EU Funding

VAT in non-repayable funding projects: how we treat it in the budget

The rule everyone repeats — that recoverable VAT is never financed — is not the main test for the 2021-2027 period. The current test starts from the size of the operation.

Northdan Soft is a software supplier, not a funding consultancy, and is not affiliated with any managing authority or development agency. Programme information is indicative — always check the conditions in the programme's official applicant guide.

The POCIDIF Action 2.1 applicant guide reproduces, in section 5.3.1, Article 64(1)(c) of Regulation (EU) 2021/1060: value added tax is not eligible for a contribution from the Funds in the form of grants, with two exceptions — operations whose total cost is below EUR 5,000,000 including VAT, and operations above that threshold where VAT is non-recoverable under national VAT legislation. Below five million euro the recoverability test simply does not apply, which is why the guide carries a dedicated annex, Annex 5, a model declaration on VAT eligibility for operations whose total cost is below EUR 5,000,000 including VAT. A Romanian digitalization project is almost always under that threshold. That is not automatic reimbursement: the actual treatment of the line still follows the call and the national eligibility framework set by Government Decision 873/2022, and VAT attached to an ineligible cost is itself ineligible. Verified on 30 July 2026 against the guide approved by MIPE Order 965 of 23 June 2026. As a software supplier, Northdan gives no tax advice; what we do is build the budget with the taxable base and the VAT in separate columns, on every line, so the figure relevant for the eligible budget can be extracted directly.

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A budget with VAT in its own column

Every line shows the base, the rate and the value including VAT, so the eligible budget is calculated correctly whatever rule the call applies.

Eligible and ineligible lines kept apart

Costs outside the financing sit on their own lines, because VAT follows the treatment of the underlying cost and a mixed line is lost twice over.

Consistent invoicing across the whole project

Delivery invoices keep the structure of the approved budget, line by line, so that at reimbursement the match between amounts with and without VAT is immediate.

The basic rule: the threshold, then recoverability

Under Article 64(1)(c) of Regulation (EU) 2021/1060, VAT is excluded from grant financing except for operations whose total cost is below EUR 5,000,000 including VAT, and for larger operations where the tax is non-recoverable under national law. The recoverability test therefore applies only above the threshold.

A national programme may still be stricter. The SME Eco-Tech implementation procedure, open until 24 September 2026, lists VAT among the costs that are not eligible, together with permits and fees, packaging, transport, staff training, commissioning, assembly and labour. The answer comes from the text of the call, not from the company's VAT registration status.

The trap situations we see in practice

The first: VAT attached to a cost that the evaluation declares ineligible is itself ineligible, so a badly classified budget line is lost twice.

The second: budgets built with VAT included and no breakdown, which make it impossible to separate the eligible amount later. The third: ceilings read without their wording — the DigiLocal methodological norms state maximum amounts including VAT of 75,000, 125,000, 175,000 and 250,000 lei by type of local authority, which cuts the real software budget by roughly a fifth.

A change of tax status during implementation is reported under the rules of the call; the decision belongs to the authority and the tax adviser, while we adjust invoicing from the moment we are informed.

Frequently asked questions

Is VAT eligible in digitalization projects?

It can be. Article 64(1)(c) of Regulation (EU) 2021/1060, quoted in the POCIDIF Action 2.1 guide, excludes VAT from grant financing with two exceptions, the first being operations whose total cost is below EUR 5,000,000 including VAT. The actual treatment follows the call and the national eligibility framework.

Is the software supplier budget drawn up with or without VAT?

With both values visible: the taxable base, the rate and the total including VAT on each line. That way the eligible budget is extracted directly under the rule of your call, and the accountant and consultant recalculate nothing by hand.

What happens to VAT on a cost declared ineligible?

It becomes ineligible too. The POCIDIF Action 2.1 guide lists value added tax attached to ineligible expenditure among the non-eligible categories, which is why a misclassified budget line costs the company both the expenditure and its tax.

Who establishes the VAT treatment in my project?

The call guide and tax legislation, applied by your consultant and verified by the managing authority. Northdan offers no tax advice — we deliver the budget and the invoices in the structure that makes applying those rules simple and verifiable.