Treatment of VAT in the health industry
Norwegian and foreign businesses involved in supplies of health related products or services, are frequently facing challenges with optimizing their VAT and import VAT treatment. The interpretation of the Norwegian VAT rules that are relevant for the industry are rather complex. In addition, businesses engaged in cross-border trading of medical products (or services) are also required to adapt to the VAT legislation and principles abroad (e.g. in the EU). Depending on the nature of their business, the players in the health industry must also ensure compliance with other regulatory requirements, e.g. in relation to public tender procedures and necessary licenses / permits.
The purpose of this blog article is to highlight VAT related topics and other legal requirements that are particularly important for businesses involved in the health industry. The topics included below are relevant for both purchasers and suppliers of medical equipment or pharmaceuticals, as well as suppliers of health services (including alternative treatments and dentist services).
During the spring semester of 2022 we will arrange a series of 3 free webinars held by our VAT and customs experts, covering each of the 3 main topics addressed in this blog. Both of the webinars covering section 1 and 2 will primarily be designed for Norwegian businesses. These two webinars will be held in Norwegian. The webinar covering item 3 is primarily for foreign companies, and will be held in English.
Registration details and further information regarding each webinar are available at the following links:
Webinar 23 March - VAT on health services, cosmetic surgeries and alternative health treatments (held in Norwegian)
Webinar 30 March - Sales and purchases of medical equipment to/from abroad (held in Norwegian)
Webinar 6 April - Supplies of medicine and medical equipment to Norway (held in English)
1. VAT on health services, cosmetic surgeries and alternative health treatments
1.1. The VAT exemption for health services
Supply and intermediation of health services is exempt from VAT (without credit) in Norway. Due to the VAT exemption, suppliers of health services (including e.g. doctors, dentists, psychologists, physiotherapists, chiropractors, speech- and audio therapists etc.), are normally not registered for VAT. As a starting point, the suppliers of such services in Norway are therefore normally not in a position to deduct input VAT on their purchases (or imports) of goods and services. Supplies of medical products etc. to a business that delivers VAT exempt health services are still subject to 25 % VAT. The fact that a provider of health services is normally not entitled to deduct input VAT can therefore also be relevant for companies supplying goods/services to such customers.
The VAT exemption for health services also covers goods and services that are supplied as a natural part of the supply of a health service, provided that it is actually delivered by the same personnel. However, supplies of related goods or services that are covered by the exemption, must be distinguished from supplies that are more closely linked to the delivery of VAT liable goods or services.
The definition of health services covered by the VAT exemption is directly linked to legislation in the health industry. All categories of traditional health services are covered by the exemption. However, a number of the services require that the service is provided by health professionals that are authorized or licenced under the Health Personnel Act. Further, it is important to note that a service is not covered by the VAT exemption unless it is a natural part of the activities performed by the relevant profession (even though the service is actually performed by a licenced health professional). E.g. if a licensed health professional delivers consultancy services to a pharmaceutical company, this service would normally be considered as a VAT liable consulting service (and not an exempt health service).
1.2. Alternative treatments and cosmetic surgeries / treatments
The VAT rules for cosmetic surgeries and other cosmetic treatments were changed from January 2021. These services were previously covered by the exemption for health services, but the amendments of the VAT Act imply that only cosmetic surgeries and treatments that are justified by “medical reasons”, and fully or partially financed by the public authorities, are now covered by the exemption. This entails that cosmetic surgeries and treatments that are made for esthetic reasons are VAT liable.
Alternative treatments are thus not covered by the VAT exemption for health services unless they are both; 1) Covered by the Act on Alternative Treatments, 2) constitute an integrated part of health services rendered under the Health Personnel Act that are fully or partially financed by the public authorities, and 3) rendered by authorized health personnel without a specific consideration being charged.
In practice, the recent amendments of the exemption imply that the vast majority of both cosmetic surgeries or treatments and alternative treatments must be considered as VAT liable services. Businesses offering these services thus need to invoice their customers with VAT, and, accordingly, have the right to deduct input VAT (and import VAT).
