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1. Union funding may be provided through the types of financing envisaged by the Financial Regulation and in particular:

(a) grants;

(b) procurement contracts for services, supplies or works;

(c) budget support;

(d) contributions to trust funds set up by the Commission, in accordance with Article 234 of the Financial Regulation;

(e) financial instruments;

(f) budgetary guarantees;

(g) blending operations;

(h) debt relief in the context of internationally agreed debt relief programme;

(i) financial assistance;

(j) remunerated external experts.

2. When working with stakeholders of partner countries such as civil society organisations and local authorities, the Commission shall take into account their specificities, including their needs and the relevant context, when defining the financing modalities, the type of contribution, the award modalities and the administrative provisions for the management of grants, with a view to reaching and best responding to the widest possible range of such stakeholders. Specific modalities shall be encouraged in accordance with the Financial Regulation, such as partnership agreements, authorisations of financial support to third parties, direct award or eligibility-restricted calls for proposals, or lump sums, unit costs and flat-rate financing as well as financing not linked to costs as envisaged in Article 125(1) of the Financial Regulation.

3. In addition to the cases referred to in Article 195 of the Financial Regulation, the direct award procedure may be used for:

(a) low-value grants to human rights defenders to finance urgent protection actions and needs, including through mechanisms for the protection of human rights defenders at risk, as well as to mediators and other civil society actors involved in crisis and armed conflict related dialogue, conflict resolution, reconciliation and peacebuilding, where appropriate without the need for co-financing;

(b) grants, where appropriate without the need for co-financing, to finance actions in the most difficult conditions where the publication of a call for proposals would be inappropriate, including situations where there is a serious lack of fundamental freedoms, including violation of human rights, threats to democratic institutions, escalation of crisis or armed conflict, where human security is most at risk or where human rights organisations and defenders, mediators and other civil society actors involved in crisis and armed conflict related dialogue, reconciliation and peacebuilding operate under the most difficult conditions; such grants shall not exceed EUR 1 000 000 and their duration shall not exceed 18 months, which may be extended by a further 12 months in the event of objective and unforeseen obstacles to their implementation;

(c) grants to the Office of the UN High Commissioner for Human Rights as well as to Global Campus of Human Rights, the European Inter-University Centre for Human Rights and Democratisation, providing a European Master’s Degree in Human Rights and Democratisation, and its associated network of universities delivering human rights postgraduate diplomas, including scholarships to students and human rights defenders from third countries;

(d) low value grants to civil society organisations using, to the extent possible, simplified forms of financing in accordance with Article 125 of the Financial Regulation. Budget support, including through sector reform performance contracts, shall be based on country ownership, mutual accountability and the commitment of partner countries, taking into account their record and progress with regard to universal values, democracy, human rights and the rule of law, and aims to strengthen partnerships between the Union and partner countries. It shall include reinforced policy dialogue, capacity building and improved governance, complementing partners’ efforts to collect more and to spend better in order to support sustainable, inclusive growth and decent job creation, including for young people, poverty eradication, inequality reduction, and to build and consolidate democracies and peaceful societies. Budget support shall also contribute to gender equality. Any decision to provide budget support shall be based on budget support policies agreed by the Union, a clear set of eligibility criteria and a careful assessment of the risks and benefits.

4. Budget support shall be differentiated in such a way as to respond better to the political, economic, social and environmental context of the partner country, taking into account situations of fragility. When providing budget support in accordance with Article 236 of the Financial Regulation, the Commission shall clearly define and monitor criteria for budget support conditionality, including progress in reforms and transparency, and shall support the development of parliamentary control, national audit capacities and increased transparency and public access to information.

5. Disbursement of the budget support shall be based on indicators demonstrating satisfactory progress being made towards achieving the objectives agreed with the partner country.

6. In accordance with point (a) of the second subparagraph of Article 193(2) of the Financial Regulation, in duly justified cases specified in the financing decision, activities supported under the Instrument and the underlying costs incurred in 2021 may be considered eligible as of 1 January 2021, even if those activities were implemented and those costs were incurred before the grant application was submitted.

7. Financial instruments, budgetary guarantees and blending operations under the Instrument shall be implemented in accordance with the principles laid down in Article 209(1) of the Financial Regulation and whenever possible under the lead of the EIB, a multilateral European finance institution, such as the European Bank for Reconstruction and Development, or a bilateral European finance institution, such as development banks, possibly pooled with additional other forms of financial support, both from Member States and third parties. Contributions to financial instruments under the Instrument may be made by Member States as well as any entity referred to in point (c) of Article 62(1) of the Financial Regulation.

8. Financial instruments referred to in paragraph 7 may be grouped into facilities for implementation and reporting purposes.

9. The Union funding shall not generate or activate the collection of specific taxes, duties or charges.

10. Taxes, duties and charges imposed by partner countries may be eligible for financing under the Instrument.