EU Foreign Subsidies Regulation

EU rules addressing distortive foreign subsidies in the single market, M&A, and public procurement.

Applicable since 12 July 2023, the Foreign Subsidies Regulation (FSR) addresses a long-standing gap in EU competition policy: the ability of companies benefiting from foreign government subsidies to distort the EU internal market through acquisitions, public procurement bids, or general commercial activity, without being subject to the state aid rules that apply to subsidies granted by EU Member States. The FSR gives the European Commission new investigative and enforcement powers to scrutinise and, where necessary, address distortive subsidies granted by non-EU governments to companies active in the EU.

The regulation applies to all economic operators active in the EU, regardless of their country of incorporation or ownership, that have received financial contributions from non-EU governments. Financial contributions are broadly defined and include direct grants, tax advantages, loans on preferential terms, guarantees, capital injections, and foregone revenue. The FSR operates through three mechanisms: a mandatory notification requirement for concentrations (M&A) where the acquired entity or at least one of the merging parties has EU turnover of at least 500 million euros and the parties received aggregate foreign financial contributions of at least 50 million euros in the preceding three years; a mandatory notification for public procurement bids where the estimated contract value is at least 250 million euros and the bidder received at least 4 million euros in foreign financial contributions per third country; and a general tool allowing the Commission to investigate any other market situation ex officio.

When assessing whether a foreign subsidy is distortive, the Commission considers factors including the amount and nature of the subsidy, the economic situation of the beneficiary, the level of economic activity in the EU, and the purpose and conditions attached to the subsidy. If a subsidy is found to be distortive, the Commission can accept commitments from the company to remedy the distortion, or can impose redressive measures including the prohibition of the concentration, exclusion from the procurement procedure, or the repayment of the subsidy. Companies that fail to notify when required face fines of up to 10% of their aggregate worldwide turnover.

The FSR complements the Digital Markets Act and traditional EU competition law by extending the scrutiny of economic power to the source of that power: foreign government subsidies. For companies engaging in large-scale M&A activity in Europe or bidding for significant public contracts, the regulation introduces a new compliance dimension that requires tracking and disclosing foreign financial contributions received across their corporate group. Legal and compliance teams must develop processes for identifying reportable contributions, assessing notification obligations, and managing the Commission's investigative process, adding a new layer to cross-border transaction planning in the EU.

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