The Foreign Subsidies Regulation (FSR) closes a critical gap in EU competition law. While EU State aid rules have long restricted financial support granted by Member States, the FSR extends this scrutiny to non-EU subsidies that distort the internal market. Operating alongside traditional merger control and Foreign Direct Investment (FDI) screening, the FSR introduces a distinct legal test to ensure a level playing field.
Early enforcement—including high-profile interventions in the e& / PPF Telecom, ADNOC / Covestro, and CRRC / Lisbon Metro cases—demonstrates that the European Commission is actively enforcing these rules. For the C-suite, proactive tracking of global financial flows is no longer just a compliance exercise; it is a critical prerequisite for deal certainty and strategic planning in Europe.
Executive Q&A Resource
1 | What is the Foreign Subsidies Regulation (FSR) and why was it introduced?
The Foreign Subsidies Regulation, Regulation (EU) 2022/2560 (hereinafter: FSR), was introduced to address distortions in the EU internal market caused by subsidies granted by non-EU countries. Before its adoption, EU State aid rules applied only to financial support granted by Member States, while no equivalent framework existed for subsidies provided by third countries. This regulatory gap could allow subsidised undertakings to gain an unfair competitive advantage in the EU. The FSR, therefore, empowers the European Commission to investigate foreign subsidies and take corrective action where they distort competition within the internal market.
2 | What constitutes a foreign subsidy under the FSR?
Under the FSR, a foreign subsidy exists where a third country provides a financial contribution that confers a benefit on an undertaking engaged in an economic activity in the internal market and is limited, in law or in fact, to one or more undertakings or industries. Such contributions may include grants, loans, guarantees, tax incentives or other forms of financial support. A foreign subsidy falls within the scope of the FSR where it is likely to improve the competitive position of an undertaking in the internal market and, as a result, actually or potentially distort competition.
3 | When does a foreign subsidy distort the internal market?
A foreign subsidy is considered to distort the internal market when it is liable to improve the competitive position of an undertaking in the internal market and, as a result, actually or potentially negatively affects competition. In assessing whether a distortion exists, the European Commission may consider factors such as the amount and nature of the subsidy, the position of the undertaking in the market, the level and development of its economic activity in the internal market, the purpose and conditions attached to the subsidy, and the characteristics of the relevant economic sector. The assessment is carried out on a case-by-case basis, taking into account the specific circumstances of each case.
4 | Which foreign subsidies are considered most likely to distort the internal market under the FSR?
Article 5 of the FSR identifies certain categories of foreign subsidies as being most likely to distort the internal market. These include subsidies to ailing undertakings, unlimited guarantees, export financing measures that do not comply with OECD arrangements, subsidies that directly facilitate mergers and acquisitions, and subsidies that enable an undertaking to submit an unduly advantageous tender in a public procurement procedure. These subsidies are considered particularly problematic because they are more likely to confer an artificial competitive advantage.
5 | What are the main enforcement mechanisms of the FSR?
The FSR is enforced through three main mechanisms: ex officio investigations into potentially distortive foreign subsidies under Chapter 2, proper review of concentrations under Chapter 3, and the review of public procurement procedures under Chapter 4. The European Commission administers these mechanisms.
6 | How does the FSR apply to mergers and acquisitions (M&A transactions)?
The FSR requires certain mergers and acquisitions involving undertakings that have received financial contributions from third countries to be notified to the European Commission before they are implemented. Notification is required where the relevant EU turnover is at least EUR 500 million and the undertaking concerned received an aggregate foreign financial contribution exceeding EUR 50 million during the preceding three years. The Commission assesses whether a foreign subsidy may have facilitated the transaction or otherwise distorted the competition within the internal market. Where concerns arise, the Commission may conduct an in-depth investigation and, where appropriate, impose remedies or prohibit the transaction.
7 | When is notification to the European Commission required in the context of M&A transactions?
Notification is required where the undertaking to be acquired, one of the merging undertakings, or the joint venture is established in the European Union and generates an aggregate turnover of at least EUR 500 million euros within the EU. In addition, the parties involved must have received combined financial contributions exceeding 50 million euros from third countries during the three years preceding the transaction. Where these thresholds are met, the transaction must be notified to the European Commission prior to its completion.
