Regulation (EU) 2025/2653 of the European Parliament and of the Council of 19 December 2025 amending Regulations (EU) 2021/694, (EU) 2021/695, (EU) 2021/697, (EU) 2021/1153 and (EU) 2024/795, as regards incentivising defence-related investment in the EU budget to implement the ReArm Europe Plan (Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 164 and 172, Article 173(3), Article 175, third paragraph, Articles 177 and 178, Article 182(1) and (4), Article 183, Article 188, second paragraph, and Article 192(1) thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Economic and Social Committee (1),

Having regard to the opinion of the Committee of the Regions (2),

Acting in accordance with the ordinary legislative procedure (3),

Whereas:

(1) Unprecedented geopolitical instability and the rapid deterioration of regional and global levels of threat and security, in particular Russia’s unprovoked and unjustified war of aggression against Ukraine, which has exposed the Union and its Member States to a high risk of materialisation of conventional military threats, require an urgent and significant increase in the Union’s spending on research, innovation and development, industrial capacity and development of infrastructure connected with resilience, security and defence. The European Defence Technological and Industrial Base (EDTIB) faces persistent barriers in accessing finance, in particular private finance for investment, due to the risks that market actors associate with such investment. As a consequence, leveraging public defence-related investment is vital. Therefore, as identified in the Joint White Paper of the Commission and of the High Representative of the Union for Foreign Affairs and Security Policy of 19 March 2025 for European Defence Readiness 2030 (the ‘Joint White Paper’), which provides a framework for the ReArm Europe Plan, the Union should do more to support the urgent need to increase European defence-related investment with the Union budget, alongside increases in national defence spending by the Member States. The leveraging of Union funding programmes to support dual-use and defence-related technologies and products serves as a step towards European defence readiness. Such leveraging is also intended to enhance civil-military cooperation across Member States, in light of mutually beneficial spill-over effects. The actions supported by the Union programmes concerned could duly take into account the relevant activities carried out by the North Atlantic Treaty Organisation (NATO) and other partners where such activities serve the Union’s security and defence interests.

(2) Investment in the development of cutting-edge dual-use and defence capabilities should be promoted, since such investment contributes to the Union’s broader societal resilience, security and competitiveness objectives. The development of dual-use and defence industries throughout the Union, taking into account the risks associated with the increased deterioration of the Union’s security context, is essential to ensuring that all Member States contribute to and benefit from a robust and resilient EDTIB.

(3) The Strategic Technologies for Europe Platform (STEP), established by Regulation (EU) 2024/795 of the European Parliament and of the Council (4), is an initiative aiming to boost Union competitiveness by mobilising funds from 11 existing Union programmes towards critical technologies in three strategic sectors: digital technologies and deep-tech innovation, clean and resource-efficient technologies, and biotechnologies. As such, STEP is a good vehicle to mobilise, in a coordinated and synergetic manner, Union resources towards defence, including key digital frontier technologies required for the development of defence products and technologies.

(4) While support to technologies having defence implications is possible today under the three existing strategic sectors identified in STEP, it appears necessary to increase the potentialities of development of research, industry and innovation in the defence sector by establishing a fourth strategic sector in STEP, focused on defence technologies without compromising the Union’s intended technological leadership in the existing sectors. This fourth strategic sector should ensure that STEP incentives are used to increase Union funding in innovative defence technologies with the aim of responding effectively to current and emerging threats and of contributing to European competitiveness in line with the STEP objectives. Defence technologies should be understood as those embodied in, or necessary for the development and manufacturing of, defence products, including defence-related products referred to in the Annex to Directive 2009/43/EC of the European Parliament and of the Council (5). Consistent with the approach applied to the other three sectors set out in Article 2(1), point (a), of Regulation (EU) 2024/795, the Commission should update the guidance provided for in that Regulation to cover the fourth strategic sector, including on the interpretation of defence technologies. As regards artificial intelligence, AI Gigafactories should become key infrastructure for the purpose of a rapid expansion of the power of AI in defence technologies.

(5) In addition, in order to optimise the capacity of the programmes covered by STEP to mobilise the Union’s resources towards defence needs, it is necessary to clarify that those programmes are able to pursue objectives and activities that are related to improving the competitiveness and resilience of the EDTIB as well as research and development activities in the defence area.

