diff --git a/Actions/DetermineProjectsToBuild/DetermineProjectsToBuild.psm1 b/Actions/DetermineProjectsToBuild/DetermineProjectsToBuild.psm1
index fc1aeed1f9..e48f8b3cd9 100644
--- a/Actions/DetermineProjectsToBuild/DetermineProjectsToBuild.psm1
+++ b/Actions/DetermineProjectsToBuild/DetermineProjectsToBuild.psm1
@@ -430,15 +430,30 @@ function Get-UnmodifiedAppsFromBaselineWorkflowRun {
     Sort-AppFoldersByDependencies -appFolders $allFolders -baseFolder $baseFolder -skippedApps ([ref] $skipFolders) -unknownDependencies ([ref]$unknownDependencies) -knownApps ([ref] $knownApps) -selectSubordinates $modifiedFolders | Out-Null
     OutputMessageAndArray -message "Skip folders" -arrayOfStrings $skipFolders
 
-    $projectWithSeperator = ''
-    if ($project) {
-        $projectWithSeperator = "$project$([System.IO.Path]::DirectorySeparatorChar)"
+    # Convert a project-relative folder path (from settings.appFolders etc.) to a repo-relative path
+    # that matches the format used by $skipFolders (produced by GetFoldersFromAllProjects).
+    # Settings folders may use ../ to reference paths above the project folder,
+    # so we resolve to absolute first, then strip the base folder prefix to get a clean repo-relative path.
+    function ConvertTo-RepoRelativePath {
+        param(
+            [string] $folder,
+            [string] $projectPath,
+            [string] $baseFolder
+        )
+        $fullPath = Join-Path $projectPath $folder -Resolve -ErrorAction SilentlyContinue
+        if (-not $fullPath) {
+            return $null
+        }
+        $normalizedBase = $baseFolder.TrimEnd([System.IO.Path]::DirectorySeparatorChar) + [System.IO.Path]::DirectorySeparatorChar
+        if ($fullPath.StartsWith($normalizedBase, [System.StringComparison]::OrdinalIgnoreCase)) {
+            return $fullPath.Substring($normalizedBase.Length)
+        }
+        return $null
     }
 
-    # AppFolders, TestFolders and BcptTestFolders in settings are always preceded by ./ or .\, so we need to remove that (hence Substring(2))
-    $downloadAppFolders = @($settings.appFolders | Where-Object { $skipFolders -contains "$projectWithSeperator$($_.SubString(2))" })
-    $downloadTestFolders = @($settings.testFolders | Where-Object { $skipFolders -contains "$projectWithSeperator$($_.SubString(2))" })
-    $downloadBcptTestFolders = @($settings.bcptTestFolders | Where-Object { $skipFolders -contains "$projectWithSeperator$($_.SubString(2))" })
+    $downloadAppFolders = @($settings.appFolders | Where-Object { $skipFolders -contains (ConvertTo-RepoRelativePath -folder $_ -projectPath $projectPath -baseFolder $baseFolder) })
+    $downloadTestFolders = @($settings.testFolders | Where-Object { $skipFolders -contains (ConvertTo-RepoRelativePath -folder $_ -projectPath $projectPath -baseFolder $baseFolder) })
+    $downloadBcptTestFolders = @($settings.bcptTestFolders | Where-Object { $skipFolders -contains (ConvertTo-RepoRelativePath -folder $_ -projectPath $projectPath -baseFolder $baseFolder) })
 
     OutputMessageAndArray -message "Download appFolders" -arrayOfStrings $downloadAppFolders
     OutputMessageAndArray -message "Download testFolders" -arrayOfStrings $downloadTestFolders
diff --git a/Tests/DetermineProjectsToBuild.Test.ps1 b/Tests/DetermineProjectsToBuild.Test.ps1
index 2d7ca5baf2..289a1ccf7a 100644
--- a/Tests/DetermineProjectsToBuild.Test.ps1
+++ b/Tests/DetermineProjectsToBuild.Test.ps1
@@ -1214,3 +1214,252 @@ Describe "Get-BuildAllProjects" {
         Remove-Item $baseFolder -Force -Recurse
     }
 }
+
+Describe "Get-UnmodifiedAppsFromBaselineWorkflowRun" {
+    BeforeAll {
+        . (Join-Path -Path $PSScriptRoot -ChildPath "../Actions/AL-Go-Helper.ps1" -Resolve)
+        DownloadAndImportBcContainerHelper -baseFolder $([System.IO.Path]::GetTempPath())
+
+        Import-Module (Join-Path $PSScriptRoot "../Actions/DetermineProjectsToBuild/DetermineProjectsToBuild.psm1" -Resolve) -DisableNameChecking -Force
+    }
+
+    BeforeEach {
+        [Diagnostics.CodeAnalysis.SuppressMessageAttribute('PSUseDeclaredVarsMoreThanAssignments', 'baseFolder', Justification = 'False positive.')]
