs & Equipment

Fertilizers (all types)
Seeds (certified agricultural seeds)
Agricultural insecticides and pesticides
Household insecticide products (spray cans, fly killers) are standard-rated. Spraying services are also standard-rated.
Animal feed
Animal remedies and veterinary medicines
Agricultural tractors (all horsepower ratings)
Zero-rating extended to all tractors — previously only up to 90HP were zero-rated.
Irrigation equipment and DC solar irrigation pumps
Agricultural implements and accessories

💊 Group 4 — Medicines and Medical Equipment

Medicines and drugs supplied by approved pharmaceutical companies
Strict rule: supplies to or imports by other pharmaceutical companies do not qualify. Equipment with dual use (medical and non-medical) also does not qualify.
Single-purpose medical equipment (exclusively medical use)
For health and medical services themselves (i.e., the service provided by doctors, clinics), see the Exemption Order — those are exempt, not zero-rated.

📚 Group 5 — Educational Materials

Printed books (all types)
Journals and periodicals (regular academic/scientific publications)
Advertisements placed in journals are standard-rated.
Newspapers and printed magazines

☀️ Group 6 — Energy-Saving & Solar Equipment

Energy-saving and energy-efficient devices and equipment
Solar energy equipment (panels, solar irrigation systems, solar home systems)

✈️ Group 7 — Aircraft & Special Supplies

Aircraft stores (supplies made to airlines for use on domestic or international flights)
Goods imported by the President of Zambia
Goods purchased within Zambia by the President are standard-rated.
Supplies to diplomatic missions and aid agencies — via Local Purchase Order (LPO) issued by the Commissioner General
Suppliers must obtain an LPO from the Commissioner General. Without this, the supply is not zero-rated.

Complete List of Exempt Supplies in Zambia

Exempt supplies are defined in the Value Added Tax (Exemption) Order. Suppliers of exclusively exempt goods or services cannot register for VAT and cannot reclaim input VAT on any related purchases.

🔴 Exempt Supplies

Value Added Tax (Exemption) Order · VAT Act Cap. 331

No VAT · Input VAT NOT Reclaimable ✗

🏦 Financial & Insurance Services

Banking and financial services (interest, loan processing, account management fees)
Note: all financial services NOT specifically listed in the Exemption Schedule are standard-rated. Only those explicitly listed qualify.
Insurance services (all types)
Commissions earned by insurance brokers and agents in arranging insurance
Securities transactions — commissions, brokerage fees under the Securities Act

🏥 Medical & Health Services

Medical and health services provided by a registered medical practitioner, optician, dentist, or clinic
The service is exempt, but medical equipment purchase by the clinic may be zero-rated if single-purpose. Dual-use equipment is standard-rated.
Articles for use by blind or disabled persons
Treated and untreated mosquito nets
Infant cereals and infant formula (when prepared and labelled as such)

🎓 Educational Services

Educational services provided to nursery or pre-school children
Educational services provided to primary and secondary school students
Educational services provided to other students not for profit
For-profit vocational training and commercial education courses may be standard-rated.

🏠 Property

Rental of residential property (dwelling houses)
Commercial property rental (offices, shops, warehouses, shopping malls, hotels) is standard-rated at 16%. A dwelling house used for commercial purposes is also standard-rated.
Sale or lease of residential property
Royalties or fees for exploitation or removal of natural resources
Uncirculated new currency of the Republic (notes and coins)

🚌 Transport Services

Public passenger transport by road — buses and minibuses (by seating capacity)
Transportation by taxis is standard-rated. The exemption is based on seating capacity per manufacturers' literature.
Ferry charges for transportation of persons by water
Does not extend to pleasure boat trips, rafting, or hiring of boats.
Air travel — both domestic and international, scheduled and charter
Aircraft hire within Zambia is taxable. Only the air travel service itself is exempt.

🏡 Essential Goods & Miscellaneous

Domestic kerosene (paraffin) for household use
Kerosene for industrial or commercial purposes is standard-rated.
Water supply services
Labour union subscriptions
Only labour union subscriptions — not other types of association membership fees.
Funeral services

What Makes a Supply Standard-Rated (16%)?

Understanding zero-rated and exempt is easier when you know the default rule: if a supply is not specifically listed in the Zero-Rating Order or the Exemption Order, it is standard-rated at 16%. There is no ambiguity — the law defaults to standard-rated.

