Accounting Treatment of Subsidized Programs in Greece
- Nick Vosniakos | Νίκος Βοσνιάκος
- Aug 7
- 11 min read
State aid is a fundamental pillar for the development and strengthening of economic entities in the modern economic environment, especially in Greece. Subsidized programs are a crucial funding tool to support Businesses, NGOs, Research Organizations and Universities in Greece, supporting the implementation of specific investment projects or research projects. However, their proper accounting treatment is a complex process that requires specific knowledge and attention but is crucial for transparency, compliance with legal requirements and avoiding tax risks. In this article, we will analyze International, European and National practices, as well as good practices and procedures that can help operators avoid mistakes and maximize their benefits. This guide aims to provide a comprehensive and critical analysis of the accounting treatment of subsidies, grants and state aid in Greece. An understanding of these aspects is vital to ensure compliance, optimize financial results and enhance the credibility of operators.
Theoretical and Legislative Framework
Subsidies, government grants and state aid are defined according to National and European law, where subsidies are financial benefits provided mainly to cover specific costs or investments. The accounting treatment of grants is governed by both national Greek Accounting Standards and International Accounting Standards (IAS/IFRS), with IAS 20 being the main standard for Government Grants.
International Accounting Standards (IAS/IFRS): At the international level, the accounting treatment of government grants is set out in International Accounting Standard 20 (IAS 20), which deals with the accounting for government grants and the disclosure of government assistance. According to IAS 20, a government grant is assistance from a government in the form of a transfer of resources to an entity in exchange for compliance with certain conditions relating to its activities. A fundamental principle of IAS 20 is that grants are not recognized until there is reasonable assurance that the entity will comply with the terms and conditions and that the grant will be received. That is, the mere receipt of money is not evidence that the conditions have been met - if terms or conditions are outstanding, the grant may be held in abeyance (as a liability) until it is considered that they have been met. Also, IFRS prohibits the direct crediting of a grant to equity - instead, it requires it to be recognized as revenue in the periods corresponding to the costs subsidized.
Greek Accounting Standards (GAS): at a national level, Law 4308/2014 and the Greek Accounting Standards have adopted a similar treatment to International Accounting Standards. The GASs provide a similar definition (article 23 of Law 4308/2014): a government grant is assistance from the state in return for past or future compliance by an entity with certain conditions in its activities. Essentially this definition is harmonized with the international definition of IAS 20. The GAS also treats grants on an accrual basis: they are recognized when the entity has earned the right to receive them and has complied with any conditions, not necessarily when cash is received. As noted in the IASB Accounting Guidance, normally the approval of grants is considered final when the entity has documented compliance with the terms of the grant.
In summary, both IFRSs and GASs require that the recognition of a grant is conditional on reasonable certainty that the relevant conditions will be met and that the amount will be received. This conservative principle ensures that no premature revenue from a grant will be recognized that may not be finalized (for example, if the company ultimately fails to meet its obligations or if the government agency withdraws the aid).
Accounting Treatment of Grants
Greek Accounting Standards (IAS - Law 4308/2014)
Initial Grant Recognition
According to Article 23 of Law 4308/2014, government grants are initially recognized as a liability (deferred income) in the period in which they are received or in the period in which their approval becomes final and it is certain that they will be received. The initial recording involves the crediting of a liability account (e.g. account 58 'Government grants' in the GAS Chart of Accounts) by debiting a receivables account. When the grant amount is received, a transfer to cash accounts is made.
Examples of accounting entries:
Accounting treatment of investment grants (fixed assets)
These grants concern financing for the purchase, construction or development of fixed assets (e.g. grants for the purchase of equipment or real estate). After initial recognition, government grants related to assets are amortized by transferring them to income as revenue. This is done in the same period and in a manner equivalent to transferring the carrying amount of the subsidized asset to profit or loss. In substance, the grant income is recognized in proportion to the depreciation of the subsidized asset. The grant is amortized gradually by transferring it to profit or loss as income over the same period and in a manner consistent with the depreciation of the granted asset. That is, each closing period, the part of the grant that is attributable to the depreciation of the fixed asset is transferred to income. With this matching treatment, the grant income practically offsets the depreciation expense (or other related costs) of the fixed asset, so that the net result reflects the actual charge after the government support. It is important to note that, under the GAS, grants for fixed assets are now treated as a liability (deferred income) and not as an equity item, as was previously the case.
