Receiving a subsidy as a business: is it taxed, and does it carry VAT?
Written by Ilias Aarrass6 min read · Published on · Last reviewed on 
In short
A subsidy towards running costs counts in your profit for the year it is granted, while an investment subsidy is deducted from the asset's purchase price; you only charge VAT if something is supplied in return.
- If the subsidy is granted but not yet paid, the amount sits on your balance sheet as a receivable.
- An investment subsidy lowers your depreciation base and therefore the amount counting towards the investment deduction.
- If a public body receives something from you in return, it is ordinary revenue and you charge VAT on it.
- Keep the decision letter, the application and the related invoices; without evidence the subsidy can be reclaimed.
A granted subsidy feels like free money, and that is exactly why it so often ends up wrongly in the books. Some entrepreneurs do not book it at all, others put it in their VAT return as revenue at 21 per cent. Both wrong, and both good for a correction later. The main rule is simple: a subsidy for your running costs counts towards your profit, a subsidy on a business asset lowers the purchase price, and you only charge VAT when something is supplied in return. This article shows per situation how to book it and what to keep.
For income tax: two kinds of subsidy
If you receive a contribution towards your running costs, for example for training, advice, a feasibility study or a placement allowance, that is an operating subsidy. It belongs to the profit of the year in which it is granted, so not necessarily the year the money arrives. If the grant is final in December and the body pays in March, it counts in the year of the grant and the amount sits on your balance sheet as a receivable at 31 December.
If you receive a contribution towards the purchase of a business asset, it works differently. Such an investment subsidy is not booked as income, but deducted from the purchase price. So you depreciate over the lower amount, and that same lower amount counts towards the investment deduction. The benefit does not disappear, it just spreads over the years of your depreciation instead of landing at once.
| Type | Income tax | VAT |
|---|---|---|
| Contribution to running costs, for example training or advice | Profit in the year it is granted | No VAT, unless something is supplied in return |
| Contribution to buying a business asset | Deducted from the purchase price, so lower depreciation | No VAT |
| Payment from a public body for an assignment you carry out | Ordinary revenue | VAT on the payment |
| Tax schemes such as WBSO, EIA and MIA | Processed through your return, not separate income | No VAT |
Worked example: a € 12,000 machine with a € 3,000 subsidy
- Purchase price excluding VAT
- € 12,000
- Investment subsidy
- € 3,000 deducted
- Amount you depreciate
- € 9,000, over 5 years € 1,800 a year
- Amount counting for the investment deduction
- € 9,000
Result: So you do not book the € 3,000 as income in the year you receive it. If you did and also depreciated € 12,000, you would count the benefit twice and your balance sheet would no longer match the machine's real book value.
VAT: only if something is supplied in return
For VAT the question is whether the subsidy is payment for a supply or service to the body granting it. If you receive money to make something possible, without that body receiving a supply in return, no VAT is due. That applies to most incentive schemes: a contribution to your training costs, a start-up grant or an amount for sustainability measures.
It is different when the public body is effectively buying something from you. If a council commissions you and pays for a course it takes from you, that is ordinary revenue with VAT, even if the letter calls it a subsidy. So look at the substance of the arrangement, not at the word. When in doubt it is wise to settle this with the grantor or your bookkeeper in advance, because paying VAT afterwards out of a fixed subsidy amount hurts.
Accounting for it and keeping records
Almost every subsidy comes with conditions: the money must be spent on the stated purpose, often within a set period, and you must be able to show it. So keep the decision letter, the application, the invoices belonging to the project and, if required, an hours log. If you do not meet the conditions, the subsidy can be reclaimed; that is then a cost in the year of the reclaim.
Those documents fall under your ordinary seven-year retention obligation, and subsidy schemes often have their own period on top. Keep project costs separate in your books, for example with a project code, so that an audit can see the whole file at once. If you use an innovation scheme, the hours administration is often the heaviest part; see the WBSO scheme for freelancers.
If you receive a subsidy for an investment in energy-efficient or environmentally friendly assets, also check whether that investment qualifies for extra relief, see EIA and MIA. And allow for the payment moment in your cash flow forecast: many schemes only pay after completion and after approving your account of the project.
Frequently asked questions
Do I pay tax on a subsidy?
On a contribution to running costs, yes: it counts towards your profit. An investment subsidy instead lowers the purchase price of your asset, so you depreciate less and your profit rises that way.
Does a subsidy carry VAT?
Usually not, because nothing is supplied in return. If you do supply something to the grantor in exchange for the money, it is ordinary revenue and you charge VAT.
In which year do I book the subsidy?
In the year it is granted, not necessarily the year it arrives. If the amount is granted but not yet paid, it sits on your balance sheet as a receivable.
What if I have to repay the subsidy?
Then you book the repayment as a cost in the year it becomes certain. So always keep the decision letter and the evidence of how you spent it; that usually prevents a reclaim in the first place.
Sources
- VAT on subsidies, damages and voluntary contributionsBelastingdienst · belastingdienst.nl
- Investing in business assetsBelastingdienst · belastingdienst.nl
Sources checked on
This article provides general information based on the rules known for 2026 and does not replace personal tax advice. For your specific situation, we're happy to take a look with you.
