Legal Framework of Grants and Subsidies in Russia: A Comprehensive Guide

 

July 14, 2025

BRACE Law Firm ©

 

The state provides funding for programs and projects to develop entrepreneurship, implement socially significant projects, and improve the economic situation of the population. This support provides citizens, businesses, and even entire sectors of the economy with various measures of state support. Grants and subsidies are among the most common and significant methods of such financing.

However, many questions and legal issues arise in practice that may negatively affect the recipients of grants and subsidies. Therefore, it is critical to understand the mechanism for obtaining and using them.

In this article, we examine:

• What grants and subsidies are, as well as their similarities and differences;
• Who is entitled to receive these support measures;
• The procedure and conditions for their provision;
• The liability for violating the procedure for their use.

What are Grants?

In accordance with Article 6 of the Budget Code of the Russian Federation (the "Budget Code"), grants are a type of interbudgetary transfer provided on a non-repayable and non-returnable basis to lower-level budgets without establishing the purposes for their use.

The recipients of grants are the budgets of the constituent entities of the Russian Federation and local budgets. We note that these entities may independently distribute grants to direct recipients. Typically, funds are allocated to state and municipal institutions and enterprises, non-profit organizations, etc.

Based on the above definition, the following characteristics of grants can be identified:

• Non-repayable nature (grants are provided without conditions for reciprocal provision);
• Non-returnable nature (grants are generally not subject to return);
• Lack of specific directions for use (the provision of grants is generally not conditioned by pre-agreed directions for the use of these funds).

At the same time, researchers of this issue correctly point out that, [1] despite the absence of specific directions for spending grants, courts in practice frequently qualify the non-target nature of the use of grants as a violation. For example, in Case No. A51-483/2022, [2] a federal treasury authority conducted an audit of the use of a grant by the Ministry of Housing and Communal Services. During the audit, the control authority indicated that the Ministry had committed the misuse of grant funds in the amount of 386,785,452 rubles, expressed as follows: the grant was provided to compensate housing and communal services organizations for expenses related to the rise in prices for fuel oil and coal, but the funds were directed toward reimbursing the organizations for costs related to the purchase of diesel fuel. An order was issued to eliminate the violation by returning and transferring the improperly spent funds to the federal budget.

Disagreeing with the order, the Ministry appealed to the court. In support of its claims, the Ministry stated that a grant cannot have a target character because, in accordance with the norms of the Budget Code, it is provided without establishing directions for its use. The court established that, in accordance with the agreement on the provision of the grant, it was allocated exclusively for the purpose of compensating for expenses on fuel oil and coal. Accordingly, the received funds had to be spent only for the specified purposes. The request to recognize the order as illegal was denied.

Thus, recipients of grants should extremely carefully study the documents determining the conditions for the provision of grants.

Procedure and Conditions for Providing Grants

Chapter 16 of the Budget Code, which is dedicated to all types of interbudgetary transfers, governs the legal regulation of the procedure for providing grants.

The Budget Code distinguishes the following types of grants:

• Grants for the equalization of the level of budgetary sufficiency;
• Grants to support measures to ensure the balance of public law entities.

The law does not disclose the concept of budgetary sufficiency, indicating only how its level is determined. The level of sufficiency is the ratio between the calculated tax revenues per capita that can be received by the budget of a constituent entity based on its level of development and tax potential, and the similar average indicator across the budgets of all constituent entities of the Russian Federation.

The methodology for distributing such a grant from the federal budget was approved by Resolution of the Government of the Russian Federation No. 670 dated November 22, 2004, On the Distribution of Grants for the Equalization of Budgetary Sufficiency of the Subjects of the Russian Federation.[3] The calculation formulas for the level of sufficiency provided therein suggest that the prevailing criteria for determining sufficiency are the tax potential index and the budget expenditure index.

The tax potential index of a constituent entity of the Russian Federation is an assessment of the tax revenue per capita of the constituent entity relative to the average per capita tax revenue in Russia. If the tax potential index of a constituent entity is less than 1, then the income level of that entity is below the national average; if it is greater than 1, then the income of such an entity exceeds the average income of all constituent entities.

