Financial services such as payment and receipt transactions, credit provision or currency exchange are generally exempt from VAT. This means that no VAT is charged on the price of these services. For example, the price for processing a payment transaction is exempt from VAT (unless the option for taxation is applied) and thus cheaper at first sight than if VAT applied. However, on the basis of the fundamental principles of the VAT system, the supplier of exempt services cannot deduct the VAT paid for goods and services purchased for the provision of his exempt services (ie input VAT). As a result, the service provider will usually include non-deductible input VAT in the price of its services, which increases the price and distorts economic neutrality.
Source Wolters Kluwer
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