+        $baseFolder = (New-Item -ItemType Directory -Path (Join-Path $([System.IO.Path]::GetTempPath()) $([System.IO.Path]::GetRandomFileName()))).FullName
+    }
+
+    It 'correctly identifies unmodified apps when appFolders reference paths above the project folder via ../' {
+        # Repo layout where the project is nested and appFolders reference sources via ../:
+        #   baseFolder/
+        #     .github/AL-Go-Settings.json
+        #     src/Apps/AppA/App/app.json        (modified)
+        #     src/Apps/AppB/App/app.json        (unmodified - should be downloaded from baseline)
+        #     src/Apps/AppC/App/app.json        (unmodified - should be downloaded from baseline)
+        #     build/projects/MyProject/.AL-Go/settings.json
+        #       appFolders: ["../../../src/Apps/*/App"]
+
+        $project = 'build/projects/MyProject'
+        $projectPath = Join-Path $baseFolder $project
+
+        # Create repo-level AL-Go settings
+        $repoSettings = @{
+            fullBuildPatterns = @()
+            projects = @($project)
+            powerPlatformSolutionFolder = ''
+            useProjectDependencies = $false
+            incrementalBuilds = @{
+                onPull_Request = $true
+                mode = 'modifiedApps'
+            }
+        }
+        New-Item -Path "$baseFolder/.github/AL-Go-Settings.json" -Value (ConvertTo-Json $repoSettings -Depth 10) -type File -Force | Out-Null
+
+        # Create project-level settings with appFolders that go above the project
+        $projectSettingsJson = @{
+            appFolders = @("../../../src/Apps/*/App")
+            testFolders = @()
+            bcptTestFolders = @()
+        }
+        New-Item -Path "$projectPath/.AL-Go/settings.json" -Value (ConvertTo-Json $projectSettingsJson -Depth 10) -type File -Force | Out-Null
+
+        # Create three independent apps
+        $appA = @{ id = 'aaaaaaaa-0000-0000-0000-000000000001'; name = 'App A'; publisher = 'TestPublisher'; version = '1.0.0.0'; dependencies = @() }
+        $appB = @{ id = 'bbbbbbbb-0000-0000-0000-000000000002'; name = 'App B'; publisher = 'TestPublisher'; version = '1.0.0.0'; dependencies = @() }
+        $appC = @{ id = 'cccccccc-0000-0000-0000-000000000003'; name = 'App C'; publisher = 'TestPublisher'; version = '1.0.0.0'; dependencies = @() }
+        New-Item -Path "$baseFolder/src/Apps/AppA/App/app.json" -Value (ConvertTo-Json $appA -Depth 10) -type File -Force | Out-Null
+        New-Item -Path "$baseFolder/src/Apps/AppB/App/app.json" -Value (ConvertTo-Json $appB -Depth 10) -type File -Force | Out-Null
+        New-Item -Path "$baseFolder/src/Apps/AppC/App/app.json" -Value (ConvertTo-Json $appC -Depth 10) -type File -Force | Out-Null
+
+        # Also create a dummy .al file so there's something to be "modified"
+        New-Item -Path "$baseFolder/src/Apps/AppA/App/MyCodeunit.al" -Value "// modified file" -type File -Force | Out-Null
+
+        # Set env:Settings for helper functions
+        $env:Settings = ConvertTo-Json $repoSettings -Depth 99 -Compress
+
+        # Resolve appFolders the way ResolveProjectFolders/AnalyzeRepo does:
+        # Push-Location to project, Resolve-Path -Relative
+        Push-Location $projectPath
+        $resolvedAppFolders = @(Resolve-Path "../../../src/Apps/*/App" -Relative -ErrorAction SilentlyContinue | Where-Object { Test-Path (Join-Path $_ 'app.json') })
+        Pop-Location
+
+        # Build a settings hashtable with resolved folders (same as what RunPipeline passes in)
+        $resolvedSettings = @{
+            appFolders = $resolvedAppFolders
+            testFolders = @()
+            bcptTestFolders = @()
+        }
+
+        # Build artifact folder
+        $buildArtifactFolder = Join-Path $projectPath ".buildartifacts"
+        New-Item -Path $buildArtifactFolder -ItemType Directory -Force | Out-Null
+
+        # Only AppA is modified
+        $sep = [System.IO.Path]::DirectorySeparatorChar
+        $modifiedFiles = @("src${sep}Apps${sep}AppA${sep}App${sep}MyCodeunit.al")
+
+        # Mock GitHub API calls since we don't have a real baseline workflow
