Stuart Clancy, a Conservative councillor on Broadland District Council in Norfolk, was arrested by police in September 2014.
The Crown Prosecution Service said there was "insufficient evidence for there to be a realistic prospect of a conviction for any offence".
The council, on which he represents Taverham South ward, welcomed the news.
"We are very pleased that this issue has been resolved and Councillor Clancy can now put this difficult period behind him," said a spokeswoman.
The council said the investigation was not connected to his council work.
No further action is to be taken against a deputy council leader arrested on suspicion of fraud.