Recent developments

Procurement of pharmaceuticals and medical devices by specialized procurement agencies (the UNDP, Crown Agents and UNICEF) was extended until 31 March 2020. The VAT exemption for supplies of pharmaceuticals and medical devices to these agencies was extended until 31 December 2020.

Companies (including non-residents) can continue supplying their products directly to specialized procurement agencies for the state budget funds and benefit from other opportunities related to this procurement mechanism set forth below.

Implications for suppliers of pharmaceuticals and medical devices

The temporary procedure for procuring pharmaceuticals and medical devices by the specialized procurement agencies (“SPAs”) was introduced on 19 March 2015. It provided for the possibility of temporary transfer of the procurement function from the Ministry of Health of Ukraine (“MOH”) to SPAs until 31 March 2019.

Despite public debate regarding the efficiency of procurement by SPAs, procurement by SPAs has proven to be more transparent and cost-saving mechanism than procurement by the MOH. Based on Laws of Ukraine “On the State Budget of Ukraine for 2019” No. 2629-VIII dated 23 November 2018 and “On Amendments to the Tax Code of Ukraine and Certain Other Legislative Acts of Ukraine on Improving the Administration and on Revision of Rates of Certain Taxes and Duties” No. 2628-VIII dated 23 November 2018, (i) procurement by SPAs was extended until 31 March 2020; and (ii) VAT exemption for supplies of pharmaceuticals and medical devices to the SPAs was extended until 31 December 2020. These changes will become effective on 1 January 2019.

Procurement by SPAs is subject to the following exemptions and special regulations:

  1. Procurement by SPAs is excluded from the scope of the Law of Ukraine “On Public Procurement.” Procurement by SPAs is governed by the rules and procedures of the respective SPAs, which include a broad range of tools, including open bidding, direct contracting, long-term agreements, etc.
  2. SPAs are allowed to procure pharmaceuticals and medical devices from non-resident suppliers. The Ukrainian residency status and the Ukrainian license for import/wholesale of pharmaceuticals is not required.
  3. Supplies to SPAs are exempt from VAT.
  4. Supplies to SPAs are not subject to pricing regulations (price declaration and limitation of maximum mark-ups).
  5. Pharmaceuticals procured by SPAs may be registered in Ukraine under the accelerated procedure (up to 14 days). Pharmaceuticals registered under this procedure can be supplied in the original (non-Ukrainian) packaging.
  6. Pharmaceuticals procured by SPAs are not subject to the state quality control procedures. At the same time, an SPA may apply its own quality control procedures.

The MOH transferred the procurement of pharmaceuticals and medical devices for the state budget funds to the SPAs in 2015-2018. This mechanism is temporary; based on the Concept of Reforming Mechanisms for Public Procurement of Pharmaceuticals and Medical Devices approved by the Cabinet of Ministers of Ukraine, upon termination of this mechanism, the procurement of pharmaceuticals and medical devices should be made by the recently established centralized procurement agency (the state enterprise “Medical Procurement of Ukraine”).

In 2018, the enterprise should start the procurement in a pilot project mode and procure products for fulfilling the programs financed by the Global Fund to Fight AIDS, Tuberculosis and Malaria (separate non-state budget financing). Subsequently, the enterprise should gradually switch to procurement using the state budget funds in parallel with the SPAs. The enterprise should fully assume the procurement function from the SPAs by 2021.

Conclusion

The procurement by SPAs was extended until 31 March 2020. The VAT exemption for supplies of pharmaceuticals and medical devices to SPAs was extended until 31 December 2020.

Companies may benefit from the opportunities related to the extension of the procurement by SPAs, including the possibility of direct contracting with SPAs regardless of the residency status, VAT exemption and accelerated procedure of state registration of pharmaceuticals.


Additional notes

This Legal Alert is issued to inform Baker McKenzie clients and other interested parties of legal developments that may affect or otherwise be of interest to them. The comments above do not constitute legal or other advice and should not be regarded as a substitute for specific advice in individual cases.

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