Common supplies that trip up Zambian businesses because they seem like they should be exempt or zero-rated but aren't:

🚨

These are standard-rated — despite what many assume:
• Taxi services — public transport exemption does not cover taxis
• Confectionaries — biscuits, cakes, doughnuts, scones, fritters are 16% even though bread is zero-rated
• Cooked or processed meat — fresh meat is zero-rated; cooked, smoked or tinned is not
• Commercial property rental — offices, shops, hotels are standard-rated; only residential rental is exempt
• Aircraft hire within Zambia — air travel is exempt; hiring an aircraft for private use is not
• Spraying services — agricultural insecticides are zero-rated; applying them is standard-rated
• Household insecticides — spray cans, fly killers are standard-rated; agricultural insecticides are zero-rated
• Domestic freight within Zambia — international freight is zero-rated; domestic is standard-rated
• New digital services not listed in any SI — AI consulting, drone surveys, SaaS, default to 16%

How Classification Affects Your VAT Registration Obligation

This is the aspect of supply classification that most directly affects whether you need to register for VAT at all — and it contains a crucial hidden insight.

The K800,000 annual threshold (and K200,000 quarterly threshold) for mandatory VAT registration applies only to taxable supplies. Zero-rated supplies are taxable supplies at 0% — so they count towards the threshold. Exempt supplies are completely outside the VAT system — they do not count towards the threshold.

💡

Practical example. A private hospital has K3,000,000 in total annual revenue. K2,900,000 is from medical services (exempt) and K100,000 is from a pharmacy dispensing medicines (standard-rated). Only the K100,000 counts towards the VAT threshold — the hospital is not required to register for VAT despite total revenue far exceeding K800,000.

Conversely, an agricultural export company with K700,000 in export revenue is approaching the K800,000 threshold and must watch carefully — zero-rated exports do count. Once they cross K800,000 (or K200,000 in a quarter), they must register — even though they will charge no VAT to their foreign buyers. Registration then allows them to reclaim all input VAT on their machinery, fuel, packaging, and logistics costs.

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Partial Exemption — When You Supply a Mix

The hardest VAT scenario in Zambia is when your business makes both taxable and exempt supplies. You are then a partially exempt business — and ZRA's rules on input VAT recovery become significantly more complex.

The core rule: a partially exempt business can only claim input VAT to the extent its purchases relate to its taxable supplies. The ZRA VAT Guide (2023 edition) sets out a three-category apportionment framework:

Partial Exemption Input VAT Apportionment

For businesses making both taxable (standard-rated + zero-rated) and exempt supplies. Sourced from ZRA VAT Guide, Chapter 5.

Category A

Directly Taxable

Input VAT directly linked to taxable supplies only. Fully claimable.

Category B

Directly Exempt

Input VAT directly linked to exempt supplies only. Not claimable at all.

Category C

Non-Attributable (Overheads)

Input VAT on overheads covering all supplies. Split by formula below.

Category C Apportionment Formula Claimable portion = (Value of taxable supplies ÷ Value of all supplies) × Category C input VAT
Worked example — retailer with taxable + exempt sales Taxable sales: K400,000 · Exempt sales: K100,000 · Total sales: K500,000 Overhead input VAT: K16,000 Claimable = (400,000 ÷ 500,000) × 16,000 = 80% × K16,000 = K12,800 claimable · K3,200 not claimable

⚠️

Partial exemption needs careful record separation. ZRA requires partially exempt businesses to maintain separate accounting records for taxable and exempt activities. Costs must be allocated to the correct category where possible before the apportionment formula is applied. Mixing all expenses into the overhead pool to maximise the claimable fraction is an audit trigger.

Real Business Scenarios — Right and Wrong

Scenario A

Zambian Export Farm

Revenue typeExports (vegetables to South Africa)

VAT classificationZero-rated (0%)

Charges VAT to buyer?No

Input VAT on fuel, fertilizerFully reclaimable ✓

Must register for VAT?Yes, if exports > K800k

💡 This farm should absolutely register for VAT even though they charge 0% to customers — they get all their input VAT back from ZRA, reducing real costs significantly.

Scenario B

Private Medical Clinic

Revenue typeMedical consultations, procedures

VAT classificationExempt

Charges VAT to patients?No

Input VAT on equipment purchasesNot reclaimable ✗

Can register for VAT?No (if exclusively medical)

⚠️ This clinic cannot reclaim VAT on its medical equipment, consumables, or building rental — those costs are absorbed as expenses. Factor unrecoverable VAT into pricing models.

