The FSR was adopted in December 2022 and entered into force on 12 July 2023. It creates a legal framework enabling the Commission to scrutinise financial support granted by non-EU countries to companies operating in the EU internal market. The regulation fills a perceived regulatory gap: while EU State aid rules have long applied to subsidies granted by EU Member States, foreign subsidies were previously largely unregulated and could provide recipients with competitive advantages in the internal market.
The FSR operates through three procedural mechanisms:
Practical compliance point: The notification thresholds are triggered by “foreign financial con-tributions” (FFCs), not “foreign subsidies”. FFCs include all financial transfers from non-EU governments or entities attributable to them – even those provided at market conditions that do not confer a selective advantage. This means undertakings must track all FFCs received, not just those that would qualify as subsidies under State aid principles.
The guidelines are soft law describing the Commission’s enforcement practice. While they of-fer important guidance for undertakings navigating the regulation, the final interpretation of the FSR remains with the EU courts.
Under Article 4(1) of the FSR, a foreign subsidy is considered distortive if two cumulative conditions are met:
The guidelines confirm that for foreign subsidies falling under Article 5 of the FSR, the Commission does not need to conduct a detailed assessment based on the Article 4 indicators. Instead, a presumption of distortion applies, effectively reversing the burden of proof. The five categories under Article 5 are:
When assessing whether a foreign subsidy is liable to improve the competitive position of an undertaking in the internal market, the Commission distinguishes between targeted foreign subsidies and non-targeted foreign subsidies. Furthermore, the guidelines introduce a category of subsidies that are considered not liable to improve the competitive position, the so-called “safe harbours”.
Subsidies that directly or indirectly support the undertaking’s economic activities in the internal market are generally considered to improve the undertaking’s competitive position and do not require further assessment. This includes, for example, subsidies granted to support production and distribution activities in the internal market.
The term covers subsidies that do not directly or indirectly support the undertaking’s economic activities in the internal market, and where there is no clear indication of the use or intended use of the subsidies. This includes foreign subsidies of a general scope or objective and foreign subsidies supporting activities outside the EU. According to the guidelines, such subsidies may still improve the competitive position of an undertaking in the internal market. The Commission will assess whether it is possible that the undertaking will “cross-subsidise” its economic activities in the internal market. The Commission will consider several factors that can facilitate or prevent cross-subsidisation, for example:
The guidelines indicate that there is a presumption of cross-subsidisation as the Commission may consider that the foreign subsidy is liable to improve the undertaking’s position “if no credible legal or economic factors exist which prevent or render unlikely that transfer or use”.
This category covers:
The de minimis thresholds under Article 4(2) and (3) are EUR 4 million in aggregate, or EUR 200,000 per third country, over any consecutive period of three years.
The assessment of the second condition includes two steps: first, an assessment of how the subsidy actually or potentially affects the behaviour of the undertaking in the internal market, and second, an assessment of the resulting alteration of, or interference with, competitive dynamics to the detriment of other economic actors in the internal market.
The guidelines describe four main scenarios in which distortion typically arises.
| Acquisitions | Subsidies allow the beneficiary to outbid rivals or deter competing bidders – for example, a capital injection enabling a higher offer price. |
| Operating decisions | Subsidies enable lower prices, aggressive market strategies, or capacity expansion |
| Investment decisions | Subsidies guarantee risk-free R&D or expansion projects, deterring competitors |
| Public procurement | Subsidies enable submission of an unduly advantageous tender |
In public procurement specifically, the Commission examines whether the subsidy enabled more attractive terms regarding price, quality, delivery, warranties, service levels, innovation, or sustainability. The assessment may include comparison with other bids, contracting authority estimates, or market information.
The guidelines provide specific guidance on assessing distortion in public procurement procedures. Under Article 27 of the FSR, the Commission examines whether a foreign subsidy enables submission of an “unduly advantageous tender” in relation to the works, supplies or services concerned. The assessment focuses on whether the subsidy allowed the bidder to offer more attractive terms than would otherwise have been possible – including price, quality, delivery times, warranties, service levels, contractual flexibility, innovation, or sustainability features.
The assessment is anchored in the specific procurement procedure. The Commission will compare the subsidised tender against other bids received, the contracting authority’s own estimates, or available market information. A distortion is established if the unduly advantageous tender is awarded, influences the procedural outcome, or deters other bidders from participating.
For public procurement, notification obligations extend beyond the primary bidder. Main subcontractors and main suppliers whose contribution exceeds 20% of the value of the submitted tender must also be assessed. This means undertakings participating in large procurement procedures should verify FSR exposure throughout their supply chain.
The guidelines introduce only a few safe harbours. The assessment of non-targeted subsidies implies a broad interpretation of distortion, and due to the assessment of the possibility of cross-subsidisation it will rarely be possible to exclude with certainty that distortion exists. The guidelines provide a non-exhaustive list of factors to be considered, but no examples are given.
It is therefore essential to prepare evidence that subsidies of a general scope or subsidies granted to support activities outside the EU cannot be transferred to or used for activities in the EU. This includes documenting legal or economic barriers to cross-subsidisation, such as ring-fencing arrangements, applicable law, or third-party agreements.
