Receiving a grant and VAT
You have received the grant you applied for. But what are the VAT implications of the grant you receive? Whether you have to pay VAT on the grant and whether you can claim back the VAT on expenses for which you receive the grant depends on your VAT status as the recipient and the nature of the project.
There are two questions you need to ask yourself to answer the questions above:
1) Is the recipient of the grant (a natural person or a legal entity) a business subject to VAT?
If the answer to this is no, then you do not have to pay VAT on the grant, and you cannot claim a VAT refund on the expenses for which you receive the grant. The only exception to this is if the subsidy project makes you a VAT-registered business. This applies, for example, if you are effectively commissioned by the subsidy provider to perform work.
If the answer to question 1 is yes, then there is a second question you must answer:
2) Are you using the subsidy to sell services or goods?
For example: I sell my show to a venue or festival; I sell tickets to people who come to see my exhibition or film; I sell my album.
If that is the case, you can claim a refund of the VAT on the costs for which you receive the grant by claiming it as input tax on your VAT return.
If you do not use the grant to sell goods or services, you should assume that you cannot claim the VAT paid on costs for the grant project as input tax on your VAT return.
Whether you must pay VAT on the grant in this situation depends on the terms of the grant. If, in exchange for the grant, you are required to perform a service for the grant provider that is directly in their interest (such as carrying out an assignment or organizing a performance for a specific group of people), then you must pay VAT on the grant amount. If you receive a grant in the public interest (for example, to promote art and culture), then the grant is not subject to VAT.