This is a description of Council Regulation (EU) 2025/1106 of 27 May 2025 establishing the Security Action for Europe (SAFE) through the Reinforcement of the European Defence Industry Instrument.
**Essence of the Act:**
The regulation establishes the Security Action for Europe (SAFE) instrument to provide financial assistance to Member States for urgent and major public investments in the European defence industry. This is in response to the deteriorating security situation in Europe. The SAFE instrument aims to rapidly increase defence production capacity, improve the timely availability of defence products, and speed up the industry’s adjustment to structural changes. The financial assistance will be provided in the form of loans to Member States, which they will use to carry out common procurements of defence products.
**Structure and Main Provisions:**
The regulation consists of 23 articles and an annex, covering the scope, definitions, conditions for using the instrument, the form and amount of financial assistance, the application and decision-making process, borrowing and lending operations, loan agreements, pre-financing, payment rules, prudential rules, control and audits, reporting, eligibility rules for common procurement, conditions for third-country participation, modification of framework agreements, VAT exemption, and rules on classified information.
* **Subject Matter and Scope (Article 1):** Establishes the SAFE instrument to provide financial assistance to Member States for investments in the European defence industry. It also defines the categories of defence products covered.
* **Definitions (Article 2):** Defines key terms such as “defence product” and “common procurement.”
* **Conditions for Using the SAFE Instrument (Article 4):** Specifies that financial assistance is for activities related to defence products carried out through common procurements, aiming to speed up industrial adjustment, improve product availability, and ensure interoperability.
* **Form and Maximum Amount of Financial Assistance (Articles 5 and 6):** The assistance will be in the form of loans, with a maximum amount of EUR 150 billion.
* **Request for Financial Assistance and European Defence Industry Investment Plans (Article 7):** Member States must submit a request to the Commission by 30 November 2025, accompanied by a European defence industry investment plan.
* **Decision on the Request for Financial Assistance (Article 8):** The Commission assesses the request and submits a proposal to the Council, which then adopts an implementing decision.
* **Eligibility Rules on Common Procurement Supporting Defence Industry Investments (Article 16):** Sets out detailed conditions for common procurements to be eligible for support, including requirements for contractors and subcontractors to be established in the EU, EEA EFTA States, or Ukraine, and not controlled by third countries.
* **VAT Exemption (Article 20):** Introduces a VAT exemption for supplies, intra-Community acquisitions, and importations of defence products under contracts resulting from procurements supported by the SAFE instrument.
**Main Provisions for Use:**
* **Eligibility for Financial Assistance (Article 4):** Member States can request financial assistance for activities, expenditures, and measures aimed at addressing the crisis situation referred to in Article 1, related to defence products or other products for defence purposes, and carried out through common procurements.
* **Common Procurement Requirements (Article 16):** Common procurement procedures and contracts of defence products shall include the participation requirements for contractors and subcontractors involved in the common procurement.
* **European Defence Industry Investment Plan (Article 7):** A Member State wishing to receive financial assistance under the SAFE instrument shall send a request to that effect to the Commission by 30 November 2025. The request shall be accompanied by a European defence industry investment plan (the ‘plan’).
* **VAT Exemption (Article 20):** Supplies, intra-Community acquisitions, and importations of defence products or other products for defence purposes which are made under contracts resulting from procurements supported by the SAFE instrument shall be exempted from the value added tax (VAT).
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This regulation has implications for Ukraine, as it allows contractors and subcontractors established in Ukraine to participate in common procurements under the SAFE instrument. It also encourages Member States to further support Ukraine with the equipment procured with the financial assistance of the SAFE instrument.