In our first webinar to be held on 23 March 2022, we will in particular focus on the practical effects of the VAT exemption for Norwegian companies operating in the health industry.
2. Sales and purchases of medical equipment to/from countries outside Norway
2.1. Acquisitions of medical products from abroad
A number of Norwegian businesses within the health industry are engaged in acquisition of medical equipment, pharmaceuticals or other health related products from suppliers established abroad. The terms of delivery agreed with such foreign suppliers are often decisive for the VAT treatment in Norway.
In the event that medical equipment purchased from abroad is imported for use in the VAT liable business of the Norwegian customer, the best solution is normally to agree delivery terms that make the Norwegian entity responsible for the importation of the equipment to Norway. The Norwegian purchaser will then take responsibility for the reporting of import VAT, and the foreign supplier would normally avoid an obligation to register for VAT in Norway.
Further, the Norwegian tax authorities tend to apply a strict interpretation of the VAT recovery rules. One aspect of this is that the entity which reports the import VAT in its VAT return must normally be able to document that it was the legal owner of the goods at the time of import, to be entitled to recover the import VAT. If the “incorrect” entity acts as the formal importer of the goods, this typically results in a reassessment of the deducted VAT (and penalty tax) in the event of a VAT audit. To ensure a correct VAT treatment in general, and safeguard the right of the reporting entity to recover import VAT, it is thus highly important for the parties to be conscious about the terms of delivery and other contractual obligations agreed in connection with the sale.
Specific challenges also arise when medical equipment is acquired from a foreign supplier with installation, or if other physical works are performed by the supplier in Norway. In these cases, the services performed by the supplier normally implies that the foreign supplier is obliged to register for- and charge Norwegian VAT on the total supply of both the goods and services. It also implies that the supplier needs to be the party who is responsible for the importation of the medical equipment, and the reporting of import VAT.
Even though the responsibility for the VAT treatment primarily lies with the supplier, we often see that incorrect solutions could also affect the VAT position- and create challenges for the Norwegian customer. Suppliers established outside Norway may have limited knowledge of the Norwegian VAT rules, and it is often necessary for the Norwegian purchaser to provide the supplier with appropriate guidance. In addition, it is normally much easier for both parties to understand their own obligations, and to rectify the VAT treatment in the event of any errors, if the parties take a joint responsibility for including suitable VAT clauses in the supplier agreement.
A Norwegian buyer and importer of medical equipment must also be able to deal with a number of specific regulatory requirements. Importers of pharmaceuticals and medical devices need to ensure that the products are imported in accordance with the legislation and the guidelines provided by the Norwegian Medicines Agency. Among other things this may entail a responsibility for obtaining the necessary import and marketing licenses (which in particular is relevant for suppliers of pharmaceuticals). Depending on the classification of the product, other regulatory requirements may involve obligations such as ensuring that the product has the necessary CE-marking, checking that the product (user manuals etc.) complies with Norwegian language requirements, and taking care of required registrations of both the importer, manufacturer and the authorized representative in Norway.
2.2. VAT obligations abroad
Norwegian businesses engaged in purchases and/or supplies of pharmaceuticals and medical equipment cross-border also need to ensure compliance with the VAT rules and other regulations abroad. Both purchases of goods through a central warehouse outside Norway, and individual purchases of goods abroad, often create an obligation for the Norwegian company to register for VAT outside Norway. In addition to avoiding potential penalties imposed by local authorities, safeguarding that the VAT is handled correctly in the territory where the goods are acquired is often decisive for the Norwegian entity to be able to recover input VAT.
If a Norwegian business is involved in more extensive cross-border activities, such as processing of goods or supplies of medical products to customers established abroad, the VAT treatment abroad needs to be assessed in more detail E.g., the processing of goods outside Norway is common in connection with the production of certain products in the dental industry and production of prostheses etc. This type of activity raises more complex VAT considerations, such as determining whether the processing shall be considered as a VAT liable service in the country where processing takes place, or merely as a subordinate part of supplying a processed product (which should be regarded as a sale of goods for VAT purposes).
