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VAT exemptions for medical institutions
VAT exemptions for medical institutions
According to Article 174.5 of the Tax Code, starting from January 1, 2024, for a period of three years, 50% of the turnover formed from cashless payments made through POS terminals for medical services provided to the public by medical institutions and individuals engaged in private medical practice will be excluded from their taxable total turnover. Cashless payments must be made through POS terminals integrated into the unified operational system of the control-cash register. Tax experts interpret this legislative requirement.
The purpose of the newly added Article 174.5 of the Tax Code in 2024 is to implement incentives related to VAT in the medical sector. Due to the low turnover of reclaimable VAT in the medical sector, Article 174.5 was added to the Tax Code. There are 5 important points to consider regarding this article:
First point: The exemption applies only to medical services provided to the public. Transactions carried out by medical institutions and individuals engaged in private medical practice based on electronic invoices do not fall under the scope of Article 174.5 of the Tax Code.
Second point: Payments by the public must be made exclusively through POS terminals in a cashless manner. If payments are made in cash or through payment terminals in a cashless manner, then the exemption for the medical sector will not apply to medical institutions and individuals engaged in private medical practice.
Third point: The exemption is temporary. The exemption under Article 174.5 of the Tax Code will be valid for three years starting from January 1, 2024.
Fourth point: The application of the VAT exemption (payment via POS-terminal during the provision of medical services) will not affect the amount a citizen can reclaim under the "VAT refund" project.
Fifth point: It relates to the determination of the VAT turnover of the taxpayer. Article 174.5 of the Tax Code states that 50% of the turnover formed from cashless payments via POS terminals for medical services provided to the public will be excluded from the taxpayer's taxable total turnover for a period of three years starting from January 1, 2024.
Example: A medical institution, which is a VAT payer, provided medical services worth 30,000 manat (excluding VAT) in February 2024. Of these services, 5,000 manat (excluding VAT) was provided to the public through POS terminals. In this case, the taxpayer will report a reduced turnover of 2,500 manat (5000 x 50%) in the VAT declaration for February, and will declare VAT of 4,950 manat instead of 5,400 manat to the state budget:
30,000 x 18% = 5,400 manat;
5,400 - (2,500 x 18%) = 4,950 manat.
Last point: The reduced VAT amount will not be considered as income for the taxpayer. The income derived from the reduction in VAT for medical institutions and individuals engaged in private medical practice is fully exempt from tax, as stipulated in Articles 106.1.34 and 102.1.41 of the Tax Code. In our example, the income obtained from the reduction of 450 manat (2,500 x 18%) in VAT will not be considered for profit (income) tax purposes.
According to Article 174.5 of the Tax Code, starting from January 1, 2024, for a period of three years, 50% of the turnover formed from cashless payments made through POS terminals for medical services provided to the public by medical institutions and individuals engaged in private medical practice will be excluded from their taxable total turnover. Cashless payments must be made through POS terminals integrated into the unified operational system of the control-cash register. Tax experts interpret this legislative requirement.
The purpose of the newly added Article 174.5 of the Tax Code in 2024 is to implement incentives related to VAT in the medical sector. Due to the low turnover of reclaimable VAT in the medical sector, Article 174.5 was added to the Tax Code. There are 5 important points to consider regarding this article:
First point: The exemption applies only to medical services provided to the public. Transactions carried out by medical institutions and individuals engaged in private medical practice based on electronic invoices do not fall under the scope of Article 174.5 of the Tax Code.
Second point: Payments by the public must be made exclusively through POS terminals in a cashless manner. If payments are made in cash or through payment terminals in a cashless manner, then the exemption for the medical sector will not apply to medical institutions and individuals engaged in private medical practice.
Third point: The exemption is temporary. The exemption under Article 174.5 of the Tax Code will be valid for three years starting from January 1, 2024.
Fourth point: The application of the VAT exemption (payment via POS-terminal during the provision of medical services) will not affect the amount a citizen can reclaim under the "VAT refund" project.
Fifth point: It relates to the determination of the VAT turnover of the taxpayer. Article 174.5 of the Tax Code states that 50% of the turnover formed from cashless payments via POS terminals for medical services provided to the public will be excluded from the taxpayer's taxable total turnover for a period of three years starting from January 1, 2024.
Example: A medical institution, which is a VAT payer, provided medical services worth 30,000 manat (excluding VAT) in February 2024. Of these services, 5,000 manat (excluding VAT) was provided to the public through POS terminals. In this case, the taxpayer will report a reduced turnover of 2,500 manat (5000 x 50%) in the VAT declaration for February, and will declare VAT of 4,950 manat instead of 5,400 manat to the state budget:
30,000 x 18% = 5,400 manat;
5,400 - (2,500 x 18%) = 4,950 manat.
Last point: The reduced VAT amount will not be considered as income for the taxpayer. The income derived from the reduction in VAT for medical institutions and individuals engaged in private medical practice is fully exempt from tax, as stipulated in Articles 106.1.34 and 102.1.41 of the Tax Code. In our example, the income obtained from the reduction of 450 manat (2,500 x 18%) in VAT will not be considered for profit (income) tax purposes.