The European Union has taken an unprecedented step towards strengthening its common security and defence policy. The SAFE (Security Action For Europe) programme is the largest ever project set up to finance the development of the defence industry and the modernisation of the armed forces of Member States using EU funds. In this article, we discuss the main objectives of the programme, its legal instruments and the tax implications for entities participating in defence procurement.
The SAFE programme was established under Council Regulation (EU) 2025/1106 on the European Defence Industry Instrument. Its overarching objective is to enhance security in Europe by comprehensively strengthening the European defence industry and providing Member States with the financial support necessary to make significant investments in the defence sector's manufacturing capabilities.
The programme is part of the European Union's broader strategy to achieve strategic autonomy in the field of defence, which has acquired particular significance in the context of Europe’s changing security environment.
Main legal instruments in the SAFE programme
The SAFE regulation contains two primary mechanisms to support Member States:
- Low-interest loans to Member States
The main financial instrument in the programme are loans granted to Member States out of an allocated budget of EUR 150 billion. These funds will be available on preferential terms. The allocation of funds is proportional to the defence capabilities and needs of individual countries. According to estimates, Poland may be one of the main beneficiaries of the instrument.
- Simplified defence procurement procedures
The second pillar of the programme is the introduction of simplified procedures for awarding contracts for defence-related products. These contracts may be executed in the form of international cooperation involving at least one EU Member State receiving support from the SAFE instrument and an additional Member State, an EEA-EFTA country (members of the European Free Trade Association belonging to the European Economic Area) or Ukraine. The regulation also allows the participation of third countries with which the European Union has entered into partnership in the field of security and defence.
It is important to note that the cooperation mechanism may also cover existing public procurement agreements, subject to meeting the required criteria. This makes it possible to include ongoing armament projects in the system of preferential terms provided by SAFE.
Requirements concerning the origin of contractors
The SAFE regulation lays down strict requirements concerning the origin of contractors, subcontractors and infrastructure used for production. The participation of third parties, i.e. entities from outside the EU and EEA, is subject to major restrictions. This is to ensure that EU funds primarily support the European defence industry and that critical military technologies remain under the control of European entities.
Tax implications: VAT exemption
One of the key benefits provided by the SAFE programme is a VAT exemption for transactions carried out under cooperation agreements. This exemption includes the right to deduct VAT paid at the previous stage of the transaction, which means that entities retain the full right to deduct input tax while at the same time being exempt from output VAT.
The scope of the exemption covers:
- supplies of defence-related products or other products for defence purposes
- intra-Community acquisitions of those products
- imports of defence products from third countries.
Investment plan for the Polish armed forces
Poland is one of the most actively involved countries in the SAFE programme. The government plans to allocate the funds obtained to implement 139 modernisation projects for the Polish Army. A detailed list of defence-related products covered by the planned investments remains classified for reasons of national security.
Status of legislative work and entry into force
Nineteen Member States have already joined the SAFE mechanism. The act implementing the SAFE programme in Poland was passed by the Sejm on 13 February and by the Senate on 19 February 2026. The next step will be to submit the act to the President of Poland, Karol Nawrocki, for signature.
The SAFE programme opens a new chapter in European defence policy and presents an unprecedented opportunity for the Polish defence industry. Defence sector business owners who would like to take advantage of the SAFE programme should already be preparing for new opportunities by analysing the programme's requirements and adapting their corporate structures and compliance procedures to the regulation’s requirements.
