EU Foreign Subsidies Regulation: What UK Companies in EU Procurement and M&A Must Know

Why the EU Created the Foreign Subsidies Regulation#

Before the FSR, the EU had no mechanism to scrutinise the competitive distortions created by foreign government subsidies when those subsidised companies operated in EU markets. EU state aid rules governed subsidies granted by EU member states, but subsidies from third-country governments — China, the US, the Gulf states, post-Brexit UK — were outside EU regulatory reach. The FSR addresses this gap by giving the European Commission power to investigate foreign subsidies that distort competition in the EU single market, and to apply remedies including prohibiting acquisitions or public procurement awards. The regulation was motivated in part by high-profile acquisitions of EU businesses by state-backed foreign entities, and by concerns about subsidised bids in EU public procurement.

Notification Thresholds for Public Procurement#

Companies bidding for EU public procurement contracts must notify the Commission of foreign subsidies received when: the contract is worth at least €250 million, and the bidder (and its group) has received foreign financial contributions of at least €4 million per third country over the preceding three years. Foreign financial contributions include grants, subsidised loans, tax incentives, capital injections, provision of goods or services on non-market terms, and preferential access to infrastructure. Post-Brexit UK government support — Innovate UK grants, Regional Growth Funds, UKEF export financing, R&D tax credits (where they constitute subsidies) — falls within the definition of foreign financial contributions. UK companies bidding for large EU public contracts must assess whether they meet both the contract value and subsidy thresholds that trigger mandatory notification.

Notification Thresholds for M&A and Acquisitions#

For M&A transactions, FSR notification is mandatory when: the EU target company has an EU turnover of at least €500 million, and the parties (acquirer and group) received total foreign financial contributions of at least €50 million over the preceding three years. The Commission can also investigate transactions below the notification thresholds on its own initiative within five years of the grant of the relevant subsidy. For UK companies making acquisitions in the EU, this means assessing whether UK government support received in recent years triggers FSR notification obligations in addition to EU merger control filings under the EU Merger Regulation. Where both apply, notifications must be filed concurrently.

What Happens After Notification#

After a notification is filed — for procurement or M&A — the Commission has an initial review period (Phase I) of 25 working days in which it can either clear the transaction or open a detailed investigation (Phase II). Phase II investigations must be concluded within 110 working days, extendable by 20 days. The Commission can impose conditions — including divestments or commitments to restructure subsidised activities — or prohibit the acquisition or procurement award entirely if the foreign subsidy is found to distort competition in the EU. In public procurement, the contracting authority cannot award the contract to a notifying company until the Commission has cleared the notification. This creates a risk of procurement timeline extension for UK companies in large EU tenders.

Practical Implications for UK Businesses#

UK businesses must now treat UK government financial support as carrying EU regulatory consequences. Any business that has received material UK government subsidies and is considering either bidding for significant EU public contracts or making acquisitions in the EU should conduct an FSR assessment as part of its planning process. Key questions: what UK government financial contributions has the group received in the past three years; does the total exceed €4 million per bid opportunity, or €50 million for a potential acquisition; is the EU target or contract value above the thresholds? Legal advice is recommended where thresholds are approached, as failure to notify carries significant penalties. AskBiz helps flag subsidy-related regulatory triggers when evaluating EU market opportunities.

• The EU Foreign Subsidies Regulation (FSR), Regulation (EU) 2022/2560, has been fully applicable since October 2023.
• It requires companies receiving significant foreign government subsidies to notify the European Commission when bidding for large EU public procurement contracts or making significant acquisitions of EU businesses.
• UK government grants and financial support received post-Brexit are considered foreign subsidies under the FSR.