0% VAT on prescription medicines: relief and challenges in the pharmaceutical value chain

The Hungarian Government has submitted a legislative proposal under which the VAT rate applicable to prescription-only medicines requiring a medical prescription would be reduced from 5% to 0% as of 1 September 2026. The public consultation on the draft legislation closed on 1 August 2026.

It is important to emphasize that the proposed change introduces a 0% VAT rate, not a VAT exemption. Accordingly, the affected pharmaceutical supplies would remain within the scope of VAT, but the applicable tax rate would be 0%. This distinction is particularly relevant for the treatment of contractual pricing arrangements, reimbursement amounts, as well as accounting and invoicing processes. Furthermore, from the perspective of affected businesses, this is also significant because, in the absence of a VAT exemption, they would not generally be required to consider potential restrictions on their right to deduct input VAT.

The text of the draft legislation released for public consultation no longer explicitly lists medical radioactive isotopes and medical oxygen. However, as these products also qualify as prescription medicines, they are expected to become subject to the 0% VAT rate following the entry into force of the amendment.

The regulatory framework governing pharmaceutical prices is supervised by the National Health Insurance Fund Administration (NEAK). Market participants must initiate a procedure with NEAK before implementing a planned price increase, which may only be approved if supported by justified cost increases. Pharmacies are likewise unable to increase the prices of reimbursed medicines at their own discretion, as both wholesale and pharmacy margins are regulated and, in the case of reimbursed products, consumer prices are determined by NEAK.

The VAT rate reduction will also affect fully NEAK-financed medicines procured through high-value public procurement procedures, as well as medicines required for hospital care. Consequently, the measure will have implications throughout the entire pharmaceutical supply chain.

The draft legislation provides only limited detail regarding the practical implementation of the changes. As a result, several interpretative and operational questions arise that may be particularly relevant for manufacturers, wholesalers, hospitals and pharmacies. These include, for example, how fixed gross retail prices in the public pharmaceutical database (PUPHA database) will be adjusted based on individual NEAK reimbursement decisions applicable to specific medicinal products; what changes may occur with respect to patient co-payments; and how various transitional situations should be treated (e.g. inventories that have been delivered and used but not yet settled or invoiced).

Further questions also arise regarding the relationship between the National Institute of Pharmacy and Nutrition (OGYÉI) database and the application of reduced or 0% VAT rates. In particular, it will be necessary to clarify whether every product listed as an authorised medicine in the OGYÉI pharmaceutical database meets the definition of a medicinal product under the Hungarian VAT Act and therefore qualifies for the application of the 0% VAT rate. Additional complexities concern the VAT treatment of special products, such as clinical samples, and free-of-charge supplies, including whether taxable free-of-charge transfers should be subject to the preferential (and, in the future, 0%) VAT rate or the standard 27% rate.

These questions clearly demonstrate that the introduction of a 0% VAT rate for prescription medicines represents a complex change affecting the entire pharmaceutical value chain. The detailed rules and practical interpretation of the new regime are likely to require further clarification in the coming period. Accordingly, market participants should already begin reviewing their pricing arrangements, accounting and settlement processes, NEAK-related reporting practices, and IT systems to ensure they are well prepared to respond to future legislative guidance and practical implementation challenges.

Our experts are available to discuss any questions that may arise and to assist in clarifying areas of uncertainty.