The budget expenditure index of a constituent entity of the Russian Federation is an assessment of the volume of the entity's expenditures for providing the same volume of budgetary services relative to the Russian average. This value shows how many times the cost of state services provided by a specific constituent entity is higher or lower than the cost of providing the same services on average across all constituent entities.

Ultimately, grants for the equalization of budgetary sufficiency are provided to a constituent entity whose level of budgetary sufficiency is less than or equal to the level established as the equalization criterion (Clause 4 of Article 131 of the Budget Code). Similar equalization grants may also be provided by the budgets of constituent entities to local budgets in the manner prescribed by the regulatory acts of the constituent entity.

Slightly different circumstances are considered when allocating grants for budgetary balance. In particular, they are provided:

• For the financial support of the performance of expenditure obligations of the constituent entities of the Russian Federation in the event of a shortage of their own revenues;
• For the partial compensation of additional expenses for increasing the wages of public sector employees and other purposes;
• To stimulate constituent entities that take measures to attract investment and increase regional tax potential;
• For the purpose of partial compensation for lost budget revenues from the application of an investment tax deduction.

Resolution of the Government of the Russian Federation No. 231 dated April 13, 2010, On the Procedure for the Distribution and Provision of Grants to the Budgets of the Constituent Entities of the Russian Federation to Support Measures to Ensure the Balance of the Budgets of the Constituent Entities of the Russian Federation governs the procedure and conditions for their provision. [4] The distribution of grants is carried out in accordance with methodologies approved by the Government of the Russian Federation.

A logical question arises: can a higher-level budget refuse to provide a grant to a lower-level one if it meets the established criteria? According to researchers of this issue,[5] this question should be answered in the negative. However, as an analysis of judicial practice shows, proving one's right will not be easy.

For example, in Case No. A73-19802/2021, [6] the administration of a municipal district filed a lawsuit against the regional Ministry of Finance to compel the provision of a grant in the amount of 4,410,352 rubles to ensure the balance of the local budget. In support of the claims, the administration argued that these support funds were needed to compensate for losses recovered from the district budget by a court decision for thermal energy supply services. During the consideration of the case, it was established that the regional Government had approved the rules for providing the grant. The conditions for its provision included, among other things, the lack of the ability to independently fulfill expenditure obligations at the expense of its own budget. However, the regional Ministry of Finance concluded that the district budget had a surplus and refused to provide the grants. The court agreed with the conclusions of the Ministry of Finance, stating that the municipality could independently incur expenses for the payment of the writ of execution.

Thus, the distribution of interbudgetary transfers in the form of grants is aimed at meeting the needs of lower-level budgets for the implementation of their tasks and functions as full-fledged constituent entities of the Russian Federation and constitutes a significant revenue item for many budgets. However, the legal regulation of the procedure for their provision is carried out by a significant number of regulatory acts that are often specific in nature, which in turn generates disputes over the conditions for their provision and use.

What are Subsidies?

The current version of the Budget Code does not disclose the term "subsidy". A definition of this term was provided in Article 6 of the Budget Code in its original version. Subsidies were understood as budgetary funds provided to the budget of another level of the budgetary system of the Russian Federation, or to a physical or legal person on the terms of shared financing of target expenditures.

Recipients of subsidies, unlike grants, can be budgets of various levels, as well as legal entities and individuals.

We note that the abandonment of the definition of this term did not lead to significant changes in legal regulation; however, it causes uncertainty when determining the characteristics of subsidies that distinguish them from other support measures. Researchers of this issue [7] identify the following characteristics of subsidies:

• Subsidies, like grants, are non-repayable and non-returnable. However, we emphasize that the regulatory legal acts governing the provision of subsidies may provide for their return in the event of a violation of the conditions established upon their provision or failure to achieve the purpose of their provision.
• Targeted nature of financing. Subsidies are always provided with an indication of the purposes for which they may be spent. This is a distinguishing feature of subsidies compared to grants. At the same time, the purposes for providing subsidies vary depending on the category of subsidy recipients.

Some researchers point to the co-financing of the events for which the subsidy is issued by the receiving party as another characteristic of subsidies. However, an analysis of the provisions of budget legislation shows that this is true only with respect to subsidies provided to budgets. Co-financing by a recipient that is a legal entity or an individual is not directly established by law, although it may occur in some cases.

