The VAT Compensation Fund (FCTVA) is used by the State to compensate local authorities, their groupings and local public institutions for the VAT they pay on their investments, on the basis of a inclusive rate.
The calculation of FCTVA allocations takes account of the capital expenditure (acquisitions and work) of the local bodies in the course of the last year but one (excluding purchases of land and specific subsidies received from the State), on which the VAT could not be reclaimed in any other way.
This compensation was introduced gradually and has been almost total since 1981. The resources of the fund come from a levy on State revenues. The local bodies benefiting from such compensation are the local authorities, their groupings and departments, as well as development bodies under contract with them and unable to reclaim VAT directly.