(6) Horizon Europe, which was established by Regulation (EU) 2021/695 of the European Parliament and of the Council (6), is the Union’s funding programme for research and innovation, playing a pivotal role in the global scientific and technological leadership of the Union. The European Innovation Council (EIC) Accelerator established by that Regulation provides support, in particular, for innovations with breakthrough potential, and of a disruptive nature with scale-up potential, which may be too risky for private investors. Small or medium-sized enterprises (SMEs), start-ups and some small mid-cap enterprises operating within the defence sector require financing for the commercialisation of innovative products. However, such legal entities face higher barriers for access to finance, compared to legal entities in other sectors. As highlighted in the Joint White Paper, it is necessary to increase European defence readiness, because Europe is currently being affected by war, aggression and other hostile acts. For that purpose, a substantial increase in support to high-impact, defence-related innovation, including much-needed support to SMEs, start-ups and some small mid-caps willing to scale up such high-impact defence-related innovations, is needed. However, the current architecture of Union programmes, including the European Defence Fund (EDF), does not provide the scale, flexibility or speed required to mobilise such support in an effective and timely manner. The current architecture might create uncertainties for the legal entities in the defence sector with regard to the access to support for technologies with potential dual-use applications. Given the severity of the threat in the current environment, extraordinary measures are justified and necessary. While support for defence research and development is carried out through the EDF, which is a specific programme of Horizon Europe, it is appropriate, on the basis of the current strategic context, to open the EIC Accelerator to actions with potential dual-use applications, while advancing civilian application use. Support to scale-ups under the EIC Accelerator STEP Scale-up Scheme (the ‘Scheme’) should also be extended to non-bankable SMEs, including start-ups and non-bankable small mid-caps, such as entities which have already received support from the Accelerator carrying out breakthrough and disruptive non-bankable innovation in critical defence technologies while fostering, where appropriate, innovations with dual-use potential. Scale-up support in the form of direct equity investment, whereby funding is provided directly to companies, is not available under existing defence-focused funding instruments, in particular the EDF and the Defence Equity Facility deployed under InvestEU. The opening of the Scheme to innovation in critical defence technologies is therefore necessary to support legal entities investing in the defence sector, while ensuring complementarity with other existing Union instruments. This justifies establishing a targeted exception within the current Multiannual Financial Framework (MFF) to the principle set out in Article 7(1) of Regulation (EU) 2021/695, which provides that research and innovation activities under Horizon Europe have an exclusive focus on civil applications, while avoiding unnecessary duplication. The targeted exception is without prejudice to the outcome of the upcoming negotiations in the context of the next MFF. The Commission should ensure proper oversight of the application of the targeted exception, including through the collection and reporting of appropriate data in the context of the existing monitoring and evaluation of the EIC, without creating additional administrative burdens for participants.

(7) As innovation activities with dual-use applications could affect Union strategic assets, interests, autonomy or security or strategic interests of the Union and its Member States, it may be necessary to adapt, in the relevant work programmes under Horizon Europe, the eligibility rules to enable participation to be limited to legal entities established only in Member States or to legal entities established in specified associated countries in addition to Member States, or to exclude the participation of legal entities that are established in the Union or in associated countries and that are directly or indirectly controlled by non-associated third countries or by legal entities of non-associated third countries. Article 48(2) of Regulation (EU) 2021/695 should therefore be amended to allow for such a possibility. The possibility to adapt the eligibility rules in the relevant work programmes is specific to new innovation activities that have dual-use applications and does not affect the rules governing support to activities with civilian applications under Horizon Europe or the funding of such activities.

(8) As innovation activities in critical defence technologies may significantly affect the security and defence interests of the Union and its Member States, it is necessary to establish specific eligibility rules which ensure consistency with other Union instruments in the defence industry sector and which take into account Russia’s war of aggression against Ukraine. Such specific eligibility rules should limit participation to legal entities established in the Union, in Ukraine, or in a member of the European Free Trade Association (EFTA) which is a member of the European Economic Area (EEA member) and which is associated to Horizon Europe. Those rules should exclude the participation of legal entities that are directly or indirectly controlled by a third country other than Ukraine or an EEA member associated to Horizon Europe, or by legal entities of such a third country. However, a legal entity established in the Union or in an EEA member associated to Horizon Europe and which is controlled by a third country other than Ukraine or an EEA member associated to Horizon Europe, or by a legal entity of a third-country other than Ukraine or an EEA member associated to Horizon Europe should be eligible to be a beneficiary, provided that guarantees approved in accordance with the national procedures of the Member State or the EEA member in which the legal entity is established are made available to the Commission.

(9) Recognising the urgent and extraordinary need to further strengthen the Union’s sovereignty and security as provided for in Regulation (EU) 2024/795, and in order to ensure the rapid mobilisation and reinvestment of financial resources in critical sectors, including dual-use and defence projects under the EIC Accelerator under Horizon Europe, it is appropriate to derogate from Article 212(3) of Regulation (EU, Euratom) 2024/2509 of the European Parliament and of the Council (7) (the ‘Financial Regulation’). Given those circumstances and the need for a rapid availability of funds, it is particularly necessary to allow for repayments, including reimbursed advances, revenues and unused amounts net of the fees and costs of the EIC blended finance investment component of the EIC Pilot under Horizon 2020 to be reinvested in the EIC Fund rather than directed to the Union budget, in order to finance projects with civil applications, as well as projects in dual-use and defence that benefit from the amended scope. The timeframe set out in Article 212(3) of the Financial Regulation should be amended to ensure meaningful implementation under exceptional circumstances To allow for that possibility, it is necessary to introduce a derogation from that provision.