8 | How does the FSR apply to public procurement procedures?
The FSR also applies to public procurement procedures where foreign subsidies may give a bidder an unfair advantage over competing bidders. For large procurements that meet the applicable thresholds, bidders must notify the European Commission of certain foreign financial contributions received in the preceding three years. In such cases, the European Commission assesses whether financial contributions received from third countries have enabled the undertaking to submit an unduly advantageous tender. It may accept commitments or prohibit the award of the contract to the subsidised bidder where the distortion is not remedied.
9 | When is notification required in public procurement procedures?
Notification is required where the estimated value of a public procurement contract is at least EUR 250 million, excluding VAT, and the economic operator, including its subsidiaries without commercial autonomy, holding companies and, where applicable, its main subcontractors and suppliers, has received aggregate foreign financial contributions of at least EUR 4 million euros per third country during the three years preceding the notification. Where the procurement is divided into lots, the value of the lot or combined lots for which the operator applies must also be at least EUR 125 million. Where these thresholds are met, the foreign financial contributions must be notified to the European Commission by the contracting authority or contracting entity before the contract is awarded.
10 | What are ex officio investigations under the FSR?
In addition to the notification-based procedures for mergers and public procurement, the FSR empowers the European Commission to initiate investigations on its own initiative (ex officio). Under Articles 9–18 of the FSR, the Commission may examine information from any source concerning suspected foreign subsidies that distort the internal market, including where the relevant transaction or activity falls below the notification thresholds. This mechanism ensures that potentially distortive foreign subsidies can be reviewed regardless of whether a formal notification has been submitted.
11 | Can the European Commission review transactions or procurement procedures below the notification thresholds?
Yes. The FSR empowers the European Commission to request notification of a concentration or of foreign financial contributions in a public procurement procedure, even when the relevant notification thresholds are not met. The Commission may exercise this power where it suspects that foreign subsidies granted during the previous three years could distort the internal market. This mechanism ensures that potentially distortive foreign subsidies do not escape review solely because they fall below the mandatory notification thresholds.
12 | What are the consequences of failing to notify under the FSR?
Failure to comply with the FSR’s notification requirements may result in significant penalties. The European Commission may impose fines on undertakings that fail to notify notifiable transactions or provide incomplete, incorrect or misleading information. In addition, the Commission may review the transaction or public procurement procedure on its own initiative and adopt appropriate measures where it identifies a distortive foreign subsidy. These enforcement powers are intended to ensure compliance with the Regulation and protect fair competition within the internal market.
13 | What practical steps should businesses take to comply with the FSR?
Businesses should establish internal procedures to identify and monitor foreign financial contributions received from non-EU countries. They should also assess whether planned transactions or participation in public procurement procedures may trigger notification obligations under the FSR. Maintaining accurate records and conducting early FSR reviews during due diligence can help identify potential risks and avoid delays. Given the Commission’s broad investigative powers, proactive compliance is essential to ensure regulatory certainty and minimise enforcement risks.
Regulation EU-European Commission Guidelines, Simon Braun, the EU Foreign Subsidies Regulation: Framework, Guidelines and Early Enforcement.
14 | What powers does the European Commission have under the FSR?
The FSR grants the European Commission broad investigative and enforcement powers. The Commission may request information, conduct interviews and inspections within and outside the EU, and review transactions or public procurement procedures that fall within the scope of the Regulation. Where it identifies a distortive foreign subsidy, it may impose redressive measures, accept commitments or prohibit a transaction or the award of a public contract. It may also impose fines and periodic penalty payments for procedural infringements or non-compliance with its decisions.
These powers enable the Commission to ensure the effective application of the FSR.
15 | What is the balancing test under the FSR?
The balancing test allows the European Commission to assess whether the positive effects of a foreign subsidy outweigh its negative effects on competition within the internal market. In carrying out this assessment, the Commission may consider positive effects on the development of the relevant subsidised economic activity in the internal market, as well as broader policy objectives, particularly those of the European Union, such as innovation and environmental protection. Where the positive effects outweigh the distortion, the Commission will not impose redressive measures or accept commitments; they may also be taken into account when determining the nature and level of any measures or commitments.