Scenario C

Private School with Tuckshop

Revenue typeSchool fees (exempt) + tuckshop sales (standard)

VAT classificationPartially exempt

Charges VAT on school fees?No

Charges VAT on tuckshop?Yes — 16% on taxable items

Input VAT recoveryApportioned — partial only

🧮 Must register if tuckshop + any taxable income exceeds K800k. Must separate tuckshop costs from school costs and apply apportionment formula to overheads.

Scenario D

Agricultural Input Supplier

Revenue typeFertilizers, seeds, tractors

VAT classificationZero-rated (0%)

Charges VAT to farmers?No

Input VAT on logistics, warehousingFully reclaimable ✓

Must register for VAT?Yes, if sales > K800k/year

💡 Registration is highly beneficial — this business pays 16% VAT on its own operational costs and can reclaim all of it, significantly improving margins.

Step-by-Step Classification Decision Tree

Use this framework every time you are unsure whether a specific supply is zero-rated, exempt, or standard-rated. This follows ZRA's own recommended classification method from the VAT Liability Guide.

🌳 VAT Supply Classification Decision Tree — Zambia

❓

Step 1: Is this supply listed in the Value Added Tax (Zero-Rating) Order?

Download the consolidated Zero-Rating Order from zra.org.zm. Search by product name, category, or HS code if applicable.

✅

YES → It is Zero-Rated (0%). You charge 0% VAT to the customer. You can reclaim all input VAT on related purchases. You must register for VAT if your zero-rated supply turnover exceeds K800,000/year. Record the SI paragraph and HS code as audit evidence.

❓

Step 2: If not in the Zero-Rating Order — is it in the Value Added Tax (Exemption) Order?

Search the consolidated Exemption Order. Look at both the category heading and the detailed descriptions — many exemptions have specific conditions and limitations.

🔴

YES → It is Exempt. No VAT charged. You cannot reclaim input VAT on related purchases. Exempt turnover does not count toward the K800,000 VAT registration threshold. If you supply exclusively exempt goods or services, you cannot register for VAT.

❓

Step 3: Not in either Order?

🟡

DEFAULT → Standard-Rated at 16%. If a supply is not specifically listed in either Order, it is taxable at the standard rate of 16%. You charge 16% VAT, collect it, and remit to ZRA after deducting input VAT.

⚠️

Step 4: Still uncertain? Request a written ruling from ZRA.

Contact ZRA's Domestic Taxes Division with a detailed description of your supply. Request a written determination of the correct VAT treatment. A written ruling protects you from retrospective assessments — it is cheaper than a ZRA audit. Contact: zra.org.zm or any ZRA Taxpayer Services office.

How to Officially Confirm Your Classification

For businesses dealing with high-value supplies or unusual products, relying on your own interpretation of the statutory instruments carries risk. ZRA has several mechanisms to help you get a definitive, binding answer:

✅

Request a Written Ruling from ZRA. Submit a detailed written request to ZRA's Domestic Taxes Division describing your supply with as much specificity as possible — the nature of the product or service, how it is used, whether it is imported or locally produced, and the relevant HS code if applicable. ZRA will issue a written determination. This ruling protects you from retrospective assessments if ZRA later changes its interpretation. It is the gold standard for classification certainty.

When building your written ruling request, include:

A precise description of the good or service
The relevant HS code (for goods) if known
How the item is manufactured, processed, or delivered
Its intended use by the end customer
The relevant paragraph of the Zero-Rating or Exemption Order you believe applies — or why you are uncertain
Your TPIN and VAT registration number

Also keep these practical records once your classification is confirmed:

A copy of the SI paragraph covering your supply with the date
For zero-rated exports: customs SAD 500 forms, export certificates, and evidence of payment into a Zambian bank account
For zero-rated agricultural inputs: supplier documentation confirming the product specification
For partial exemption: separate sales and purchase daybooks for taxable and exempt activities
All records retained for at least six years per the Tax Records Act

Need to register for VAT in Zambia?

Now that you understand your supply classification, see our complete ZRA VAT registration walkthrough with documents, portal steps, and Smart Invoice setup.

VAT Registration Guide →

Frequently Asked Questions

If I sell both zero-rated and standard-rated goods, can I claim all my input VAT? ▼

Yes — both standard-rated and zero-rated supplies are taxable supplies. A business that makes only taxable supplies (at any rate, including 0%) can claim all its input VAT in full. The restriction on input VAT recovery only arises when you also make exempt supplies. A farm that sells exports (zero-rated) and also sells domestically (standard-rated) can reclaim all input VAT with no apportionment required.