(10) The EDF, established by Regulation (EU) 2021/697 of the European Parliament and of the Council (8), is the leading programme for enhancing the competitiveness, innovation, efficiency and technological autonomy of the Union’s defence industry. The EDF aims to support actions that are conducive to developing disruptive technologies for defence. In order to better address the specificities of such actions, such as if they have a particularly small scale or particular need for quick support, it is appropriate to significantly shorten and simplify the procedures to decide on the support for those actions, while at the same time framing the conditions for the decision on such support in the work programme and without undermining the principle of excellence.

(11) It is also necessary to exploit synergies between the EDF and other Union programmes. To that end, it should be possible for Member States, Union institutions, bodies and agencies, third countries, international financial institutions or other third parties to provide voluntary contributions to the EDF, as external assigned revenues. Voluntary transfers of resources allocated to Member States in shared management to the EDF and the combination of contributions from the EDF with other Union programmes for specific actions should be possible, provided that cumulative Union support does not exceed the total eligible costs of the action.

(12) On 23 June 2022, the European Council decided to grant the status of candidate country to Ukraine, which expressed a strong will to link reconstruction with reforms on its European path. On 15 December 2023, the European Council decided to open accession negotiations with Ukraine and declared that the Union and its Member States remain committed to contributing, for the long-term and together with partners, to security commitments to Ukraine which will help the latter to defend itself, resist destabilisation efforts and deter acts of aggression in the future. Strong support to Ukraine is a key priority for the Union and an appropriate response to the Union’s strong political commitment to support Ukraine for as long as necessary. On 5 March 2023, the Commission proposed to create an Instrument (the ‘Ukraine Support Instrument’) to address the damage caused by Russia’s war of aggression to the Ukrainian Defence Technological and Industrial Base (the ‘Ukrainian DTIB’) and to support its reconstruction, recovery and modernisation, taking into account its possible future integration into the EDTIB. The Ukrainian DTIB has significantly developed its research, development and innovation capacities since the beginning of the Russian full-scale invasion of Ukraine in order to address the needs of the Ukrainian armed forces. In that context, ensuring a closer cooperation between the EDTIB and the Ukrainian DTIB would allow access by the EDTIB to those capabilities and would contribute to the objective of fostering the competitiveness and innovation of the EDTIB, while being consistent with the continuous support of the Union to the strengthening of the defence manufacturing capacities of Ukraine. Accordingly, in light of the common objectives and goals of the Union and Ukraine in the area of defence research and development and in light of the benefits for both sides which can be expected from a closer integration in that regard, it is appropriate to associate Ukraine to the EDF.

(13) The Digital Europe Programme (DEP), established by Regulation (EU) 2021/694 of the European Parliament and of the Council (9), aims to support and accelerate the digital transformation of the European economy, industry and society and to improve the competitiveness of Europe in the global digital economy. In that context, the programme should aim to support, in particular, projects, services and competences with potential dual-use application under all its specific objectives. This would contribute to strengthening the Union’s societal resilience in the face of ongoing hybrid attacks and foreign interference. Recognising the strategic importance of cross-border cooperation and the facilitation of technology transfers between Member States in dual-use projects in the digital sector, the Commission should take into account the trans-European dimension when awarding dual-use projects. It is therefore appropriate to make this award criterion mandatory for dual-use projects.

(14) To enhance technological sovereignty and competitiveness, the Union needs the computing, cloud and data infrastructure required by AI leadership. As part of the AI Continent strategy, the AI factories and AI Gigafactories are essential to enable the Union to compete at the global level and ensure its strategic autonomy and competitiveness in science, in research with dual-use potential and in critical industrial sectors, including the defence industry. Next-generation AI models require extensive connected computing infrastructure for breakthroughs in specific domains including defence. It is therefore appropriate to add, in Specific Objective 1 – High Performance Computing of DEP, a supplementary operational objective dedicated to the deployment and operation of AI Factories and new generation of AI Gigafactories specialised in developing, training, and running the most complex, very large, AI models and applications, including hardware and software necessary for such deployment.

(15) The intensifying exposure to cyber and hybrid threats in the Union justifies adding an explicit focus on resilience against cyber and hybrid threats under Specific Objective 3 of DEP. In Specific Objective 5 of DEP, Deployment and Best Use of Digital Capacity and Interoperability, it is also necessary to add, in the operational objective defined to support the public sector and areas of public interest, a reference to defence in order to clarify that the financial contribution of the Union under such an objective can be extended to that sector.