Thus, an analysis of the characteristics of subsidies showed that the main characteristics of subsidies currently include a non-repayable and non-returnable nature and a targeted character. At the same time, the characteristic of mandatory co-financing is present only with respect to subsidies allocated to budgets.

Subsidies to Budgets

Chapter 16 of the Budget Code, Interbudgetary Transfers, governs the legal regulation of the general principles for providing subsidies to budgets, as is the case with grants.

In accordance with Part 1 of Article 132 of the Budget Code, subsidies to budgets are a type of interbudgetary transfer provided for the purpose of co-financing the expenditure obligations of the budgets of the constituent entities of the Russian Federation and local budgets regarding matters within their jurisdiction or matters of joint jurisdiction of the Russian Federation and the constituent entities, as well as on matters of local significance.

As we see from the above definition, the purpose of providing a subsidy to lower-level budgets is the fulfillment of its own expenditure obligations by the budget receiving the subsidy.

Resolution of the Government of the Russian Federation No. 999 dated September 30, 2014, On the Formation, Provision, and Distribution of Subsidies from the Federal Budget to the Budgets of the Constituent Entities of the Russian Federation approved the general rules for the formation, provision, and distribution of subsidies from the federal budget to the budgets of the constituent entities of the Russian Federation. [8]

A mandatory condition for their provision is the presence of budgetary funds for co-financing in the budget of the constituent entity, as well as the conclusion of an agreement on the provision of the subsidy. The purposes for providing subsidies, the level of co-financing, the values of the results of using the subsidies, and a number of other conditions are also determined by the agreements on the provision of subsidies.

Also, in cases provided for by law, subsidies may be provided from a lower-level budget to a higher-level one — so-called negative transfers. This refers primarily to cases where the calculated tax revenues of budgets exceeded the planned level in the reporting financial year.

Subsidies to Legal Entities and Individuals

Subsidies to legal entities and individuals are not interbudgetary transfers and are governed by Articles 78–78.5 of the Budget Code, which are included in Chapter 10, Expenditures of Budgets.

As a general rule, subsidies to legal entities, individual entrepreneurs, and individuals are provided for the purpose of reimbursing lost income and/or reimbursing costs in connection with the production (sale) of goods. Subsidies may also be provided to non-profit organizations for the performance of a state (municipal) assignment, for the implementation of capital investments in capital construction objects of ownership or the acquisition of real estate objects, and for other purposes. However, due to the limited scope of the article and their specific nature, they will not be considered.

Article 78.5 of the Budget Code establishes general standards for the provision of subsidies.

Thus, information about the provided subsidies is generally posted on the unified portal of the budgetary system of the Russian Federation. Recipients of subsidies are determined by the following methods:

1. By federal laws, laws (decisions) on the budget, decisions of the President and the Government of the Russian Federation, and bodies of state authority and local self-government.
2. Based on the results of selection on a competitive basis.

Selection is carried out by conducting a request for proposals or a competition. In a request for proposals, the evaluation is performed based on the compliance of the selection participants with the criteria and the order of receipt of proposals. In a competition, the selection of subsidy recipients is carried out based on the best conditions for achieving the results of providing the subsidies. Resolution of the Government of the Russian Federation No. 1781 dated October 25, 2023, On the Approval of the Rules for the Selection of Recipients of Subsidies, Including Grants in the Form of Subsidies, Provided from the Budgets of the Budgetary System of the Russian Federation to Legal Entities, Individual Entrepreneurs, and Individuals Who Are Producers of Goods, Works, and Services determined the rules for the selection of subsidy recipients on a competitive basis. [9]

In practice, the question arises whether economic entities are entitled to demand the provision of a subsidy if they fall under the established criteria and conditions for their provision.

According to the position of the Supreme Court of the Russian Federation, expressed in the Review of Judicial Practice No. 2 (2019), [10] stimulating subsidies as a form of financial support are provided at the discretion of the public authority rather than as its obligation. This means that participants in economic circulation are generally not entitled to demand from a public law entity a decision on the provision of a subsidy or its payment in the actual absence of funds in the budget or upon their exhaustion.

