VAT exemption for defense procurements paid by foreign partners: what you need to know
The Ministry of Finance of Ukraine approved a general tax consultation on the application of VAT benefits during the import and supply of defense goods. The relevant order No. 314 was signed on June 12.
In the document, the Ministry of Finance explained the procedure for applying the VAT exemption regime provided for in paragraph 197.23 of article 197 and subparagraphs 4 and 5 of paragraph 32 of subsection 2 of section XX of the Tax Code of Ukraine.
The consultation concerns operations involving the import and supply of defense goods for the needs of the security and defense sector, as well as cases where payment for such goods is made by an authorized person of a foreign state.
The Ministry of Finance provided answers to three key questions and concluded that the VAT exemption applies regardless of who makes the payment and from which sources the procurement is financed, provided that other legislative requirements are met.
In particular, the benefit applies to goods defined by part eight of article 287 of the Customs Code of Ukraine, which are used for the production of defense goods if their customer is a state customer in the defense sector.
The Ministry of Finance also confirmed that the VAT exemption applies to certain categories of defense goods defined by the Tax Code, even if payment is made by an authorized person of a foreign state.
It was separately clarified that the benefit applies to goods whose final recipients are law enforcement agencies, the Ministry of Defense of Ukraine, the Armed Forces of Ukraine, other military formations, volunteer territorial community formations, as well as enterprises executing and co-executing state contracts for defense procurements.
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