Legal Update for Businesses in Europe: July 2026

Brussels has postponed the AI Act, but not the part that affects almost everyone

The most common misconception from July is that "the AI Act has been postponed". The obligations for high-risk systems have been postponed. What has not been postponed is what almost every company has deployed today – chatbots, text generators, and image creation tools.

The legal basis is Regulation (EU) 2026/1744 (Digital Omnibus on AI), which amends Regulation (EU) 2024/1689 (the AI Act). It was published on 24 July 2026 and has been effective since 27 July 2026, as the legislator needed to meet the original date of general application of the AI Act.

The obligations for standalone high-risk systems under Annex III (recruitment, employee evaluation, credit scoring, critical infrastructure) are postponed from 2 August 2026 to 2 December 2027. For AI embedded in regulated products under Annex I, the date is moved to 2 August 2028. However, the transparency obligations under Art. 50 of the AI Act apply from 2 August 2026. The labelling of AI-generated content under Art. 50(2) for systems already on the market will apply from 2 December 2026, when the new ban on systems generating non-consensual intimate material and CSAM will also take effect.

The second change targets acquisitions. Acquiring a target company through a European SPV will no longer be a way to circumvent foreign investment screening. Regulation (EU) 2026/1386 on the screening of foreign investments of 17 June 2026, published on 26 June 2026, will replace Regulation (EU) 2019/452. The Council approved it on 8 June 2026. It will be applicable from 17 January 2028, but preparations must start sooner: all states will be required to have a screening mechanism with a uniform minimum scope, and investments made through an EU-based subsidiary of a foreign investor will now also be covered.

Two product-related deadlines fall within the same period. From 19 July 2026, a ban on the destruction of unsold clothing, accessories, and footwear applies under Regulation (EU) 2024/1781 (ESPR). From 12 August 2026, Regulation (EU) 2025/40 on packaging (PPWR), which replaces Directive 94/62/EC, becomes generally applicable.

For HR, another number is crucial: four out of 27 states. That is how many met the transposition deadline for the Pay Transparency Directive (EU) 2023/970, which expired on 7 June 2026 – according to independent transposition trackers, these were Slovakia, Italy, Lithuania, and Malta. Belgium, Ireland, and Poland have implemented it partially. Germany, Spain, and Sweden did not even have a draft by the deadline. The Commission has confirmed that the deadline will not be extended and that proceedings under Art. 258 TFEU are being considered. A uniform group-wide remuneration policy will not cover this reality.

Germany is preparing major changes in labour law, but address wages now

On the night of 2 July 2026, the coalition committee of the CDU/CSU and SPD agreed on a package called "Ein Programm für Aufschwung und Beschäftigung" with 34 measures. We must stress: this is a political agreement, not enacted law – specific proposals have not yet been submitted and may change.

Three points are essential for employers. For employees hired by 31 December 2030, it should be possible to agree on a fixed-term contract without a substantive reason for up to 48 months with up to six extensions (currently, § 14(2) of the TzBfG allows for two years and three extensions); as of 1 January 2027, the written form requirement under § 14(4) of the TzBfG is to be abolished. For high-income employees, a new tool for terminating employment in exchange for severance pay is to be created, which is a fundamental shift from the system under the KSchG in the German context. And for sick leave, the three-day grace period is to be eliminated – a certificate will be required from the first day of illness, and issuing them by phone will be cancelled.

What is not worth waiting for: Germany missed the transposition of Directive (EU) 2023/970 and had not even published a draft law by 7 June 2026. We recommend that Czech groups with a German subsidiary do not wait for the law and revise their pay structures and job advertisements now.

In Slovakia, your time to adjust pay structures ends on 31 July

On 15 April 2026, the National Council of the Slovak Republic approved Act No. 76/2026 Coll. on Equal Pay, effective from 7 June 2026. Employers established before this date must align their processes by 31 July 2026. This primarily involves introducing remuneration structures based on objective, gender-neutral criteria; the Act lists complexity, responsibility, effort, and working conditions as the basic criteria.

The five-percent threshold is the most sensitive issue. If a remuneration report shows unjustified differences of at least 5% in any category of employees, an obligation arises for a joint assessment of remuneration with employee representatives. If there are no representatives at the employer, employees may appoint them for this purpose.

Other obligations also apply on an ongoing basis: job advertisements and position titles must not be based on a specific gender, and pay secrecy clauses are invalid. The obligation to disclose pay-rise criteria does not apply to employers with fewer than 50 employees.

