Is it possible to overcome the legal fragmentation of the single market?

The European Commission is preparing a new move to address one of the structural problems of the single market: the difficulty of turning innovation into companies that can scale effectively across the EU. This initiative is centred on the forthcoming Innovation Act, a European regulation designed to remove barriers that hinder the market entry of new solutions. Within this broader political and legislative context, an old idea is once again gaining prominence: the so-called 28th Regime, a possible optional European legal framework for companies (or, in the more recent version referred to by the President of the European Commission, Ursula von der Leyen, at the World Economic Forum in Davos last week, EU Inc).

Both concepts are increasingly linked in official documents, parliamentary debates and public consultations, yet they continue to generate confusion. Are they the same thing? Do they overlap? What role does the 28th Regime actually play within the EU’s innovation objectives?

What is the Innovation Act?

The Innovation Act is a legislative initiative that the European Commission plans to present this year, with the aim of improving the framework conditions that allow innovation to reach the market. Its approach is cross-cutting: it does not focus on a specific sector, but rather seeks to identify and reduce legal, regulatory and structural obstacles that make it difficult to commercialise new technologies, foster collaboration between companies and research centres, or enable innovative firms to grow across borders.

Why is the European Commission promoting this initiative now?

European institutions acknowledge that the EU produces high-quality research and knowledge but struggles to turn them into globally competitive companies. Regulatory fragmentation within the internal market, regulatory complexity and differences between Member States are repeatedly identified as barriers to this process. The Innovation Act is conceived as a response to this diagnosis, within a broader agenda for European competitiveness.

Where does the 28th Regime fit into this context?

The 28th Regime is presented as one of the possible structural tools to address these problems. It would create an optional European legal framework – national legislation would remain in force – which companies could choose in order to operate across the EU without having to adapt to 27 different national legal systems. Its name refers to this additional regime, which would sit alongside the 27 existing legal systems. Although the 28th Regime is not formally the Innovation Act, both share the same political objective: reducing barriers and facilitating business scale-up in the single market.

Is it already in force?

No. The 28th Regime is currently at a pre-legislative stage. There are studies, reports commissioned by European institutions, public consultations and political debates, but there is not yet a formal legislative proposal presented by the European Commission, nor a text under consideration by the Council and the European Parliament. Its development is being examined in parallel with the preparation of the Innovation Act.

Which types of companies is it mainly aimed at?

Although its design would in principle be open, official documents consistently point to startups and scale-ups as the main potential beneficiaries. Brussels has identified that many young companies face significant difficulties in growing beyond their country of origin due to differences in company law, contract law or insolvency rules. The 28th Regime is being considered as a possible way to reduce these expansion costs.

Which legal areas could it cover?

Institutional analyses envisage different levels of ambition. In general, they refer to the possibility of including rules on company formation, corporate governance, cross-border contracts or insolvency. The exact scope remains one of the most contentious aspects of the debate, particularly because of its interaction with national competences.

Would it replace national laws?

No. Both in the debate on the Innovation Act and on the 28th Regime, the voluntary nature of the system is repeatedly emphasised. Companies would be able to choose this European framework or continue to operate exclusively under national law. It would therefore not amount to mandatory harmonisation, but to an additional option within the single market.

Why does it generate debate?

Supporters argue that it could simplify cross-border expansion, reduce legal costs and strengthen European competitiveness, in line with the objectives of the Innovation Act. Critics warn of the risk of creating a parallel system that could encourage regulatory arbitrage or weaken certain social and protection standards.

Where do things stand now?

At the beginning of 2026, both the Innovation Act and the 28th Regime remain at a stage of political and technical preparation. The European Commission has gathered input and signalled its intention to move forward, but there is still no final legislative text. For companies, these are strategic debates to follow closely, rather than immediate changes to the applicable legal framework.