What is the penalty for misclassifying a supply in Zambia? ▼

Misclassification carries multiple risks. Classifying an exempt supply as zero-rated to reclaim input VAT you are not entitled to can result in a ZRA back-assessment for all VAT incorrectly claimed, plus interest at the Bank of Zambia rate + 2%, plus a 25% underpayment penalty if the underpayment was at least one-third of the correct amount. Classifying a standard-rated supply as zero-rated or exempt means you have under-collected output VAT — ZRA will assess the shortfall plus penalties and interest. Misclassification also significantly increases your ZRA audit risk score.

Fresh vegetables are zero-rated. What about processed or frozen vegetables? ▼

This is one of the most common classification disputes in Zambia. The Zero-Rating Order covers basic foodstuffs in their fresh, unprocessed form. Processing changes the classification. Fresh vegetables: zero-rated. Frozen vegetables: the position depends on the degree of processing — this is an area where a ZRA written ruling is strongly advisable. Canned vegetables: standard-rated. The general principle is that the more value is added to a basic foodstuff, the more likely it shifts toward standard-rated.

Are online courses and e-learning platforms exempt or zero-rated in Zambia? ▼

The Exemption Order covers educational services provided to specific categories of students (nursery, primary, secondary, and non-profit tertiary). Online or digital learning platforms were not contemplated when the original statutory instruments were drafted. The general rule applies: if not specifically listed in either Order, it defaults to standard-rated at 16%. For-profit online training, e-learning subscriptions, and EdTech platforms are likely standard-rated. Non-profit educational services delivered online may qualify for exemption if the institution itself qualifies. Seek a written ZRA ruling for your specific situation.

Does the VAT exemption on residential property cover Airbnb and short-term rentals? ▼

This is a genuinely grey area in Zambia's VAT framework. The residential property exemption covers the rental of dwelling houses for residential purposes. Short-term rentals on platforms like Airbnb — where a residential property is rented on a nightly or weekly basis to travellers — blur the line between residential rental (exempt) and commercial accommodation (standard-rated, like hotels). The safer position is that short-term holiday rentals are closer to commercial accommodation services and are therefore standard-rated. ZRA's position on this specific question may be clarified in a written ruling request. The safer approach for Airbnb operators generating significant income is to register for VAT and charge 16%.

How often does Zambia update its zero-rated and exempt lists? ▼

Both the Zero-Rating Order and the Exemption Order are Statutory Instruments that can be amended by the Minister of Finance at any time, though in practice significant changes occur most commonly through the Annual Budget cycle (typically announced in October/November). The Budget Speech outlines proposed changes, and the relevant Statutory Instruments are then gazetted. Always download the consolidated version of each SI from zra.org.zm or the Parliament of Zambia website — a consolidated version incorporates all amendments from the original SI up to the current date, unlike older individual SIs which may be outdated.

PAYEZambia Editorial Team

Tax & Compliance Guides · Lusaka, Zambia

PAYEZambia.com publishes practical, accurate Zambia tax and payroll guides for business owners, accountants, and employees. Our content is researched against official ZRA publications — including the VAT Liability Guide, VAT Guide 2023, and VAT Act Cap. 331 — and updated whenever legislation changes. We are not a registered tax advisor; for supply-specific classification questions, request a written ruling from ZRA directly or engage a qualified Zambian tax practitioner.

📚 Sources & References

ZRA VAT Liability Guide 2022 — Official ZRA guide on VAT classification, zero-rating and exemption categories with specific product examples · zra.org.zm
ZRA VAT Guide 2023 — Official ZRA guide on VAT principles, partial exemption apportionment formula, and classification methodology · zra.org.zm
ZRA Tax Information — VAT — Official ZRA overview of Standard-Rated, Zero-Rated, and Exempt supply definitions · zra.org.zm/tax-information
Value Added Tax Act, Chapter 331 of the Laws of Zambia — Primary legislation governing VAT, zero-rating and exemption orders
PwC Zambia Tax Summaries 2026 — Corporate other taxes: Zambia VAT overview including exports and digital services · taxsummaries.pwc.com
ICLG Corporate Tax Laws & Regulations — Zambia 2026 — Input VAT recovery, partial exemption and Smart Invoice requirements · iclg.com