<\/p>\n
The organisation budgets an amount including VAT, the donor disallows that VAT at the end of the project, and a hole of twenty per cent of the purchase opens in the budget. The cause is almost always the same: nobody checked in advance which of three situations the project is in.<\/p>\n
Below are those three situations, the documents that evidence each, and what the auditor checks.<\/p>\n
Donors do not fund a tax the organisation can recover. The logic is simple: if VAT is recoverable, it is not a real cost of the project. If it cannot be recovered, it is a genuine cost and most donors accept it. So everything comes down to one question: can this particular organisation recover this particular VAT.<\/p>\n
The most common case for NGOs and foundations. The organisation is not registered for VAT, cannot reclaim input tax, so VAT forms part of the purchase cost and is an eligible expense.<\/p>\n
What the donor needs: confirmation that the organisation is not a VAT payer. This is an extract from the VAT payers register showing no registration, or a letter from the organisation stating its tax status. Donors ask for this once at the start of the project, not at the end.<\/p>\n
This happens with foundations that run economic activity and with organisations that crossed the mandatory registration threshold. If input VAT goes into the tax credit, the donor does not fund it: the report must show amounts net of VAT.<\/p>\n
An error we see regularly: the budget was built with VAT because the figures came from supplier quotations, while the organisation is in fact VAT registered. The donor then removes the tax from every purchase at once, and this is the largest single disallowance we meet.<\/p>\n
A separate mechanism applies here. Supplies of goods and services within a registered international technical assistance project are exempt from VAT under clause 197.11 of the Tax Code of Ukraine. In other words, VAT should not be paid at all.<\/p>\n
Three conditions make the exemption work:<\/p>\n
If the organisation paid VAT where it was entitled to exemption, the donor treats the amount as ineligible: the project could have avoided the tax and did not. This is the most painful variant, because recovering such VAT from the state is difficult and the donor does not compensate it.<\/p>\n
Yes, if the organisation is not VAT registered and cannot recover the tax, and if the project is not registered as technical assistance with an exemption. In all other cases VAT in the budget becomes an ineligible cost at the end of the project.<\/p>\n<\/details>\n Contact the supplier before payment and ask for documents to be reissued without VAT, attaching a copy of the registration card and the procurement plan. Correcting this after payment is harder, and the donor is unlikely to accept the VAT paid.<\/p>\n<\/details>\n Yes. The VAT exemption applies to registered international technical assistance projects, and the purchase must appear in the procurement plan annexed to the registration card. Without registration the exemption does not apply.<\/p>\n<\/details>\n Tell the donor in writing immediately and agree how to present costs going forward: gross up to the registration date, net afterwards. Staying silent until the final report leads to a recalculation of the whole project and disallowance of several months of costs.<\/p>\n<\/details>\n We have audited international technical assistance projects since 2000 and see VAT among disallowed costs constantly. Tell us the donor, whether the project is registered as technical assistance and what your tax status is, and we will say what to check first. A proposal follows once we have reviewed the assignment.<\/p>\n <\/p>","protected":false},"excerpt":{"rendered":" Three VAT situations in a grant, the evidence for each, the exemption for technical assistance projects and five errors that cost the tax.<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"class_list":["post-4371","page","type-page","status-publish","hentry"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\n","aioseo_head_json":{"title":"MK Audit \u0410\u0443\u0434\u0438\u0442","description":"Why VAT becomes a problem in a grant project The organisation budgets an amount including VAT, the donor disallows that VAT at the end of the project, and a\u2026","canonical_url":"https:\/\/audit-mk.com.ua\/en\/pdv-u-hrantovomu-proiekti\/","robots":"max-image-preview:large","keywords":"","webmasterTools":{"miscellaneous":""},"schema":null,"og:locale":"en_US","og:site_name":"MK Audit","og:type":"website","og:title":"MK Audit \u0410\u0443\u0434\u0438\u0442","og:description":"Why VAT becomes a problem in a grant project The organisation budgets an amount including VAT, the donor disallows that VAT at\u2026","og:url":"https:\/\/audit-mk.com.ua\/en\/pdv-u-hrantovomu-proiekti\/","article:published_time":"2026-10-02T17:59:21+00:00","article:modified_time":"2026-10-02T17:59:21+00:00","og:locale:alternate":["uk_UA","ru_RU"],"og:image":"https:\/\/audit-mk.com.ua\/wp-content\/plugins\/mk-landing\/img\/og-default.jpg","og:image:width":1200,"og:image:height":630,"og:image:secure_url":"https:\/\/audit-mk.com.ua\/wp-content\/plugins\/mk-landing\/img\/og-default.jpg","og:image:alt":"MK Audit, an audit firm in Kyiv and a full member of DFK International","twitter:card":"summary_large_image","twitter:title":"MK Audit \u0410\u0443\u0434\u0438\u0442","twitter:description":"Why VAT becomes a problem in a grant project The organisation budgets an amount including VAT, the donor disallows that VAT at\u2026","twitter:image":"https:\/\/audit-mk.com.ua\/wp-content\/plugins\/mk-landing\/img\/og-default.jpg","twitter:image:alt":"MK Audit, an audit firm in Kyiv and a full member of DFK International"},"aioseo_meta_data":{"post_id":"4371","title":null,"description":null,"keywords":null,"keyphrases":null,"primary_term":null,"canonical_url":null,"og_title":null,"og_description":null,"og_object_type":"default","og_image_type":"default","og_image_url":null,"og_image_width":null,"og_image_height":null,"og_image_custom_url":null,"og_image_custom_fields":null,"og_video":null,"og_custom_url":null,"og_article_section":null,"og_article_tags":null,"twitter_use_og":false,"twitter_card":"default","twitter_image_type":"default","twitter_image_url":null,"twitter_image_custom_url":null,"twitter_image_custom_fields":null,"twitter_title":null,"twitter_description":null,"schema":{"blockGraphs":[],"customGraphs":[],"default":{"data":{"Article":[],"Course":[],"Dataset":[],"FAQPage":[],"Movie":[],"Person":[],"Product":[],"ProductReview":[],"Car":[],"Recipe":[],"Service":[],"SoftwareApplication":[],"WebPage":[]},"graphName":"WebPage","isEnabled":true},"graphs":[]},"schema_type":"default","schema_type_options":null,"pillar_content":false,"robots_default":true,"robots_noindex":false,"robots_noarchive":false,"robots_nosnippet":false,"robots_nofollow":false,"robots_noimageindex":false,"robots_noodp":false,"robots_notranslate":false,"robots_max_snippet":null,"robots_max_videopreview":null,"robots_max_imagepreview":"large","priority":null,"frequency":null,"local_seo":null,"breadcrumb_settings":null,"limit_modified_date":false,"ai":null,"created":"2026-10-02 18:00:08","updated":"2026-10-02 18:00:08","seo_analyzer_scan_date":null,"focus_keyword":null,"additional_keywords":null,"truseo_locale":null},"aioseo_breadcrumb":"What if a supplier invoiced with VAT while the project is exempt<\/summary>\n
Is project registration required to obtain the exemption<\/summary>\n
The organisation became VAT registered mid project, what now<\/summary>\n
If you need a review<\/h3>\n