The success of any grant application — whether under the European Commission’s Horizon Europe, USAID, or Creative Europe — depends on the organization’s ability to translate its vision into the language of finance. A project budget is not merely a technical annex; it is a strategic document that demonstrates to the donor the organization’s capacity to manage resources effectively and achieve goals within set limits. For Ukrainian NGOs, cultural institutions, and social entrepreneurs in 2026, understanding financial nuances is critical due to changes in tax legislation, updated PRAG instructions, and the specifics of operating under martial law. Our financial aid helps you prepare your grant application to manage resources effectively and achieve goals within set limits
Eligible Costs: The Foundation of Financial Transparency
The first step in budget development is defining which expenses the donor considers “eligible.” According to the general rules outlined in Article 6 of the Annotated Model Grant Agreement (AGA), eligible costs are those directly linked to project implementation that meet criteria of necessity, rationality, and documentary evidence. To be recognized, a cost must be actually incurred by the beneficiary during the project period, recorded in accounting, and compliant with applicable national law.
Donors prioritize the principles of economy and efficiency. It is expected that the organization chooses the most optimal path to results, avoiding luxury or unnecessary spending. Importantly, even if a budget line was approved at the application stage, its eligibility is only final upon financial reporting or audit based on actual receipts, acts, and bank statements.
Eligibility Criteria in International Grants
The European Commission’s financial control system is based on strict standards detailed in the PRAG (Practical Guide) instructions. The 2025 PRAG update focuses on digitalization and simplified reporting for smaller organizations.
| Criterion | Requirement Description | Source of Verification |
| Project Link | Costs must be essential for achieving results described in work packages. |
Narrative reports, deliverables.
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| Timeframe | Costs must be incurred during the implementation period. |
Bank statements, invoice dates.
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| Verifiability | Each cost must be identifiable and recorded in accounts. |
Ledgers, primary documents.
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| National Law | Compliance with the tax and labor codes of the beneficiary’s country. |
Tax declarations, payroll records.
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Horizon Europe encourages the use of “Simplified Cost Options” (SCOs), such as lump sums or flat rates, to reduce administrative burdens. However, for “actual costs,” the requirement for full documentary evidence remains mandatory.
Personnel Costs: Calculation Algorithm and 2026 Tax Realities
Personnel is the core of any project, usually representing the largest budget category. In 2026, Ukrainian organizations face challenges due to increased tax rates and updated social standards.
Social Standards and Tax Structure
As of January 1, 2026, the following base indicators apply in Ukraine:
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Minimum Wage: 8,647 UAH.
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Subsistence Minimum for able-bodied persons: 3,328 UAH.
When planning, one must distinguish between “Net” (take-home pay), “Gross” (accrued salary), and “Total Employment Cost”. In 2026, salaries are subject to three main taxes: Personal Income Tax (PIT), Military Tax (MT), and Unified Social Contribution (SSC).
| Tax/Contribution | Rate | Payer | 2026 Specifics |
| PIT (ПДФО) | 18% | Withheld from Gross salary |
Base rate remains unchanged.
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| Military Tax (ВЗ) | 5% | Withheld from Gross salary |
Rate increased compared to previous years.
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| SSC (ЄСВ) | 22% | Paid by the employer on top of Gross |
Minimum payment: 1,902.34 UAH.
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For grant budgeting, use this formula:
Where Gross includes PIT and Military Tax. If you promise an expert 20,000 UAH “Net,” the grant budget must allocate approximately 31,688 UAH for total employment costs.
FTE (Full-Time Equivalent) Calculation
Donors often require staff effort to be indicated via FTE. 1.0 FTE corresponds to one person working full-time exclusively on the project. If a manager works 20 hours per week on a project (given a 40-hour standard), their effort is 0.5 FTE. This prevents “double-selling” the same expert across multiple projects.
Engagement Models: Labor Contract vs. PE (FOP)
The choice depends on the project duration and donor requirements.
| Feature | Labor Contract | PE (FOP 3rd Group) |
| Tax Burden | High (~41.5% from Gross + SSC) |
Low (5% or 3% UT + 1% MT + SSC)
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| Grant Status | Classified as Personnel costs |
Often classified as Purchase costs/Services
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| Documentation | Timesheets, orders, payroll |
Contract, Act of Acceptance, Invoice
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In 2026, 3rd-group PEs (FOPs) pay 1% Military Tax on their income in addition to the Unified Tax. European programs like Horizon Europe allow for “SME owners” or “natural persons” using fixed daily unit costs set by the donor.
Indirect Costs and Overheads: The Organization’s Engine
Indirect costs cover general administrative needs that cannot be linked to a specific project task, such as office rent, utilities, bank fees, and the work of accountants or directors.
Two main models exist:
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25% Flat Rate (Horizon Europe): Calculated automatically from eligible direct costs (excluding subcontracting). No receipts for light or rent are required during audits.
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7% Flat Rate (PRAG, USAID): Common in humanitarian and development aid projects. It requires very lean administrative resource management.
Note: Indirect costs cannot cover expenses already budgeted as direct costs.
Equipment and Procurement: Managing Tenders
EU grants usually only reimburse equipment depreciation over the project period. If you buy a laptop for 30,000 UAH with a 3-year lifespan for a 1-year project, the donor will only cover 10,000 UAH.
Procurement Rules
Any purchase must follow the principle of “Best Value for Money”.
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Under €2,500: A single invoice is sufficient .
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Over €2,500 (PRAG 2025): At least three commercial offers are recommended.
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Large purchases: Require open tenders with public notices.
Hidden Risks: Currency Fluctuations and VAT
Currency losses are generally ineligible costs. If the Hryvnia devalues, the donor will not increase the grant amount. Organizations should procure large items immediately after receiving tranches to mitigate risk.
Regarding VAT, it is eligible only if the organization cannot recover it nationally. If your NGO is not a VAT payer, the donor pays the full price. If you can reclaim it, project reports must show sums excluding VAT.
Audit Checklist: Advice from GetGrant
An audit confirms your integrity. Most errors occur due to a lack of systemization.
Ensure your project file contains:
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Grant Agreement and all signed Annexes.
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Timesheets signed monthly by staff and supervisors.
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Procurement Evidence — tender committee minutes, three quotes, and price comparisons.
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Primary Documents — invoices, acts, bank statements with project stamps.
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Proof of Results — photos, event materials, links to publications, and expert reports.
Conclusion
Grant budgeting is more than math; it is a security plan for your organization. Understanding 2026 tax laws and overhead rules turns financial management into a strategic tool for growth. At GetGrant, we help Ukrainian organizations navigate these complexities, from Horizon Europe to USAID, ensuring every Hryvnia is accounted for and every goal is reached.