Free Grants: What "Free Money" Really Costs, and the Grant Scams to Avoid (2026)

TL;DR: are free grants really free?

No grant asks you to pay a fee, but none is completely free either. Most cover only part of your costs (70% for the EIC Accelerator and Horizon innovation actions, 60% for LIFE projects), state aid rules cap what you can receive (€300,000 over three years under de minimis), grants usually count as taxable income, and EU projects come with timesheets, reporting, audit certificates above €430,000 and the risk of repaying money. And anyone asking for a fee to release a grant is a scammer. Below: every hidden cost, how to calculate a grant's real value, and the red flags of grant fraud.

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Search for "free grants" and you'll find promises of free money for anything. Real grants are non-repayable, which makes them valuable, but they come with conditions that cost money and time. Founders who understand those costs before they apply make better choices and avoid nasty surprises, such as a tax bill or a recovery order.

This guide explains what free grants really cost and how to spot grant scams. For a frank take on whether EU funding is worth the trouble, see why EU funding is hard but worth applying for anyway.

Cost 1: co-funding, the part you pay yourself

Most grants pay only a share of eligible costs, and you fund the rest:

Programme	Maximum share covered by the grant	What you add
Horizon Europe research and innovation actions	100%	Nothing for eligible costs, plus a 25% flat rate for overheads
Horizon Europe innovation actions (companies)	70%	30% of eligible costs
EIC Accelerator grant	70%	30%, and the grant may not produce a profit
LIFE standard projects	60% (up to 75% for some nature projects)	40% or more
National grants under state aid rules	Typically 25–70% depending on activity and size	The rest

Remember that costs before the grant starts, and the cost of preparing your proposal, are generally not eligible, according to the Annotated Grant Agreement. See match funding requirements.

Cost 2: state aid limits on how much you can receive

Most national and regional grants are state aid, and EU rules cap them:

De minimis: small amounts of aid are allowed without notification, but no more than €300,000 per company over any three-year period, counting from when the aid is granted. From 1 January 2026, all de minimis aid must be recorded in a central national or EU register, under Regulation 2023/2831, listed on the Commission's state aid rules page.
The General Block Exemption Regulation (GBER): caps aid intensity by activity, from 100% for fundamental research to 25% for experimental development by large companies, with up to 20 extra points for small enterprises. The current GBER applies until 31 December 2026, and a revised version is planned from 1 January 2027, according to the European Commission.
Cumulation: grants from different sources for the same costs can't exceed the highest permitted intensity. Centrally managed EU funds such as Horizon Europe aren't state aid, but combining them with national aid for the same costs is still limited.

See our guide to state aid rules and grant compliance.

Cost 3: tax and VAT

Income tax: in many countries a grant counts as business income. In the Netherlands, for example, a subsidy counts towards your business profit, while the costs it pays for remain deductible.
Investment grants: in Germany, a grant for fixed assets can either be taxed as income or deducted from the asset's cost, which lowers depreciation later: the tax is deferred, not avoided.
VAT: under EU VAT law, subsidies directly linked to the price of a supply are part of the taxable amount; most project grants aren't, but check yours. See VAT treatment of EU grants.

Ask your accountant before you spend the money: a grant received in December can show up as profit in your annual accounts.

Cost 4: reporting, timesheets and audits

Timesheets: personnel costs in Horizon Europe must be backed by declarations signed monthly by the person and their supervisor, or another reliable time-recording system, according to the Model Grant Agreement. See time tracking and effort reporting.
Audit certificate: a certificate on the financial statements is required at final payment when a beneficiary's requested EU contribution to costs is €430,000 or more.
Records: keep them for five years after final payment (three years for grants up to €60,000); audits are possible up to two years after final payment.
Money held back: 5% of the EU contribution is retained for the Mutual Insurance Mechanism and released at the end, and prefinancing remains EU property until final payment.

Lump-sum grants are much lighter: there's no financial reporting and no audits of actual costs, only checks that the work was done, according to the Commission's lump-sum guidance. See audit requirements for EU projects.

Cost 5: the risk of paying it back

Grants can be reduced or recovered for substantial errors, irregularities, fraud or serious breaches of obligations, such as not implementing the project properly or giving false information, under the Model Grant Agreement. Fraud investigations are real: in 2025 the EU's anti-fraud office OLAF concluded 209 investigations and recommended recovering €597 million, according to the OLAF Report 2025.

Honest errors in cost claims can also lead to rejected costs; see common grant compliance issues and grant agreement terms.

Grant scams: how to spot fake "free grants"

Real grant-makers never ask for money to release a grant. The EU has warned about fake grant offers using "EU logos, official-looking documents and grant award letters"; the advice of the EU Delegation to Zimbabwe applies everywhere: never pay a fee to receive or process an EU grant. OLAF never offers or requests money transfers from citizens, and real Commission emails end in @ec.europa.eu, according to its hoax warning.

A newer trick targets real projects: fraudsters pose as a consortium partner and ask for prefinancing to be sent to a new bank account. Always confirm bank details by phone through a contact you already know. In the UK, report grant fraud to Report Fraud, which replaced Action Fraud in December 2025.

How to work out a grant's real value

Start with the grant amount and subtract the co-funding you must add.
Estimate the tax on the grant as income, if it applies in your country.
Count your time: preparation (often 36–45 person-days for an EU proposal) and reporting.
Factor in cash flow: how much comes as prefinancing and how much only at the end.
Weigh the odds: multiply by the chance of success; see European grant success rates.

Grants still beat most alternatives: no equity, no interest, and often credibility with investors. For other public money with fewer strings, see funding opportunities beyond grants.

Know your numbers before you apply

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Conclusion: free, but not without strings

Real grants are non-repayable, but they cost you co-funding, time, tax and the discipline of reporting, and state aid rules cap how much you can receive. Those costs are usually worth paying, as long as you know them in advance and choose grants whose value justifies the effort. And whenever a "free grant" asks you for a fee, walk away: it's a scam.

FAQ: free grants

Are there really free grants?

Grants don't have to be repaid, but most cover only part of your costs and come with reporting duties, tax and state aid limits. No genuine grant asks you to pay a fee.

Do I have to pay tax on a grant?

Often yes: in many countries grants count as business income. In Germany, grants for fixed assets can instead reduce the asset's cost. Ask your accountant.

What is the de minimis limit?

Under Regulation 2023/2831, a company can receive up to €300,000 of de minimis aid over any three-year period; since 2026 it must be recorded in a central register.

How much co-funding do EU grants need?

It depends on the programme: none for Horizon Europe research actions, 30% for innovation actions and the EIC Accelerator grant, 40% for most LIFE projects.

When do I need an audit for an EU grant?

In Horizon Europe, a certificate on the financial statements is needed at final payment if your requested EU contribution to costs is €430,000 or more. Lump-sum grants don't need one.

Can a grant be taken back?

Yes, for substantial errors, irregularities, fraud or serious breaches of the grant agreement. In 2025 OLAF recommended recovering €597 million.

How do I recognise a grant scam?

Requests for an upfront fee, grants you never applied for, payment by gift card or crypto, unofficial email addresses and pressure to act fast are classic signs.

Are proposal-writing costs covered by EU grants?

No: the costs of preparing, submitting and negotiating a proposal are generally not eligible in EU grants.

Violetta Bonenkamp, Fe/male Switch co-founder