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VAT is Value Added Tax charged on Products and Shipping. But many countries offers VAT exemption to a specific category of citizens and some specific list of products which comes under Tax regimes. e.g. Medical equipments, Equipments for disable customers.
http://www.oscprofessionals.com/magento-extension/vat-exempt-magento-module/
VAT(Value Added Tax) Exempt is very helpful for the store owners from countries which have VAT tax exemption eligibility. e.g. UK, Ireland, Malta, Bahamas etc.