+        # Stub functions that are normally provided by GitHub Actions runtime
+        if (-not (Get-Command 'Trace-Information' -ErrorAction SilentlyContinue)) {
+            function global:Trace-Information { param([string]$Message, $AdditionalData) }
+        }
+        $env:GITHUB_API_URL = 'https://api.github.com'
+        $env:GITHUB_REPOSITORY = 'test/repo'
+        Mock InvokeWebRequest {
+            # Return a mock response object that mimics the GitHub API
+            $uri = $args[0]
+            if (-not $uri) { $uri = $Uri }
+            $content = if ($uri -like '*/actions/runs/*/artifacts*') {
+                # Artifacts endpoint - return empty list to stop pagination
+                '{"artifacts":[]}'
+            } else {
+                # Workflow run info endpoint
+                '{"head_branch":"main"}'
+            }
+            return [PSCustomObject]@{ Content = $content }
+        } -ModuleName 'Github-Helper'
+
+        # Capture Write-Host output to verify download folder matching
+        $script:capturedOutput = [System.Collections.ArrayList]::new()
+        Mock Write-Host { $null = $script:capturedOutput.Add($Object) } -ModuleName 'DetermineProjectsToBuild'
+
+        Get-UnmodifiedAppsFromBaselineWorkflowRun `
+            -token 'fake-token' `
+            -settings $resolvedSettings `
+            -baseFolder $baseFolder `
+            -project $project `
+            -baselineWorkflowRunId '12345' `
+            -modifiedFiles $modifiedFiles `
+            -buildArtifactFolder $buildArtifactFolder `
+            -buildMode 'Default' `
+            -projectPath $projectPath
+
+        # The output should list the unmodified app folders (AppB and AppC) as download candidates.
+        # Before the fix: the download list was always empty ("- None") because the path matching
+        # used SubString(2) which mangled paths starting with ..\ into nonsense like \..\..\src\...
+        $downloadAppLine = $script:capturedOutput | Where-Object { $_ -eq 'Download appFolders:' }
+        $downloadAppLine | Should -Not -BeNullOrEmpty -Because "the function should output the 'Download appFolders:' header"
+
+        # Find entries after "Download appFolders:" up to the next section header
+        $inDownloadSection = $false
+        $downloadEntries = @()
+        foreach ($line in $script:capturedOutput) {
+            if ($line -eq 'Download appFolders:') {
+                $inDownloadSection = $true
+                continue
+            }
+            if ($inDownloadSection) {
+                if ($line -match '^Download (test|bcpt)') { break }
+                $downloadEntries += $line
+            }
+        }
+
+        # With the bug: downloadEntries would be @("- None") because the path matching fails
+        # With the fix: downloadEntries should contain AppB and AppC folders
+        $downloadEntries | Should -Not -Contain '- None' -Because "unmodified apps should be identified for download from baseline"
+        ($downloadEntries | Where-Object { $_ -like '*AppB*' }) | Should -Not -BeNullOrEmpty -Because "AppB was not modified and should be downloaded from baseline"
+        ($downloadEntries | Where-Object { $_ -like '*AppC*' }) | Should -Not -BeNullOrEmpty -Because "AppC was not modified and should be downloaded from baseline"
+        ($downloadEntries | Where-Object { $_ -like '*AppA*' }) | Should -BeNullOrEmpty -Because "AppA was modified and should NOT be downloaded from baseline"
+    }
+
+    It 'also works when appFolders are inside the project folder (standard layout)' {
+        # Standard layout where apps are inside the project folder:
+        #   baseFolder/
+        #     .AL-Go/settings.json
+        #     .github/AL-Go-Settings.json
+        #     app1/app.json
+        #     app2/app.json
+
+        $project = ''
+        $projectPath = $baseFolder
+
+        # Create repo-level AL-Go settings
+        $repoSettings = @{
+            fullBuildPatterns = @()
+            projects = @()
+            powerPlatformSolutionFolder = ''
+            useProjectDependencies = $false
+            incrementalBuilds = @{