Norwegian businesses that are involved in exports of medical equipment from Norway, need to ensure compliance with the Norwegian VAT exemption and formal requirements for exports of goods. Further, these businesses must also have sufficient knowledge of when the terms of delivery could result in VAT registration obligations outside Norway. If a Norwegian business is involved in supplies of medical equipment with place of delivery outside Norway, this may also require a number of other regulatory requirements to be complied with (depending on the local legislation). With support from our global PwC network, we have assisted a number of Norwegian companies with organizing their business in different territories abroad, including businesses within the health industry.
The VAT-related topics that are important for Norwegian business involved in this type of cross-border activities, are further dealt with in our webinar to be held on 30 March 2022.
3. Supplies of medicine and medical equipment to Norway
3.1. Adopting the Norwegian VAT and import VAT rules
A number of multi-national suppliers of medical equipment and pharmaceuticals deliver products to businesses or public institutions in Norway. Since the Norwegian VAT rules are not consistent with the VAT principles in the EU, there are several aspects which the supplier needs to take into account before delivering goods to Norwegian customers.
Suppliers established outside Norway will in principle need to register for- and charge Norwegian VAT on supplies of medical equipment or pharmaceuticals, if the goods are deemed as supplied within the Norwegian VAT area. As discussed above, it is very important for foreign suppliers to be conscious of the terms of delivery agreed with Norwegian customers, and in particular the contractual and practical arrangements made for handling the importation of goods to Norway, in order to avoid unpleasant queries from the tax authorities.
Our experience is that foreign suppliers often face challenges with the VAT and customs authorities when goods are delivered to a Norwegian customer through a warehouse in Norway, or on Incoterms Delivered Duty Paid (DDP). In these cases, the foreign supplier needs to register for VAT in Norway, charge and report Norwegian VAT on its supplies, and act as the formal importer of record of the goods. The same obligations also apply if the supplier delivers goods with installation or performs other tangible services in Norway.
When entering into contracts with Norwegian customers, it is also important for the supplier to be aware of both; Local VAT liabilities related to the performance of maintenance and service contracts, VAT liabilities arising from the sale of goods from a consignment stock, the VAT treatment of subsequent rebates or discounts, and the Norwegian rules for determining the import value. If the foreign supplier is engaged in activities that includes a certain level of technical and/or physical resources in Norway, the impact of a potential permanent establishment for tax and VAT purposes should also be further determined.
3.2. Compliance with other regulatory requirements and procedures
Suppliers in the health industry often participate in public tenders and other procedures towards the authorities in Norway (e.g. when a potential customer is a publicly owned or controlled entity). In our experience both the tender procedure as such, and the requirements to participate in a tender, can be rather bureaucratic. The process could also differ from the common procedures which a foreign supplier is used to.
In the health industry, both the manufacturing, import and distribution of medical equipment is also subject to further regulatory requirements. Some of these requirements are based on the EU licensing requirements (e.g. EU MIA), and the obligations of the manufacturer or distributor in this respect are fairly similar as in the EU. A foreign company distributing pharmaceuticals and medical devices in Norway also needs to obtain a Norwegian marketing authorisation.
The most important aspects foreigners suppliers in the health industry need to be aware of in relation to these topics will be further explained in our webinar 6 April 2022. This webinar is in particular aimed at foreign businesses doing business in Norway.
Jeg heter Simen Stokka, og jobber som advokat / senior manager i Advokatfirmaet PwC. Jeg har spesialisert meg på norsk- og internasjonal merverdiavgift siden 2013. Jeg bistår selskaper i ulike bransjer med håndteringen av merverdiavgift og andre rettsforhold, særlig ved salg av varer og tjenester over landegrensene. I tillegg bistår jeg gjerne norske selskaper med etablering og strukturering av salgsvirksomhet i utlandet, og prosesser overfor skattemyndighetene.
My name is Simen Stokka, and I work as Senior Manager / Lawyer at PwC Tax and Legal Services in Oslo. I have been specializing in domestic and international VAT matters since 2013. I primarily assist our clients with their VAT treatment and other legal matters in connection with cross-border supplies of goods and services, including the optimization of supply chains and various procedures towards the tax authorities.
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