The Polish Labour Inspectorate can reclassify B2B contractors as employees without a court order

On 8 July 2026, a reform of the National Labour Inspectorate came into effect. A district labour inspector can now, by administrative decision, reclassify an incorrectly concluded civil law contract, including B2B, into an employment contract – without filing a lawsuit. The procedure is two-tiered: first, an order to rectify the error, followed by the decision. An appeal to the labour court suspends its execution.

The reform also allows for remote inspections and links data from the inspectorate, ZUS, and the tax administration. The law provides for a twelve-month "abolition" period until 8 July 2027, during which the relationship can be voluntarily regularised; the stated upper limit for a fine is PLN 60,000. According to public sources, the President subsequently submitted the law to the Constitutional Tribunal – we recommend verifying the current status before deciding to restructure any cooperation.

The second Polish milestone is related to invoicing. The KSeF system is mandatory from 1 February 2026 for taxpayers with a turnover exceeding PLN 200 million and from 1 April 2026 for other VAT payers. From 1 August 2026, bank transfers, including split payments, must contain the KSeF identifier. Although specific penalties for KSeF will not apply throughout 2026 (they will take effect from 1 January 2027), standard penalties under VAT regulations do apply – and the right to a deduction arises only upon sending the invoice to the system.

In Austria, company electric cars will become more expensive from January

On 8 July 2026, the Nationalrat passed the Budgetbegleitgesetz 2027–2028, which amends 54 laws. Most measures will take effect from 1 January 2027 or later – this is time for preparation, not a reason for postponement.

The end of the tax advantage for electric cars will hit first. The exemption for the private use of a company electric car ends on 31 December 2026. From 1 January 2027, a benefit-in-kind (Sachbezug) of 0.375% of the acquisition cost will be set (capped at EUR 48,000, max. EUR 180 per month), increasing to 0.625% from 2028. The VAT deduction remains, and the change also affects managing partners with a substantial shareholding. The Telearbeitspauschale and Arbeitsplatzpauschale lump sums will be abolished for fiscal years beginning after 31 December 2026.

The general corporate tax rate remains at 23%, but from 2028, an increased rate of 24% is planned for income portions exceeding EUR 1 million. The employer's contribution to the FLAF is set to decrease from 3.7% to 2.7% from 2028, counterbalanced by extending the contribution obligation to older employees. The maximum social security assessment basis will be extraordinarily increased to EUR 7,080 per month in 2027 and EUR 7,130 in 2028. A new parcel delivery tax (Paketsteuer) is also being introduced.

Austria has not transposed the Pay Transparency Directive; an amendment to the Gleichbehandlungsgesetz is expected.

In France, invoices will not be accepted outside an approved platform from September

From 1 September 2026, all businesses subject to VAT must be able to receive electronic invoices – regardless of size, including micro-enterprises. At the same time, large enterprises and ETIs (mid-sized companies) will be required to issue e-invoices and transmit transaction and payment data (e-reporting) to the tax authorities. Small and medium-sized enterprises have their issuing obligation postponed until 1 September 2027.

Invoices must pass through approved platforms (plateformes agréées, formerly PDP) in one of three structured formats – Factur-X, UBL, or CII. According to the French Ministry of Economy, the reform will affect more than 10 million economic entities.

Practical impact on Czech companies: if you invoice a French entity or receive invoices from one, the flow must be connected to an accredited platform from September. Choosing a platform and adjusting your ERP system is not a matter of a week – those who start in August will miss the deadline. France did not meet the transposition deadline for Directive 2023/970; the draft aims for an effective date of 1 January 2027.

Italy already bans asking candidates about their previous salary

Legislative Decree No. 96 of 7 May 2026 was published in the Gazzetta Ufficiale No. 125 on 1 June 2026 and has been effective since 7 June 2026. It applies to public and private employers and to fixed-term and permanent employment relationships, including part-time and managerial positions; remuneration is broadly defined to include variable and in-kind components.

The recruitment process must be changed immediately. The law introduces a ban on asking candidates about their previous remuneration, pre-contractual information obligations, a ban on pay secrecy clauses, and the right for employees to request, in writing, the average remuneration levels broken down by gender for comparable categories (but not the specific data of colleagues).

Periodic reporting on the gender pay gap applies to employers with at least 100 employees, with the first data collection being staggered: by 7 June 2027 for employers with 150 or more employees, and by 7 June 2031 for employers with 100 to 149 employees. The same five-percent threshold as in Slovakia applies: if a difference of at least 5% in any category is found, which the employer does not justify or remedy within six months, an obligation for a joint remuneration assessment arises. The Ministry of Labour may issue interpretative guidelines by 31 December 2026.

