DDP in Public Procurement Involving Foreign Suppliers

The Law of Ukraine On Public Procurement of 25 December 2015 allows foreign companies to participate in public procurement in Ukraine. This law also states that the conditions for foreign and local participants shall be equal. However, in practice, due to the peculiarities of Ukrainian customs regulations, foreign sellers face specific additional challenges when it comes to public procurement for goods to be supplied based on DDP terms.

The supply term DDP (or delivered duty paid) means that the seller shall deliver goods at the disposal of the buyer ready for unloading at the named place of destination. The seller shall clear the goods for both export and import, pay all related taxes and duties and fulfil all customs formalities, as well as bear all charges involved in delivering the goods to the named place of destination. Of all Incoterms, this supply term implies the greatest scope of obligations for the seller.

As a result, DDP-based supply is most convenient for buyers that do not need to worry about any transportation or customs-related risks and expenses. This makes DDP attractive for Ukrainian customers holding public procurement procedures. Although DDP, in general, permits certain costs to be shifted to the buyer (based upon direct agreement stated in the contract – e.g., such as payment of VAT at customs), Ukrainian public sector customers are usually not interested in such additional burdensome conditions. They are interested in receiving the procured goods at their warehouses without the need to deal with any additional importation-related costs and procedures.

When bidding for DDP-based supplies, foreign suppliers sometimes misinterpret the practical meaning of the final price of supply on DDP conditions and do not take into account the full cost of clearing the goods through Ukrainian customs when forming their offer. In particular, a quite popular approach is general reference in the offer and afterwards in the supply contract and related documents to the final price and DDP as the supply basis, without any breakdown of the related costs borne by the seller. As a result, the overall price of the contract can be construed as establishing the price of the goods only (all other seller’s expenses are covered by this price without distinguishing any particular costs borne by the seller).

However, in practice, this approach may result in additional unexpected non-refundable costs borne by the supplier upon clearing the goods through Ukrainian customs. Below, we will analyse the nature of this problem in more detail.

Usually, public procurement of goods from a foreign supplier means that these goods will be cleared through Ukrainian customs under the customs regime of importation. Ukrainian tax and customs regulations establish specific rules for calculating VAT and customs duty in such an event.

In particular, according to Paragraph 190.1 of the Tax Code of Ukraine, for the purposes of accrual of importation-related VAT, the tax base is the contractual price of the imported goods, which in any case shall not be lower than their customs value, inclusive of customs duty [and excise duty, if applicable].

According to Articles 279, 49, and 57 of the Customs Code of Ukraine, for the purposes of accrual of customs duty applied to the imported goods, their customs value shall be taken into account (the same as for VAT purposes). In most cases, the customs value equals the contractual price of the goods plus some supply-related expenses identified by Article 58 of the Customs Code of Ukraine. Importantly, taxes payable in Ukraine (such as VAT) and the costs of transportation within Ukraine shall be excluded from the customs value provided that they are explicitly distinguished from the price payable for the goods.

As follows from the above, the key aspect of identifying the base for VAT and customs duty accrual upon importation is the contractual price of the goods, which is the basis for identifying their customs value. Ukrainian customs authorities have the right to question the customs value of the goods. This means that they may interpret the contractual price of a particular supply in a fiscal manner, which is to include expenses not directly distinguished from the price of the goods in the underlying contract, even though the nature of such expenses are Ukrainian VAT and transportation costs within Ukraine, which can be excluded from the customs value.

Since expenses related to customs clearance are one of the factors that form the price, in practice, some foreign sellers opt not to identify these expenses in contractual documents clearly and instead indicate only the aggregated price of the goods to be supplied under DDP terms. If the supply contract and respective documents accompanying the goods (such as invoices, CMRs, packing lists, etc.) provide for aggregated (total) price only, there is a risk that upon clearance of the goods through Ukrainian customs this price will be qualified as the contractual price serving as the basis for accrual of import VAT and customs duty.

In other words, upon customs clearance in Ukraine, these mandatory payments may be accrued on top of the total contractual price – as opposed to being covered by it. As a result, the base for VAT and customs duty accrual will be higher as compared to the one anticipated by the seller when participating in the tender, which will increase the overall expenses borne by the seller.

It should also be noted that neither customs duty nor import VAT are refundable to foreign suppliers from the Ukrainian budget and, therefore, constitute an absolute loss for them. Therefore, the above-mentioned unexpected increase of supply-related expenses may be a serious financial issue for the seller.

Another important practical aspect of using DDP in public procurement relates to the actual payment of the mentioned import-related mandatory payments.

According to Paragraph 180.1 of the Tax Code of Ukraine, upon importation of goods into Ukraine, VAT is payable by the person responsible for payment of the related taxes and duties according to the Customs Code of Ukraine. Article 265 establishes that only residents of Ukraine can be such persons, which practically excludes foreign suppliers (i.e., non-residents) from those persons able to carry out the customs clearance of goods imported to Ukraine under DDP supply terms.

The above provisions of Ukrainian law mean that concluding a contract with DDP supply terms almost automatically implies for a foreign supplier the need to engage a local Ukrainian customs broker who, as a Ukrainian resident, can carry out the customs clearance of goods and pay related import VAT and customs duty on behalf of the foreign supplier. Broker fees can significantly add to the overall expenses borne by the seller, especially taking into considering the fact that some brokers may accrue VAT not only on the price of their intermediary services but also on top of the compensation of their expenses for paying VAT and customs duty – due to certain ambiguous approaches taken by Ukrainian tax authorities with regard to VAT in such transactions.

The above places foreign suppliers in quite a disadvantageous position compared to local suppliers. Unlike foreign sellers, Ukrainian companies can get a refund of import-related VAT or use it as a VAT credit. Also, they can carry out customs clearance of the goods by themselves without the need to engage costly customs brokers for such purpose.

Considering all of the above, foreign participants to public procurement in Ukraine have to increase the price of their offers to cover additional expenses and also need to undergo additional organizational formalities related to customs clearance of the goods. This decreases their competitiveness when compared to local companies participating in tenders.

The above-stated disadvantages of foreign companies participating in public procurement were addressed in several requests to the Ministry of Economy of Ukraine. However, the Ministry expressed the position that since the price is not the only bidding criterion, there is no definitive discrimination against foreign participants in tenders when procuring goods based on DDP terms (for example, see the reply of the Ministry to the request No. 129/2017).

Of course, the above problems with DDP in Ukraine are also relevant for supplies outside of public procurement if a foreign supplier has no local presence in Ukraine. However, private sector supplies can be carried out on far more flexible terms.

In particular, Ukrainian private-sector buyers tend to be more agreeable to re-distribute importation-related expenses or they can even opt for other supply terms, such as DDU (delivered, duty unpaid – which places customs clearance on the buyer).

To sum up, when concluding DDP contracts in public procurement, foreign suppliers should clearly distinguish the price of the goods as such and other costs related to their supply (especially, Ukrainian import VAT, customs duty, and transportation costs within Ukraine). It is also highly advisable to identify the cost of engaging a Ukrainian customs broker in advance to be able to form a public procurement offer involving related additional expenses.

The above article was written based on the legislation in force as of 31 March 2025, also having regard to the Law of Ukraine of 22 August 2024 No. 3926-IX.