VAT eligibility for municipalities is a question that significantly affects a municipal project's budget, since it can represent a fifth of the total costs. The basic rule is the same as for companies: the tax is an eligible expenditure when the recipient cannot recover it. For municipalities, the situation is more complex, because a local authority carries out activities for which it is not a VAT payer as well as activities subject to VAT, so the right to deduct may be full, partial, or none at all, depending on the purpose the asset will serve. If, for example, a renovated building will be partly rented out, the assessment changes. The decision is therefore made when preparing the budget and must be documented; a change of use during the sustainability period can lead to part of the contribution being repaid. Check with a tax adviser.
See also: VAT as an Eligible Expense, Grants for Municipalities and Towns, Project sustainability.