In Spain, using the wrong invoicing software could cost you EUR 50,000

From 1 July 2026, the VeriFactu system is mandatory for natural persons carrying out economic activities; for corporate income taxpayers, it applies from 1 January 2026. The legal basis is Real Decreto 1007/2023 as amended by Real Decreto 25tt4/2025.

Invoicing software must ensure the immutability and traceability of records, their cryptographic linking, and a QR code on every invoice. An alternative is a free application from the tax authority for small issuers. Taxpayers under the SII regime and entities in the Basque Country and Navarre using TicketBAI are notably excluded. The penalties are severe: up to EUR 50,000 per tax period for using non-compliant software and up to EUR 150,000 for its producers and distributors.

What to watch out for: VeriFactu is not the same as the mandatory B2B electronic invoicing under the Crea y Crece law, the implementation of which depends on an implementing regulation and a derogation under the VAT Directive. Confusing the two regimes is the most common mistake in preparation.

Hungary's investment screening regime ends on 31 December

This is the most critical piece of information from Hungary for transaction preparation. Through Act L of 2025, effective from 19 August 2025, the special FDI regime was made permanent and its applicability extended until 31 December 2026. Transactions involving solar power plants form a separate category with a 75-day review period and a retained pre-emptive right for the state. As the new European regulation will only be applicable from 17 January 2028, it is necessary to monitor whether and how the national regime will be extended for acquisitions planned in 2027.

In terms of tax, July is a watershed moment in three respects. The zero rate for the advertising tax was valid until 30 June 2026, after which the special tax is reinstated with stricter registration rules and penalties. From 1 July 2026, VAT returns must contain detailed data not only on reverse-charged but also on deductible VAT. And from 1 July 2026, the postponed inflation-linked increase in the excise duty on fuel comes into effect. Mandatory data reporting for receipts starts on 1 September 2026.

In Romania, the reduced VAT on housing is ending and closing mechanics are changing

Development projects will be hit on 31 July 2026. Under Act No. 141/2025, the standard VAT rate was increased from 19% to 21% from 1 August 2025, and the reduced rates were unified at 11%. For specified social housing transactions, the reduced rate of 9% is maintained under certain conditions only until 31 July 2026 – a direct impact on the calculations for development and residential projects.

The dividend tax increased from 10% to 16% for residents and non-residents from 1 January 2026; for dividends distributed based on interim financial statements for 2025, the rate remains at 10% without subsequent recalculation. The minimum turnover tax (IMCA) for companies with a turnover exceeding EUR 50 million will apply at a rate of 0.5% in 2026 and is set to be abolished from 2027, as is the one-percent tax on buildings.

A hidden deal-breaker for closing: a new restriction on the transfer of shares in companies with tax arrears. The effectiveness of the transfer vis-à-vis the tax authority is conditional on notification within 15 days and the provision of a guarantee. Furthermore, in the RO e-Factura system, the deadline for sending an invoice changes from 5 calendar days to 5 business days as of 1 January 2026.

Three things from July that cannot be postponed

July 2026 has revealed two contradictory European paths. At the EU level, simplification continues – Regulation (EU) 2026/1744 has postponed the most burdensome obligations of the AI Act by one to two years. At the Member State level, however, there is a growing number of strict, short-term, and uncoordinated deadlines: 31 July 2026 in Slovakia and Romania, 1 August 2026 in Poland, 12 August 2026 for packaging, and 1 September 2026 in France and Hungary.

Final Summary

Three practical conclusions. First, do not rely on a single group-wide standard – only four out of 27 states met the transposition deadline for the Pay Transparency Directive; a Slovak subsidiary has a deadline of 31 July 2026, while its German counterpart does not even have a draft law yet. Second, a postponement is not a pardon – for the AI Act, transparency obligations apply from 2 August 2026, and for Poland's KSeF, the right to a VAT deduction is tied to sending the invoice to the system, regardless of the moratorium on penalties. Third, bring your transaction preparations forward – Hungary's special FDI regime ends on 31 December 2026, and Romania's rules on share transfers are changing closing mechanics today.

The lawyers at ARROWS law firm continuously monitor legislative developments in the Member States and, thanks to the ARROWS International network, can verify local regulations directly with partners in the given jurisdiction. For our clients' maximum security, we are insured for professional liability up to a limit of CZK 350,000,000. If you need a map of obligations for your specific countries, please write to consultation@arws.cz.