Armed for opportunity: navigating investment and compliance in the Dutch defence sector

While public defence spending is set to rise significantly, increased private sector involvement is also being encouraged. In this blog, we highlight key regulatory issues for investors considering the Dutch defence sector.

Europe’s changing geopolitical environment has highlighted the urgent need for rearmament. The European Commission has announced investments of up to €800bn in defence, while NATO members have agreed to raise defence spending to 5% of GDP. These developments signal a substantial increase in defence (and related infrastructure) spending, including a likely uptick in defence M&A.

At the 2025 NATO Summit in The Hague, leaders reaffirmed the importance of deterrence and called for both greater spending and accelerated defence production. They agreed to increase defence spending to 5% of the GDP. The European Council supports these priorities, urging further investment in security and the scaling up of Europe’s defence industry—including SMEs and mid-cap – and the EU signals flexibility on antitrust and merger control rules to support defence industrial ramp-up. Initiatives like the Defence Readiness Omnibus aim to expedite investments by streamlining permitting, enabling chemical exemptions, and simplifying procurement.

Key points to consider during the M&A process 

Investments in the Dutch defence industry are subject to a demanding regulatory process. Key points to keep in mind during the M&A process include:

• Substantive risk assessment. Assess the potential involvement of investors from sensitive jurisdictions or those with problematic track records. Proactively disclosing the investor base can help address regulator concerns early and expedite the process.
• Long stop date. Securing approval under the Dutch National Security Investments Act (Wet Veiligheidstoets investeringen, fusies en overnames) (Vifo Act) may take several months, including possible extensions. It is advisable to factor this in.
• Cooperation obligations. Consider cooperation obligations and information sharing between transaction parties, as the Investment Screening Unit (ISU) (Bureau Toetsing Investeringen) may request very sensitive and confidential data or require significant information from all parties involved.
• Closing before approval is prohibited. The Vifo Act prohibits closing before the necessary approval is acquired. A violation of this prohibition may lead to the imposition of fines. 
• Behavioural and structural commitments. If the ISU concludes that an investment leads to national security risks, it can impose certain requirements in its decision with which the acquirer needs to comply (e.g., certain additional safety requirements, establishing a so-called safety committee to protect sensitive data, prohibit the acquisition of certain assets or impose a maximum shareholding percentage that is lower than envisaged). To date, the ISU has cleared transactions subject to conditions and has also prohibited a transaction.
• Other regulatory aspects. In addition to the Vifo Act, transactions may require further approvals (e.g., merger control) and comply with additional legal regimes. These include public procurement rules (such as Directive 2009/81/EC and related Dutch laws (e.g. Dutch Act on Public Procurement in the Fields of Defence and Security (Aanbestedingswet op defensie- en veiligheidsgebied)), the General Security Requirements for Defence Contracts (ABDO), export controls on strategic goods and services, and cybersecurity regulations like the Network and Information Security Directive. In summary, the Dutch FDI regime operates alongside a range of other regulatory requirements that may apply to defence sector transactions.

Dutch national security investment screening rules are becoming more politicized – and this trend is likely to continue

Investments in the Dutch defence sector are principally governed by the Vifo Act which has been in force since June 2023. The Vifo Act applies to sensitive technologies, including military and dual-use goods—items that can serve both civilian and military purposes—that are governed by export controls under the EU Common Military List and EU Dual Use Regulation.

The definition of sensitive technologies is evolving. Lawmakers plan to broaden its scope to include areas such as navigation and sensor technologies, as well as certain AI systems with potential military applications. Additionally, certain dual use and military goods are classified as “highly” sensitive technologies, lowering the bar for notification. For highly sensitive technologies, notification is required when an investor gains “significant influence,” rather than solely upon a change of control. This threshold is broad and can include minority investments or the ability to appoint or remove board members. 

The ISU may prohibit investments in case of (i) an insufficiently transparent ownership and control structure, (ii) when the acquirer is subject to United Nations, EU or national sanctions, has been convicted of serious crimes or is controlled by such a person or entity, (iii) when the acquirer is located in a state or region which is unstable as a result of e.g. certain threats (such as military or terrorist threats, cyber insecurity or proliferation of weapons of mass destruction), or when the state or region does not have export control rules on sensitive technology, or does not adequately enforce such rules, and (iv) the acquirer has a track record or financial situation which poses a risk to the reliability, continuity and integrity of the sensitive technology.

Since the ISU began screening transactions, the process has become increasingly politicised, with particular scrutiny on foreign ownership and the backgrounds of investors. For fund structures like private equity, the ISU pays close attention to the composition of limited partners—especially the involvement of investors from sensitive jurisdictions, sovereign wealth funds, or any party that could exert disproportionate influence. Given ongoing geopolitical tensions, this level of scrutiny is likely to intensify.

Draft bill seeks to introduce tailored investment screening for defence sector

Currently, all defence-related investments fall under the general Vifo Act. However, in July 2024, lawmakers proposed the Defence and Security Resilience Act (DSRA) (Wet weerbaarheid defensie en veiligheid gerelateerde industrie). The DSRA would establish a new sector-specific investment screening for the defence industry, focusing on entities deemed essential suppliers to the armed forces or providers of military goods or transport services. The draft act introduces a mandatory notification requirement for transactions involving a change of control or when an investor acquires significant influence. Upon notification, the ISU may either (i) determine that no review decision (toetsingsbesluit) is necessary, or (ii) require parties to request a review decision if the acquisition could pose national security risks. The draft bill has not yet been adopted.

For further information, or in case of questions, please feel free to contact any of the authors.