At the same time, in cases where the law establishes the mandatory compensation of costs (lost income) of economic entities by providing subsidies, the right to receive them is subject to judicial protection. We illustrate this with an example from judicial practice.

Thus, in Case No. A40-177621/2017, [11] a Company provided services for ensuring aircraft flights to a number of users who were exempt from paying for these services. Subsequently, the Company sent an application to the Air Transport Agency for the provision of a subsidy in the amount of the cost of the services rendered. The state body refused to provide the subsidy due to the exhaustion of the limits of budgetary allocations brought to it for these purposes, which served as a reason for appealing to the court with an application to recognize the refusal as illegal. The lower courts denied the stated claims. However, the Supreme Court of the Russian Federation overturned the judicial acts, stating that, unlike subsidies of a stimulating nature, in the specified case, the mandatory compensation of costs was established by law and is not a matter of discretion for the public law entity. The exhaustion of the allocated limits of budgetary obligations in itself cannot serve as a grounds for refusing to provide a subsidy.

Thus, a wider circle of persons has access to receiving subsidies as a measure of state support. At the same time, due to their targeted nature, they are more regulated and controlled.

Liability for Violations of the Procedure and Conditions for Spending Grants and Subsidies

Understanding the importance of the effective spending of budgetary funds, the legislator establishes various types of liability for violations in their provision and use. Let us consider them in more detail.

Recipients of grants and subsidies that are interbudgetary transfers may be held administratively liable:

1. Under Part 3 of Article 15.15.3 of the CAO RF for violation of the procedure and/or conditions for the provision (spending) of interbudgetary transfers. This entails the imposition of an administrative fine on officials in the amount of 10,000 to 30,000 rubles or disqualification for a term of 1 to 2 years.

For example, in Case No. 5-842/2022, [12] a rural settlement was provided with a grant for the equalization of the budgetary sufficiency of the settlement in the amount of 12,760,300 rubles. The agreement on the provision of the grant provided for an obligation of the municipality to conduct an assessment of the effectiveness of tax benefits. As results of the assessment, the rural settlement provided an analytical note that did not meet the requirements established in the agreement on the provision of the grant. The court concluded that the head of the settlement did not ensure compliance with the conditions for providing grants, which in turn was expressed in a violation of the procedure for spending transfers. The court found the official guilty of committing an administrative offense provided for by Part 3 of Article 15.15.3 of the CAO RF and imposed a fine in the amount of 10,000 rubles.

Legal entities and individuals who are recipients of subsidies are held administratively liable under Part 2 of Article 15.15.5 of the CAO RF for violating the conditions for the provision of subsidies. This entails the imposition of an administrative fine on citizens and officials in the amount of 10,000 to 30,000 rubles, and on legal entities—from 2% to 12% of the amount of the received subsidy. We note that according to the position of the Supreme Court of the Russian Federation, [13] the fine should be calculated only from that part of the subsidy for which violations of the conditions for its provision occurred.

In Case No. 18-AD23-1-K4, [14] as part of the implementation of the regional project "Employment Support", a Fund was provided with a subsidy from the regional budget in the amount of 25,631,000 rubles to implement measures aimed at increasing labor productivity. The agreement on the provision of the subsidy provided for an obligation of the Fund to ensure the achievement of five performance indicators for the provision of the subsidy. During an audit by the Chamber of Control and Accounts, it was established that one of the five performance indicators was not achieved: during the implementation of the measures, support was provided to 6 organizations instead of 10, as established in the agreement. The Director of the Fund was found guilty of committing an administrative offense provided for by Part 2 of Article 15.15.5 of the CAO RF and was subjected to an administrative punishment in the form of a fine in the amount of 10,000 rubles.

If the actions of subsidy recipients contain signs of the misuse of budgetary funds, they will be held administratively liable under Article 15.14 of the CAO RF. This entails the imposition of an administrative fine on officials in the amount of 20,000 to 50,000 rubles or disqualification for a term of 1 to 3 years, and on legal entities — from 5% to 25% of the amount of funds used for non-target purposes.

At the same time, misuse of funds is recognized as the direction of budget funds and the payment of monetary obligations for purposes that do not fully or partially correspond to the purposes determined by the law (decision) on the budget, the summary budget list, the budget list, the limits of budget obligations, the budget estimate, the contract (agreement), or the legal act that is the basis for the provision of the specified funds (Article 306.4 of the Budget Code).

