Introduction of VAT on medicines and medical products 04/08/2014

Introduction of VAT on medicines and medical prod...

8 April 2014


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Starting from 1 April 2014 import and supply of medicines and medical products in the territory of Ukraine are no longer exempt from value added tax (“VAT”).

The abovementioned amendments to the Tax Code of Ukraine (the “TCU”) were introduced by Law of Ukraine “On prevention of the financial catastrophe and creation of conditions for economic growth in Ukraine” No.1166-VII dated 27 March 2014 (the “Law”).

The Law imposed a reduced 7% VAT rate on supply of medicines and medical products allowed for the production and consumption in Ukraine and included to the State Register of Medicines and on supply of medical products according to the list approved by the Cabinet of Ministers of Ukraine (the “CMU”).

The standard VAT rate is 20% in Ukraine.

The imperfect wording of the Law resulted in the situation when import of medicines and medical products is neither exempt from VAT nor subject to the reduced 7% VAT rate. As a result, currently the literal interpretation of the TCU suggests 20% VAT on import of medicines and medical products to Ukraine. Such VAT must be paid at customs and theoretically may be claimed back as a VAT refund. However, in practice, it is very difficult to have a VAT refund to a company’s bank account.

The Ministry of Revenues and Duties of Ukraine commented on the new VAT rules in Letters No.7822/7/99-99-05-01-17 dated and No.7860/7/99-99-04-02-17 both dated 4 April 2014 (the “Letters”). According to the Letters:

  1. Import of medicines and medical products to Ukraine is subject to standard 20% VAT rate;
  2. Suppliers of medicines and medical products are entitled to VAT credit arising from purchases of goods and services at both 7% and 20% VAT rate according to the general rule;
  3. Temporarily, before the new list of medical products is introduced, 7% VAT rate applies to import of medical products approved by the Regulation of the CMU “On VAT exemption of medical products” No.867 dated 8 August 2011;
  4. Temporarily, before the standard forms of a VAT invoice and Register of the issued and received VAT invoices are amended to account for the new 7% VAT rate, the existing forms must be used (subject to certain specific requirements).

KPMG jointly with the Healthcare Committee of the American Chamber of Commerce in Ukraine is making efforts to extend the 7% VAT rate on import of medicines and medical products and re-schedule the introduction of the new tax rules to a later date.

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