Exempt supplies
In one sentenceSupplies on which VAT is not imposed at all by law, and for which the business may not deduct the related input VAT.
Simply put
In an exempt supply no VAT is collected from the customer, but the VAT the business pays on purchases for this activity becomes a cost to it that cannot be recovered.
Examples in the Kingdom include some financial services and the rental of residential property; the reference is what ZATCA specifies in its regulations.
Example
The owner of a residential building rents out its apartments, so he does not add VAT to the rent. If he pays VAT on the building's maintenance, he does not deduct it; he records it as part of the maintenance expense.
Don't confuse it with
Zero-rated suppliesZero-rated supplies are at 0% with the right to deduct input VAT; exempt supplies carry no VAT and no right to deduct.