Recommendation: Undertakings should keep a register of foreign subsidies granted within the past three years, including:
Under Article 6 of the FSR, the Commission may balance the negative effects (the distortion) against the positive effects on the development of the subsidised economic activity on the internal market, while considering other positive effects such as broader positive effects on other policy objectives, particularly those of the Union.
Positive effects on the development of the subsidised economic activity may occur where subsidies make it possible for the activity to exist at all or trigger a change in the development of the activity. The only example provided by the guidelines is where a subsidy remedies a market failure.
Relevant policy objectives may include policy objectives recognized in EU law, such as treaties or the Charter of Fundamental Rights, particularly, a high level of environmental protection and social standards, and the promotion of research and development. Policy objectives covered by the framework in relation to State aid are also of relevance. As examples, the guidelines mention:
When conducting the balancing test in public procurement procedures, the Commission shall assess whether alternative sources of supply exist.
Even though the guidelines point out that it is a case-by-case assessment, the guidelines provide some guidance on the principles that apply. The Commission must consider the nature and intensity of the positive effects as well as the timing, and it must examine whether the distortion exceeds what is necessary to achieve the positive effects. As regards the categories listed in Article 5 of the FSR, the guidelines state that it is less likely that the positive effects can outweigh the negative effects.
The burden of proof is on the party claiming positive effects. The guidelines specify what the information and documentation should include, for example:
The Commission’s November 2025 clearance of ADNOC’s EUR 15 billion acquisition of Covestro provides useful insights into how the balancing test may operate in practice. The Commission rejected arguments that positive effects stemmed from the transaction rather than the subsidy. ADNOC’s remedy included IP-licensing to EU companies, generating what the Commission described as “sector-wide benefits”, rather than simply unwinding the subsidy. This suggests the Commission will accept innovative remedies that neutralise distortive effects while supporting EU policy priorities such as sustainability.
The Article 6 balancing test has not yet been formally applied in any published decision. However, the Commission’s approach in ADNOC/Covestro – accepting remedies that ‘balance out’ negative effects rather than eliminating the subsidy – suggests the Commission may import balancing principles into its remedy assessment under Article 7. Based on the guidelines, the bar for evidence appears to be set high. If there is a prospect that a transaction or a bid will trigger an investigation, it is important to identify and document possible positive effects as early as possible.
Under Articles 21(5) and 29(8) of the FSR, the Commission has the authority to call in a transaction or a public procurement bid for review, even if they fall below the thresholds. This option may be used if the Commission suspects foreign subsidies have been granted within the past three years and considers that the transaction or bid, due to its impact in the EU, warrants a review.
The guidelines clarify that the Commission may call-in a transaction until it is fully implemented and a bid until the contract has been awarded. Regarding public procurement, it is sufficient that the subsidies are granted to a main subcontractor or a main supplier.
The guidelines provide a non-exhaustive list of elements that the Commission should consider when assessing whether to call in a transaction or bid, for example:
The call-in option will not be used if:
| Contract type | Threshold |
| Public works contracts | EUR 5,186,000 |
| Public supply and service contracts (central government authorities) | EUR 134,000 |
| Public supply and service contracts (sub-central contracting authorities, e.g. regional and local authorities) | EUR 207,000 |
Public procurement procedures in the fields of defence and security are excluded from the Chapter 4 notification requirements.
It is important to consider the risk of call-ins at an early stage of transactions and public procurement procedures. The undertakings should in particular take into account the elements set out in the guidelines, for example whether it concerns critical infrastructure. If the undertaking has received foreign subsidies within the past three years, prepare documentation of the scope and objectives of the subsidies.
Recommendation: For transactions in strategic sectors such as energy, telecoms, semiconductors, or AI, early engagement with advisors on FSR risk assessment is recommended.
Undertakings should factor FSR review periods into transaction and procurement planning:
| Phase | Duration |
| Preliminary review | 25 working days |
| In-depth investigation (if opened) | +90 working days |
| If commitments are offered | +15 working days |
The Commission may “stop the clock” if parties fail to respond completely to information requests within set deadlines.
Crucially, a standstill obligation applies: concentrations cannot be implemented, and public contracts cannot be awarded, until the Commission has issued a clearance decision or the applicable time limits have expired. Failure to observe the standstill obligation may result in fines of up to 10% of aggregate turnover.
The January 2026 guidelines provide welcome clarification on the Commission’s FSR enforcement approach but also confirm the regulation’s broad reach and low evidentiary thresholds. The presumption of cross-subsidisation and the “contributes to” standard for negative effects create significant compliance burdens for companies with complex group structures or industrial policy support from non-EU states.
Key compliance actions:
The Commission is scheduled to present its implementation report by mid-July 2026, which may include legislative proposals potentially addressing notification thresholds or introducing simplified procedures. Until then, the guidelines serve as the primary interpretive reference, while enforcement practice continues to evolve. The ADNOC/Covestro precedent suggests the Commission will enforce the FSR flexibly and creatively, using remedies that align with broader EU strategic objectives.