The SAFE program is the first part of the “ReArm Europe Plan/Readiness 2030” program. This program aims to strengthen the defence capabilities of EU member states, in particular to close gaps in the defence capabilities.
SAFE serves as an instrument of the EU to finance its member states (and selected third countries, such as the United Kingdom or Ukraine) that wish to invest in the defence industry. The background of the SAFE program is the desire for Europe to become more sovereign in terms of its defence capabilities, to take on more responsibility for its own defence and thus to be better equipped to act when necessary.
The goal is to increase European production capacity for defence equipment and ensure that it is available when needed. To this end, the EU is making up to 150 billion Euro available to interested member states (and selected third countries) in the form of loans.
An essential component of the regulation is the introduction of a zero-rating for VAT purposes (Art. 20 (1) of the regulation) which was regulated outside the EU VAT Directive. According to this, supplies, intra-Community acquisitions, and imports of defence equipment or other goods for defence purposes are zero-rated for VAT purposes. The prerequisite is that these were acquired/supplied within the framework of the SAFE program. This is a so-called ‘genuine’ zero-rating. This means that the zero-rating of the VAT does not restrict or prevent the right to deduct input VAT.
Proof in the form of a certificate is required for the zero-rating. This certificate must be requested by the purchaser and stamped by the competent authority in the country of purchase (Art. 20 (2) of the regulation). A sample of this proof is included in the regulation (annex to the regulation). According to the sample, the purchaser is obliged to pay VAT in the country of purchase if the conditions for zero-rating are not met. The certificate of the purchaser serves as confirmation for zero-rating for the supplier and must therefore be kept by the supplier. Further details on practical implementation or administrative instructions are not yet available. Affected companies should keep an eye on further developments to ensure that they can finalize their own compliance processes promptly after the announcement.