VAT Taxation of Medical Device and Medicine Supply Operations: A Full Guide to Exemptions

 

To ensure measures aimed at fighting the COVID-19 pandemic, Ukrainian legislation implemented significant changes to the Tax Code. Specifically, Laws №532-IX and №530-IX established a temporary VAT exemption for the import and supply of critical medical goods.

In this article, we will examine two key mechanisms of preferential taxation, technical regulation requirements, and the risks of non-target use of goods.

Tax Incentives for Public Procurement (para. 38-1 TCU)

According to para. 38-1 of Subsection 2 of Section XX of the TCU, VAT exemption operations apply if the procurement is carried out using state budget funds. This norm is effective for the implementation of healthcare programs and centralized measures.

The following operations are subject to exemption:

• Import of medicines and medical devices into the customs territory of Ukraine.
• Supply of goods within Ukraine for the execution of state programs.
• Free-of-charge transfer of goods by a person authorized to carry out procurements.
• Free-of-charge supply within the healthcare system to the end consumer (patient).

Important: The list of goods covered by this incentive is defined in CMU Decree dated March 20, 2020, № 225.

Be aware of the risks. In case of non-target use of such resources, the taxpayer is obliged to increase tax liabilities and pay a penalty according to the law.

General Exemptions for the Quarantine Period (para. 71 TCU)

For operations not related to public procurement, para. 71 of Subsection 2 of Section XX of the TCU applies. The incentive is valid until the last day of the month in which the quarantine ends.

Specifics of applying this norm:

1. Applies at all stages of supply, regardless of the date of production.
2. Applies to all business entities, regardless of their status or form of ownership.
3. The full list of goods is provided in CMU Decree dated March 20, 2020, № 224.

What Happens to the Tax Credit?

One of the main advantages is that the VAT payer does not lose the “input” tax credit. The provisions of para. 198.5 of Art. 198 and Art. 199 of the TCU do not apply in this case.

This means that tax liabilities are not accrued, and the right to recognize a tax credit is preserved for VAT amounts paid during the import or acquisition of goods (works, services) used in production.

Mandatory Conditions and Technical Regulations

The exemption is not automatic for any product. It applies only to products entered into State Registers or placed on the market in accordance with technical regulations:

• № 753 — regarding medical devices.
• № 754 — regarding in vitro diagnostic medical devices.
• № 755 — regarding active implantable medical devices.
• № 761 — regarding personal protective equipment.

LBA Insight: Exemptions apply only to certified products. The VAT exemption regime does not apply to hand-sewn masks or any unregistered items.

Need a detailed analysis of your operations? Contact the experts at Law Business Association for a tax audit and protection of your business.

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