Taxation of Pharmaceutical Production and Special Personal Protective Equipment During the Antiterrorist Operation

Nataliia Modlenko, Associate with Legal Alliance Company

Starting from July 23, 2014 import to the customs territory of Ukraine and supplies on the customs territory of Ukraine of the following products is temporarily for the duration of ATO and/or war excluded from VAT and customs duty:

1. medicinal products registered in Ukraine as well as all medical devices.It shall be noted that operations on import and\or sale of not all the medicinal products are excluded from taxation, but only those, intended for use by health care institutions and participants of ATO to provide medical assistance to individuals who during ATO and/or war were wounded, contused or injured.Please be informed that amount of such operations shall be defined by the relevant decrees of the Cabinet of Ministers of Ukraine, which have not been adopted yet.By the way, majority of the healthcare institutions are provided with the medicinal products and medical devices for the budget funds according to the procedure of public procurement. A list of such products is limited by the decree of the Cabinet of Ministers of Ukraine of September 05, 1996 № 1071.According to the adopted laws a simplified procedure of single licenses on import of the medicinal products and medical devices, which shall be approved by the Cabinet of Ministers of Ukraine, shall apply to the imported medicinal products and medical devices.It shall be noted that recently for the importation of the registered medicinal products importer is obliged to have a relevant license on import, each series of the medicinal products must be followed by a certificate of quality issued by a manufacturer. In addition, all the medicinal products must pass a state quality control, including most subject to laboratory control, which in practice may take several months before the drug will be admitted into circulation by the State Service of Ukraine on medicinal products.
2. some unregistered in Ukraine medicinal products and medical devices, including those which do not have the authorization documents on the possibility of import into the customs territory of Ukraine (effective legislation stipulates a separate procedure for obtaining permission of Ministry of Health of Ukraine). Pharmaceutical products must be supplied in order to be used by the healthcare institutions and participants of ATO in order to provide medical assistance to the victims. List and allowable amounts of the medicinal products and medical devices must be also defined by the Cabinet of Ministers of Ukraine. Note that today unregistered products is imported to Ukraine as humanitarian aid, which has a special procedure.
3. some other products: special personal protective equipment, namely helmets manufactured according to the military standards or specifications, or their equivalent, specially designed components of them (in particular, beneath-helmets, shock absorbers); body armor, manufactured according to military standards or military conditions for the needs of law enforcement agencies, the Armed Forces of Ukraine and other legalized military formations, other entities engaged in the fight against terrorism; yarns for the manufacture of body armor; fabric (materials) for making body armor.

Relevant laws of Ukraine of July 01, 2014 № 1560-VII and 1561-VII regarding the amendments to the Customs and Tax codes of Ukraine have been adopted by the Parliament and entered into force.

Recall that from April 1, 2014 in Ukraine VAT taxation of all the medicinal products at a reduced rate of 7% has been introduced. Prior transactions with such products were exempt from taxation. In addition, for a long time due to the lack of proper regulatory import of such products was completely paralyzed. At the moment, there are problems with the import of the most medical devices due to the fact that customs authorities continue to block the import of medicinal products using 20% VAT.

Today is difficult to predict when pharmaceutical products will be imported and sold in Ukraine without VAT and customs duty, because Cabinet of Ministers of Ukraine does not set appropriate mechanism. It may be also predicted that during the import customs authorities will not directly apply provisions adopted by the laws of Ukraine, and will refer to the absence of an explanation of the Ministry of Revenues and Duties of Ukraine and continue customs clearance of all pharmaceutical products using 7% VAT, and customs duties, regardless to the aim of the import.

Consequently, currently entrance into force of the law does no guarantee that in real life issue will be resolved quickly, at least regarding the pharmaceutical products. Moreover, adoption of laws will not affect the cost of medicinal products and medical devices, which are sold at retail in Ukraine, not included to the territory of ATO