For example, in Case No. A70-19461/2022, [15] an Institution appealed to the court with an application to cancel a resolution holding it administratively liable under Part 1 of Article 15.14 of the CAO RF in the form of an administrative fine in the amount of 214,049.80 rubles.

During the consideration of the case, it was established that the Institution had received a subsidy in the amount of 6,637,400 rubles. In accordance with the Agreement, the subsidy was provided for the purpose of employing graduates in research positions in scientific organizations. During the performance of control measures by the Federal Treasury Department, the following violations were identified:

The Institution held a competition to fill vacant research positions, based on the results of which employment contracts were concluded with the winners. However, some of these persons did not need employment because they already had a primary place of work or had not completed their studies. The total amount of subsidy funds directed toward the payment of wages to these employees amounted to 4,280,996 rubles. The court supported the conclusions of the control body that the expenses for the payment of wages did not correspond to the purposes of the subsidy. The application to cancel the resolution was denied.

We note that the misuse of budgetary funds committed on a large and especially large scale entails criminal liability under Article 285.1 of the Criminal Code of the Russian Federation. A large scale is recognized as an amount of budgetary funds exceeding 1,500,000 rubles, and an especially large scale — 7,500,000 rubles. The maximum punishment for this crime is imprisonment for a term of up to 5 years with deprivation of the right to occupy certain positions or engage in certain activities for a term of up to 3 years.

For example, in Case No. 1-202/2023,[16] the general director of a Joint-Stock Company operating in the field of heat supply was found guilty of committing a crime provided for by Part 2 of Article 285.1 of the Criminal Code for spending a subsidy in the amount of 17,150,000 rubles for purposes that did not meet the conditions for obtaining them. A punishment in the form of 2 years of imprisonment suspended was imposed.

Also, civil liability may arise for violation of the procedure and conditions for using subsidies and grants.

According to the position of the Supreme Court of the Russian Federation, set out in Clause 32 of the Review of Judicial Practice No. 2 (2018),[17] in the event of the misuse of a budgetary subsidy, the recipient of the subsidy is obliged to return the specified amount as unjust enrichment and pay interest on it in the manner prescribed by Articles 395 and 1107 of the Civil Code of the Russian Federation (the "Civil Code").

For example, in Case No. A32-41306/2016, [18] the Department of Construction and a Company concluded a contract for the provision of a subsidy from regional budget funds in the amount of 2,800,616 rubles to reimburse part of the costs of paying interest on a loan agreement. Based on the results of an audit, the control body concluded that the amount of the subsidy provided to the Company was calculated in violation of the Procedure for providing subsidies. The Department made a demand to the Company for the return of excessively paid funds in the amount of 98,665 rubles; however, it was not satisfied voluntarily.

The court concluded that the funds were spent by the Company for non-target purposes, which indicates the emergence of unjust enrichment on the part of the person who received the subsidy. The court also recognized the recovery of interest for the use of other people's funds under Article 395 of the Civil Code as lawful. The court indicated that the circumstance that the funds received were budgetary funds has no legal significance.

In another Case No. A66-9238/2023, [19] a control body demanded the return of subsidy funds to the federal budget due to the failure to achieve the purpose of its provision. In that case, the Federal Treasury Department conducted an audit of the Physical Culture Committee's use of subsidies for the purchase and installation of "smart" sports grounds. The control body concluded that the Committee did not ensure the achievement of the result of using the subsidy established upon its provision, namely: the sports equipment did not have access to the unified digital infrastructure of the Ministry of Sports. An order was issued to return funds in the amount of 4,802,500 rubles to the federal budget. Disagreeing with the order, the Committee appealed to the court with an application to recognize it as illegal.

During the court hearing, it was established that, in accordance with the conditions for providing the subsidy, the equipment was supposed to contain a single QR code that could be scanned by a user to view detailed information about the equipment, options for its use, and other relevant information. The Committee presented evidence that during the installation period of the equipment, this digital infrastructure was not in working condition, as a result of which the Committee independently placed corresponding QR codes on the sports equipment. The court decided that the mere absence of QR codes on the date of delivery of the facility does not indicate a failure to achieve the performance value for the use of the subsidy. The order of the control body was recognized as illegal.