Example of accounting entries:
Accounting treatment of operating grants (expenses, salaries)
These grants concern aid to reimburse specific costs (e.g. salary for a research project, operating costs) or for general income support (e.g. a grant for damage caused by a natural disaster or pandemic). Government grants related to expenses are initially recognized as a liability in the period of receipt or final approval with certainty of receipt. They are subsequently transferred to profit or loss as revenue in the same period in which the subsidized costs are charged to profit or loss. If the grant relates to expenses (e.g. payroll, operating), it is initially recorded as a liability (58.01) and then transferred to revenue when the expenses are incurred. In the same financial year, both the costs (expenses) and the corresponding grant income must be shown so as not to distort the financial result. The transfer to revenue is made in the same period in which the subsidized costs are recognized in order to respect the matching principle.
If the grant relates to future expenses (e.g. next year's payroll), the amount remains a liability (58.01) until the expenses are incurred.
If it relates to past expenditure (e.g. reimbursement of expenditure already incurred), it is transferred directly to revenue when it is authorized or collected.
Example of accounting entries:
Accounting treatment of indirect costs (lump sums)
Many subsidized programs include a category of indirect costs in the approved project budget. Indirect costs or overheads are all costs that cannot be directly allocated to a specific project, cost category, activity or product, but are necessary for the general operation of the organization and the support of its projects.
In subsidized programs (e.g. Horizon Europe, NSRF, Erasmus+, etc.) indirect costs:
They are calculated as a percentage of direct eligible costs (e.g. 25% of direct personnel costs and other eligible costs).
They are granted on a lump sum or flat rate basis without requiring detailed reports or supporting documents as to where they are spent.
They are not linked to specific costs that need to be verified or linked to specific costs
They intend to cover general operating costs of the organization that indirectly support the project (administration, accounting, energy, rent, utilities, maintenance, office equipment, etc.).
These are usually not spent directly by the organizations and do not incur expenses for the project but are received during successful project certifications/verifications and are kept in their cash reserves to be used outside the subsidized program received, as they relate to other general operating expenses of the organization.
Because the amounts are flat rates and no certification of expenditure is required:
There is no need to "hold" them as a liability and carry them over incrementally.
They can be immediately recognized as revenue upon collection or final approval.
Example of accounting entries:
Accounting treatment of advance payment - project pre-financing
In many research programs or subsidized investment projects, an advance payment of part of the grant is foreseen when the funding is approved after the adoption of the final funding decision to help the project start. Thus, an advance (pre-financing) is given at the beginning of the project without any expenditure having been certified yet. In this case, the amount received by the organization is not yet considered as revenue or as a definitive grant:
There is a possibility of partial or total reimbursement if the expenditure is not approved or the project is discontinued.
Pending certification, the advance payment is treated as a liability towards the financier.
Until the certification is completed, the amount is not an acquired right - a refund can be requested. Good accounting practice (GAS and IFRS) is to show it as a liability until final administrative verification. This avoids early recognition of revenue which would alter the results and equity.
Example of accounting entries:
International Accounting Standards (IAS/IFRS - IAS 20)
IAS 20 prescribes the accounting treatment of government grants and the disclosure of government assistance.
Income Approach: A government grant is recognized only when there is reasonable assurance that
(a) the entity will comply with any conditions attached to the grant; and
(b) the grant will be received.
IAS 20 adopts the income approach, under which grants are recognized in profit or loss on a systematic basis in the periods in which the entity recognizes as expenses the related costs for which they are intended to compensate.
