Ukraine. Cancellation of VAT Exemption for Transactions related to Import and the First Supply of Medicines and Medical Products

[March 25th, 2014] On 27 March 2014 the Verkhovna Rada of Ukraine approved Law No.4576 “On Prevention of Finance Disaster and Creation of Incentives for Economical Development in Ukraine” (the” Law”). As of now the Law is yet to be signed by the acting President and the final text thereof is still not available.

Among other issues the Law envisages cancellation of VAT exemption for transactions related to the first supply (i.e. import and supply from manufacturers) of medicines and medical products and imposition of VAT for such transactions at the rate of 7%.

Introduction of such amendments may lead to negative results connected to an increase in prices for medicines and medical products for ultimate buyers. In particular, 7% VAT paid upon purchase of medicines or medical products may not be refunded form the state budget and respectively should be financed either out of companies’ profits or included into cost of the goods and recharged to wholesalers.

Application of the latter option is problematic in relation to medicines with regulated mark-ups.

Source: KPMG Ukraine