To summarize, we draw the following conclusions:

• Grants and subsidies are state support measures aimed at maintaining financial security and the economic and social well-being of the population.
• They have similar characteristics, such as being non-returnable and the unconditional nature of their provision. At the same time, there are differences: the circle of recipient entities, the absence or presence of a target orientation, and differences in the conditions and procedure for obtaining them.
• Compared to grants, subsidies are more controlled and normatively regulated regarding the rules and conditions of provision. At the same time, in law enforcement practice, there is no uniformity on the issues of unlawful and non-target spending of support measures.

In connection with the above, recipients of subsidies and grants must extremely carefully study and comply with the conditions for their provision.

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References

1. Suvorova, T. Improper Use of Grants Allocated to Local Budgets // Revisions and Audits of Financial and Economic Activities of State (Municipal) Institutions, 2024, No. 10.
2. Ruling of the Supreme Court of the Russian Federation No. 303-ES23-1854 dated October 12, 2023, in Case No. A51-483/2022.
3. Resolution of the Government of the Russian Federation No. 670 dated November 22, 2004, On the Distribution of Grants for the Equalization of Budgetary Sufficiency of the Subjects of the Russian Federation.
4. Resolution of the Government of the Russian Federation No. 231 dated April 13, 2010, On the Procedure for the Distribution and Provision of Grants to the Budgets of the Constituent Entities of the Russian Federation to Support Measures to Ensure the Balance of the Budgets of the Constituent Entities of the Russian Federation.
5. Ilyin, A.V. The Legal Nature of Grants for the Equalization of Budgetary Sufficiency // Russian Juridical Journal, 2015, No. 5.
6. Resolution of the Arbitration Court of the Far East District No. F03-4417/2022 dated September 16, 2022, in Case No. A73-19802/2021.
7. Mullina, L.A. On the Characteristics of Subsidies // Financial Law, 2024, No. 4.
8. Resolution of the Government of the Russian Federation No. 999 dated September 30, 2014, On the Formation, Provision, and Distribution of Subsidies from the Federal Budget to the Budgets of the Constituent Entities of the Russian Federation (together with the Rules for the Formation, Provision, and Distribution of Subsidies from the Federal Budget to the Budgets of the Constituent Entities of the Russian Federation).
9. Resolution of the Government of the Russian Federation No. 1781 dated October 25, 2023, On the Approval of the Rules for the Selection of Recipients of Subsidies, Including Grants in the Form of Subsidies, Provided from the Budgets of the Budgetary System of the Russian Federation to Legal Entities, Individual Entrepreneurs, and Individuals Who Are Producers of Goods, Works, and Services.
10. Approved by the Presidium of the Supreme Court of the Russian Federation on July 17, 2019.
11. Ruling of the Judicial strikes for Economic Disputes of the Supreme Court of the Russian Federation No. 305-ES18-17266 dated January 31, 2019, in Case No. A40-177621/2017.
12. Resolution of the Uspensky District Court of the Krasnodar Territory dated July 29, 2022, in Case No. 5-842/2022.
13. Ruling of the Judicial strikes for Economic Disputes of the Supreme Court of the Russian Federation No. 305-AD18-14921 dated December 13, 2018, in Case No. A40-186686/2017.
14. Resolution of the Supreme Court of the Russian Federation No. 18-AD23-1-K4 dated May 10, 2023.
15. Resolution of the Arbitration Court of the West Siberian District No. F04-2352/2023 dated July 27, 2023, in Case No. A70-19461/2022.
16. Ruling of the Sixth Court of Cassation of General Jurisdiction No. 77-2865/2024 dated August 21, 2024.
17. Approved by the Presidium of the Supreme Court of the Russian Federation on July 4, 2018.
18. Ruling of the Judicial strikes for Economic Disputes of the Supreme Court of the Russian Federation No. 308-ES17-9296 dated January 19, 2018, in Case No. A32-41306/2016.
19. Resolution of the Arbitration Court of the North-Western District No. F07-6058/2024 dated May 22, 2024, in Case No. A66-9238/2023.