IAS 20 permits two alternative methods of presentation for investment grants for property, plant and equipment in the financial statements:
As deferred income, which is amortized to profit or loss over the useful life of the asset. They are initially recognized as deferred income in liabilities, which are recognized in profit or loss on a systematic basis over the useful life of the asset (this method is essentially the same as under GAS)
By deducting the grant from the carrying amount of the asset, thereby reducing future depreciation. They are deducted from the carrying amount of the asset acquired - i.e. the grant reduces the carrying amount of the asset. In this case no separate income is recorded: the benefit of the grant is passed through to the results through reduced depreciation over the life of the asset.
Note that the deduction from the value of the asset is allowed by IAS but not by GAS. Therefore, in Greece only the former is applied (deferred income), while companies that follow IAS/IFRS can choose the presentation method. In any case, no grant is directly recorded in equity under IAS/IFRS.
For grants intended to cover expenses (e.g. operating grants, salary grants, research grants), the initial recognition is again as a liability (deferred income) at the time of receipt or final approval. Subsequently, however, the transfer to profit or loss as revenue must be made in the period in which the subsidized costs are charged to profit or loss. If a grant relates to costs that have already been incurred or is provided for immediate financial support without future related costs, it is recognized as income in the period in which it is receivable. In simple terms, if the grant relates to a specific expense, it will be recognized as income at the same time as that expense is recognized to offset it.
As regards the presentation of the income statement, there is also a choice: the grant can either be shown as a separate income (e.g. in a line 'Grant income' or within 'Other income'), or it can be offset against the corresponding expense by reducing it. This option only affects the presentation and not the net result (which remains the same). In practice, for reasons of transparency, many companies show grants as separate income lines in order to clearly disclose how much money they have received from state aid, rather than implicitly reducing expenses.
Comparison and deviations with GAS
The GAS (Law 4308/2014) has largely adopted the approach of IAS 20, recognizing grants of fixed assets as deferred income rather than as equity. This marks a significant convergence with international standards. A key difference with older Greek accounting practices (before GAS) is that IAS 20 (and now GAS) explicitly prohibits the direct crediting of the grant to equity. While IAS 20 allows two methods of presentation for grants of fixed assets (deferred income or reduction of the cost of an asset), GAS explicitly defines the recognition as a liability/deferred income.
What is the difference between initial recognition and final recovery?
The main difference between the initial recognition and the final receipt of a financing (e.g. a grant or subsidy) concerns the timing and content of the accounting entry and the actual flow of money:
1.Initial Recognition:
It is the time when the enterprise or entity recognizes in its books of accounts the existence of the financing.
It occurs when there is certainty that the funding will be received, usually based on the final approval of the funding or grant decision.
The financing is initially recorded as a liability (e.g. the ‘Government grants’ account) and at the same time a receivable is created from the granting body (e.g. the ‘Government receivables’ account).
At this stage the amount is not yet received, but the obligation of the body to pay it is recorded.
2.Final Collection:
Refers to the time when the financing money actually enters the cash or bank accounts of the enterprise/entity.
It implies that the expenditure has been certified or audited, especially in subsidized programs with interim certifications.
It is recorded as a reduction in the receivable from the granting agency and an increase in cash.
At the same time, a partial or total transfer of funding from the liability account to revenue is gradually made, depending on the certifications or progress of the project.
In simple terms, initial recognition involves the promise or right to receive money that certifies the financing as an accounting liability and receivable, while final collection is the actual receipt of the money and the completion of the transfer of the money into the accounts, with simultaneous recognition of the revenue in the profit and loss account. In addition, between the initial recognition and the final collection there may be an interim certification phase, where the financing is recognized in revenue in stages, in line with the certified expenditure. This distinction is in line with Greek Accounting Standards (GAS), International Accounting Standards (IAS 20), and the relevant tax legislation (Law 4172/2013), as well as with good practices governing the management of subsidized programs.
The correct accounting and tax treatment of subsidies is critical to the success of businesses and organizations. By implementing good practices and adopting modern trends, Greek operators can maximize their benefits and enhance their competitiveness.
