VAT in Public Procurement Revisited: What Is Actually Changing from 1 July 2026

Sometimes the most significant changes in public procurement are not accompanied by sweeping legislative reforms or high-profile political announcements. This is precisely the case with Resolution No. 132 of the CMU, adopted on 5 February 2026 and entering into force on 1 July 2026. Formally, the Resolution merely amends the Special Rules for Public Procurement approved by Resolution No. 1178, as well as the Procedure for the Formation and Use of the Electronic Catalogue established by Resolution No. 822. In reality, however, it addresses an issue that has for years generated inconsistent interpretations of the law, disputes between contracting authorities and suppliers, and considerable uncertainty throughout procurement procedures. The issue concerns the application of value added tax (VAT).

Until now, contracting authorities frequently used different approaches when determining the expected procurement value, preparing tender documentation and evaluating bids. Likewise, bidders often submitted their price proposals according to different interpretations of whether VAT should be included. In some procurement procedures, bids were compared on a VAT-inclusive basis; in others, prices excluding VAT served as the benchmark. Such inconsistency created unequal competitive conditions, complicated procurement procedures and often became the basis for appeals and legal disputes. The principal objective of Resolution No. 132 is therefore not to change the rules of taxation, but to establish a single, coherent approach to price formation at each stage of the procurement process.

It is also important to note that the new rules are not retroactive. They apply only to procurement procedures announced after 1 July 2026. Procedures initiated before that date will continue under the legal framework that was in force at the time they commenced. Perhaps the most notable amendment is that the expected value stated in procurement notices must now be indicated excluding VAT. This amount becomes the benchmark for the competitive procurement procedure. The rule applies to open tenders, open tenders conducted without an electronic auction, framework agreements and procurements carried out through the electronic catalogue. Equally significant are the amendments concerning the submission and evaluation of bids. From now on, tenderers must submit their financial proposals excluding VAT, and contracting authorities must evaluate those proposals on the same basis.

The legislator has effectively separated commercial competition from the tax status of participants. Procurement decisions should now be based on the actual commercial value of each proposal rather than on its final VAT-inclusive amount, which may differ depending on whether a supplier is registered as a VAT payer. This approach substantially simplifies the evaluation process and significantly reduces the risk of inconsistent application of procurement legislation. At the same time, it would be incorrect to conclude that VAT has disappeared from public procurement altogether.

On the contrary, the Resolution clearly provides that VAT must be included in the procurement contract whenever the supplier is a VAT payer and the relevant transaction is subject to VAT under the Tax Code of Ukraine. In other words, while competition takes place on the basis of net prices, contractual payments continue to follow the ordinary rules of tax legislation.

Another important aspect of the reform concerns annual procurement planning. Here, the opposite principle applies. If the procurement is subject to VAT, the expected value included in the annual procurement plan must already include VAT. This approach is entirely logical, since the annual plan reflects the actual amount of public funds that the contracting authority expects to spend rather than merely the commercial value of the goods, works or services.

Accordingly, the legislator has distinguished between two fundamentally different purposes. Budget planning should reflect actual expected expenditures, whereas competitive evaluation should be based on uniform commercial criteria. Resolution No. 132 also resolves another issue that has long caused uncertainty in practice—the calculation of bid security. Previously, there was no uniform understanding of whether bid security should be calculated from the procurement value including or excluding VAT. The new rules provide a clear answer: bid security must always be calculated using the expected procurement value excluding VAT, as stated in the procurement notice.

The same principle has been introduced for direct procurement contracts concluded after an open tender has been cancelled due to an insufficient number of participants. In such cases, the contract value excluding VAT may not exceed the expected procurement value specified in the original procurement notice.

This amendment prevents contracting authorities from concluding contracts exceeding the financial limits initially established at the beginning of the procurement process.

When viewed as a whole, these amendments demonstrate that their purpose extends far beyond the technical regulation of VAT. They establish a coherent pricing framework for every stage of the procurement process, ensuring that the rules governing one stage no longer contradict those applicable to another.

For contracting authorities, the reform means that procurement planning, preparation of tender documentation and bid evaluation procedures will all require revision. Internal templates, methodologies for calculating expected values and procedures for determining bid security should be updated to comply with the new legal requirements.

For businesses, the amendments also represent a positive development. A uniform approach to price formation makes procurement procedures considerably more predictable, reduces the risk of formal errors and creates equal competitive conditions for all participants regardless of their VAT status.

In practice, the absence of a consistent approach to VAT has for years been one of the principal causes of procurement disputes, appeals before the Antimonopoly Committee of Ukraine and litigation before administrative courts. Resolution No. 132 has every chance of significantly reducing the number of such disputes.

Does this mean that all problems within Ukraine's public procurement system have been resolved? Certainly not. However, it is fair to conclude that the Government has taken an important step towards harmonising procurement rules and eliminating many of the ambiguities that have complicated their practical application. For this reason, I would not describe these amendments as merely technical. They establish an entirely new model for the application of VAT within Ukraine's public procurement system. Although many market participants may not immediately appreciate their significance, the new rules will soon become standard practice for everyone involved in public procurement. This is one of those cases where a number of seemingly modest legislative amendments are capable of fundamentally influencing legal practice for years to come.