+                onPull_Request = $true
+                mode = 'modifiedApps'
+            }
+        }
+        New-Item -Path "$baseFolder/.github/AL-Go-Settings.json" -Value (ConvertTo-Json $repoSettings -Depth 10) -type File -Force | Out-Null
+        New-Item -Path "$baseFolder/.AL-Go/settings.json" -Value (ConvertTo-Json @{} -Depth 10) -type File -Force | Out-Null
+
+        # Create two apps inside the project folder
+        $app1 = @{ id = '11111111-0000-0000-0000-000000000001'; name = 'App One'; publisher = 'TestPublisher'; version = '1.0.0.0'; dependencies = @() }
+        $app2 = @{ id = '22222222-0000-0000-0000-000000000002'; name = 'App Two'; publisher = 'TestPublisher'; version = '1.0.0.0'; dependencies = @() }
+        New-Item -Path "$baseFolder/app1/app.json" -Value (ConvertTo-Json $app1 -Depth 10) -type File -Force | Out-Null
+        New-Item -Path "$baseFolder/app2/app.json" -Value (ConvertTo-Json $app2 -Depth 10) -type File -Force | Out-Null
+        New-Item -Path "$baseFolder/app1/MyCodeunit.al" -Value "// modified file" -type File -Force | Out-Null
+
+        $env:Settings = ConvertTo-Json $repoSettings -Depth 99 -Compress
+
+        # Resolve appFolders (standard layout: .\ prefix)
+        $resolvedSettings = @{
+            appFolders = @('.\app1', '.\app2')
+            testFolders = @()
+            bcptTestFolders = @()
+        }
+
+        $buildArtifactFolder = Join-Path $projectPath ".buildartifacts"
+        New-Item -Path $buildArtifactFolder -ItemType Directory -Force | Out-Null
+
+        # Only app1 is modified
+        $sep = [System.IO.Path]::DirectorySeparatorChar
+        $modifiedFiles = @("app1${sep}MyCodeunit.al")
+
+        Mock InvokeWebRequest {
+            $uri = $args[0]
+            if (-not $uri) { $uri = $Uri }
+            $content = if ($uri -like '*/actions/runs/*/artifacts*') {
+                '{"artifacts":[]}'
+            } else {
+                '{"head_branch":"main"}'
+            }
+            return [PSCustomObject]@{ Content = $content }
+        } -ModuleName 'Github-Helper'
+        # Stub Trace-Information if not already defined (normally loaded by Invoke-AlGoAction.ps1)
+        if (-not (Get-Command 'Trace-Information' -ErrorAction SilentlyContinue)) {
+            function global:Trace-Information { param([string]$Message, $AdditionalData) }
+        }
+        $env:GITHUB_API_URL = 'https://api.github.com'
+        $env:GITHUB_REPOSITORY = 'test/repo'
+
+        $script:capturedOutput = [System.Collections.ArrayList]::new()
+        Mock Write-Host { $null = $script:capturedOutput.Add($Object) } -ModuleName 'DetermineProjectsToBuild'
+
+        Get-UnmodifiedAppsFromBaselineWorkflowRun `
+            -token 'fake-token' `
+            -settings $resolvedSettings `
+            -baseFolder $baseFolder `
+            -project $project `
+            -baselineWorkflowRunId '12345' `
+            -modifiedFiles $modifiedFiles `
+            -buildArtifactFolder $buildArtifactFolder `
+            -buildMode 'Default' `
+            -projectPath $projectPath
+
+        $inDownloadSection = $false
+        $downloadEntries = @()
+        foreach ($line in $script:capturedOutput) {
+            if ($line -eq 'Download appFolders:') {
+                $inDownloadSection = $true
+                continue
+            }
+            if ($inDownloadSection) {
+                if ($line -match '^Download (test|bcpt)') { break }
+                $downloadEntries += $line
+            }
+        }
+
+        # app2 should be marked for download (unmodified), app1 should not
+        $downloadEntries | Should -Not -Contain '- None' -Because "the unmodified app2 should be identified for download"
+        ($downloadEntries | Where-Object { $_ -like '*app2*' }) | Should -Not -BeNullOrEmpty -Because "app2 was not modified and should be downloaded from baseline"
+        ($downloadEntries | Where-Object { $_ -like '*app1*' }) | Should -BeNullOrEmpty -Because "app1 was modified and should NOT be downloaded from baseline"
+    }
+
+    AfterEach {
+        Remove-Item $baseFolder -Force -Recurse
+    }
+}