SAFE defence fund to enjoy temporary VAT exemption
The European Commission has proposed a new €150 billion defence fund, known as the Security Action for Europe (SAFE) bill, which includes a temporary value-added tax (VAT) exemption for defence products. The proposal, published on Wednesday, aims to strengthen Europe’s defence capabilities through a €150 billion ($162 billion) loan.
The SAFE bill will now move through the legislative process, requiring approval from EU member states and the European Parliament before implementation.
The exemption would apply to supplies, including imports and intra-Union transactions of defense products, will be temporarily exempt from VAT.
Currently, there is an exemption in the 2006 VAT Directive and in the 2008 excise Directive for the supplies to the armed forces of any state party of the North Atlantic Treaty taking part in a common defence effort outside their own state. They were initially introduced in the VAT and excise directives then applicable, respectively in 1977 and 1993 , at a time when there was not yet a common Union defence policy.
The proposal comes amid the ongoing war in Ukraine and concerns over the United States’ continued commitment to Europe’s defense. By removing VAT costs, the EU seeks to incentivise defence production and procurement, ensuring member states can enhance military readiness more efficiently. The proposal represents a significant financial and strategic commitment to bolstering Europe’s defence sector while responding to evolving geopolitical threats.