16 | What remedies can the European Commission impose under the FSR?
Where the Commission concludes that a foreign subsidy distorts the internal market, it may impose redressive measures or accept commitments offered by the undertaking concerned that fully and effectively remedy the distortion. Such measures may include reducing market presence, refraining from certain investments, requiring repayment of the foreign subsidy with an appropriate interest rate, divesting assets, granting access to infrastructure or licensing intellectual property on fair, reasonable, and non-discriminatory terms, or adapting the undertaking’s governance structure or commercial conduct. These remedies may therefore take the form of behavioural measures, structural measures or commitments offered by the undertaking concerned. In merger and public procurement cases, the Commission may also prohibit the transaction or prevent the award of a public contract where the distortion cannot be adequately addressed.
17 | How does the FSR interact with EU competition law?
The FSR complements existing EU competition rules rather than replacing them. While EU State aid rules apply to financial support granted by Member States, the FSR addresses subsidies granted by non-EU countries. Similarly, the FSR operates alongside EU merger control and antitrust rules, which focus on the competitive effects of concentrations and anti-competitive agreements or conduct. However, the FSR applies a distinct legal test: it examines whether a foreign subsidy confers an advantage that distorts, or is liable to distort, the internal market. As a result, a transaction or business practice may be reviewed under the FSR in parallel with other EU competition law instruments, since each regime addresses a different regulatory concern. The FSR applies a distinct legal test: it examines whether a foreign subsidy confers an advantage that distorts, or is liable to distort, the internal market.
18 | What is the difference between a foreign financial contribution and a foreign subsidy?
A foreign financial contribution refers to any direct or indirect transfer of funds or liabilities by a third country, such as grants, loans, guarantees, tax incentives, or the provision or purchase of goods and services. A foreign subsidy exists only where such a contribution confers a benefit on an undertaking engaged in an economic activity in the internal market and is limited, in law or in fact, to one or more undertakings or industries. Therefore, not every foreign financial contribution constitutes a foreign subsidy, but every foreign subsidy originates from a foreign financial contribution. This distinction matters because the FSR notification thresholds are calculated by reference to foreign financial contributions. The substantive assessment, however, focuses on whether those contributions amount to distortive foreign subsidies.
19 | How has the FSR been applied in practice?
Since entering into force, the FSR has been applied in a growing number of merger and public procurement cases. The European Commission has reviewed several high-profile transactions, including e& / PPF Telecom and ADNOC / Covestro, assessing whether foreign financial contributions could distort competition within the internal market. Both cases resulted in conditional approvals, showing that the FSR can lead to binding commitments rather than outright prohibition, where the Commission’s concerns can be addressed. The Commission has also investigated foreign subsidies in public procurement procedures, including the Lisbon Metro case involving CRRC, demonstrating its willingness to use both notification-based reviews and its broader enforcement powers. These early cases provide important guidance on how the FSR is likely to be applied in practice.
20 | What are the key practical implications of the FSR for businesses?
The FSR introduces additional regulatory scrutiny for businesses that receive financial contributions from non-EU countries and operate within the EU. Companies involved in mergers, acquisitions or public procurement procedures should assess potential FSR implications at an early stage and maintain accurate records of foreign financial contributions. The Regulation may affect transaction timelines, increase reporting obligations, and, in certain cases, lead to in-depth investigations or remedial measures. As a result, FSR compliance has become an important consideration in strategic business planning and investment decisions.
The full article is available as a downloadable PDF here.
This Q&A note was prepared by Eleana Polydorou during her summer 2026 internship at Trojan Economics.
The Trojan Economics team provides specialised economic analysis and strategic guidance on applying the Foreign Subsidies Regulation, helping businesses identify potential risks at an early stage and navigate transactions and public procurement procedures effectively.
For further information or to discuss how the FSR may affect your business, please do not hesitate to contact us.
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This material is provided for informational purposes only and does not constitute legal or any other form of professional advice. For specialised guidance, independent advice should be sought.
