02 Jul 2019

Ministry of Health update – Invoicing local distributors

Authored by: Hadef & Partners, Sector Groups

In brief:

  • Generally, overseas pharmaceutical companies have a local distributor appointed to sell products to UAE customers.
  • Previously, the Ministry of Health permitted an overseas pharmaceutical company to invoice its local distributor via a UAE free zone company.
  • However, the Ministry of Health now requires an overseas pharmaceutical company to establish a Scientific Office in order to be entitled to invoice its local distributor through a free zone company.

Background

In our previous Health & Pharma Sector Email, we considered the duties of a Scientific Office and the general differences between setting up a Scientific Office in ‘onshore’ Dubai versus a Dubai free zone, please see our full article here.

Essentially, a Scientific Office is a representative office of an overseas pharmaceutical company (Overseas Pharmaceutical Company/ies) which manufactures pharmaceutical drugs. 

Whether a Scientific Office is established in onshore Dubai or in a free zone, it must be licensed by the UAE Ministry of Health (MoH).

Given that the MoH is a federal governmental regulator, the same requirements would apply irrespective of whether the Scientific Office was established in onshore Dubai or in a free zone.

As previously reported, in accordance with Article 12 of Ministerial Resolution No. (1110) of 2016 Concerning Scientific Offices, a Scientific Office will carry out a number of functions, and accordingly is permitted to carry out a number of activities, including (but not limited to):

  1. representing one or more medical production Overseas Pharmaceutical Companies that trade, or desire to trade, in medical products in the UAE;
  1. providing necessary drug information on medical products of the Overseas Pharmaceutical Company which the Scientific Office represents in the UAE; and
  1. ensuring the observance of good marketing ethics, while marketing the medical products of the relevant Overseas Pharmaceutical Company in the UAE.

Under the regulations of the UAE, a Scientific Office is not permitted to conduct any activities which generate revenue within the UAE.

Local Distributors and invoicing requirements

Generally, Overseas Pharmaceutical Companies have a local distributor appointed to sell their products to UAE customers.

Previously, the MoH permitted an overseas pharmaceutical company to invoice its local distributor via a UAE free zone company.

However, the Ministry of Health now requires an overseas pharmaceutical company to establish a Scientific Office in order to be entitled to invoice its local distributor. This change in practice affects a number of pharmaceutical companies, since a Scientific Office is subject to various specific requirements imposed by the MoH.

Conclusion

This change in MoH requirements creates a significant new administrative obligation on Overseas Pharmaceutical Companies. We expect that the rationale for this change is to enable the MoH to have full oversight of the medical products being sold onshore by a free zone company.

Based on recent experience, we are aware that this new requirement is being strictly enforced and, as a result, Customs will block relevant products from entering the UAE if the Overseas Pharmaceutical Company invoices its local distributor through a free zone company.

We note that an Oversees Pharmaceutical Company should not be subject to this new directive from the MoH if it invoices the local distributor directly instead of using a free zone company.

For more information, please contact us on sectors@hadefpartners.com.