State Aid, Subsidies and the FSR

State aid in Germany: what it means for companies

State aid is any advantage granted by a member state or through state resources that favours certain undertakings, distorts or threatens to distort competition and affects trade between member states. Under Article 107(1) of the Treaty on the Functioning of the European Union (TFEU), such aid is incompatible with the internal market unless an exception applies, and under Article 108(3) TFEU new aid must be notified to the European Commission and may not be implemented before approval.

In Germany, the rules apply to grants from the federal government, the federal states (Länder) and municipalities, but also to loans, guarantees, tax reliefs, capital injections, below-market sales of land and contracts with public bodies on non-market terms.

For businesses, state aid law is mainly a question of risk allocation. The member state designs the measure and notifies it, but the beneficiary bears the consequences if aid is granted unlawfully: aid paid without approval or outside the conditions of an exemption must be repaid with interest, often years later. Competitors can challenge aid before the Commission and the national courts. Recipients therefore need to understand the legal basis of the funding they receive and comply with its conditions.

Alongside EU state aid control, the Foreign Subsidies Regulation (EU) 2022/2560 (FSR) applies to subsidies granted by non-EU states to companies active in the EU. It affects acquisitions and public tenders by companies with financial ties to third-country governments, including German companies that receive support abroad. This page explains both regimes and their practical consequences for funding, transactions and tenders. See also our overview of antitrust and trade law and our guide to public procurement.

What counts as state aid

Whether a measure is state aid depends on cumulative criteria. The measure must be granted by the state or through state resources and be imputable to the state, which includes public banks, development agencies and municipal companies. It must confer an economic advantage that the undertaking would not have obtained under normal market conditions. It must be selective, favouring certain undertakings, sectors or regions rather than applying generally. And it must be capable of distorting competition and affecting trade between member states, a threshold that is easily met in most industrial sectors.

The market economy operator test is the main tool for checking the advantage criterion. Where a public shareholder, lender or seller acts as a private investor would, for example by investing on the same terms as private co-investors or lending at market rates supported by a credible business plan, there is no aid. Compensation for services of general economic interest, such as public transport or certain hospital services, is not aid if strict conditions are met, and separate rules apply to it otherwise. Purely local measures without effect on trade, such as support for a local swimming pool, can fall outside the rules altogether.

Block exemptions, schemes and de minimis aid

Only a minority of aid measures are notified individually. Most German funding programmes are based on one of three instruments. First, the General Block Exemption Regulation (EU) No 651/2014 (GBER) declares categories of aid compatible without notification, including regional investment aid, aid for SMEs, research, development and innovation aid, training aid, environmental and energy aid and aid for broadband and infrastructure, subject to detailed conditions, intensities and notification thresholds.

Aid granted under the GBER must have an incentive effect, which normally means that the application has to be submitted before work on the project starts. As amended in 2023, the GBER applies until 31 December 2026; according to the Commission's review page, a revised GBER is planned for adoption at the end of 2026.

Second, many programmes are notified to and approved by the Commission as aid schemes, under which individual grants can be made without further notification. Third, small amounts can be granted as de minimis aid, which is not considered state aid: the total de minimis aid granted per member state to a single undertaking may not exceed EUR 300,000 over any period of three years (Article 3(2) Regulation (EU) 2023/2831). Because the ceiling applies to the single undertaking, meaning the group, companies must keep track of de minimis aid received by affiliated entities.

Transparency is part of the system. Under Article 9 GBER, as amended in 2023, member states must publish information on each individual award above EUR 100,000 in the Commission's transparency award module or on a comprehensive national or regional website, and similar transparency rules apply to approved schemes. Funding received by a company is therefore often visible to competitors, journalists and acquirers. In Germany, grants are typically administered by federal and state ministries, development banks such as KfW and the state promotional banks, and project management agencies, each of which applies the conditions of the underlying scheme in its funding decision (Zuwendungsbescheid).

State aid for climate, energy and industry

Climate and energy policy has become one of the most important fields of public funding in Germany. Larger measures are assessed under the Commission's Guidelines on State aid for climate, environmental protection and energy (CEEAG) of 2022, which cover, among other things, support for renewable energy, decarbonisation of industrial processes, clean mobility, energy efficiency, security of supply and relief from electricity levies for energy-intensive users. Germany uses these instruments for programmes such as carbon contracts for difference for industrial decarbonisation, hydrogen and grid infrastructure, and support under the Renewable Energy Sources Act.

On 25 June 2025 the Commission adopted the Clean Industrial Deal State Aid Framework (CISAF), which applies until 31 December 2030. It allows member states to support the roll-out of clean energy, reduced electricity costs for energy-intensive users, industrial decarbonisation, manufacturing capacity in clean technologies and the de-risking of private investment, and it replaces the transition provisions of the Temporary Crisis and Transition Framework. Large cross-border projects can also be approved as Important Projects of Common European Interest (IPCEI), for example in microelectronics, batteries and hydrogen.

For applicants, the practical points are the same: identify the legal basis, check that the project has not started before the application, document eligible costs and the funding gap where required, and review the clawback, reporting and monitoring obligations in the funding decision. Our hydrogen and CCS page covers the regulatory framework for some of these projects.

Unlawful aid, recovery and litigation

Aid that is implemented without notification, or outside the conditions of the GBER or an approved scheme, is unlawful. If the Commission finds that unlawful aid is incompatible with the internal market, it orders the member state to recover it from the beneficiary, with interest from the date on which it was put at the beneficiary's disposal. The Commission's powers to recover aid are subject to a limitation period of ten years from the day the aid was awarded, which is interrupted by any action of the Commission or of the member state at its request (Article 17 Regulation (EU) 2015/1589).

Legitimate expectations rarely protect beneficiaries, because a diligent company is expected to check that the aid procedure was followed.

National courts also play a role. Competitors can bring actions before German courts to stop the payment of unlawful aid or to obtain its recovery, and courts must give effect to the standstill obligation in Article 108(3) TFEU. Contracts implementing unlawful aid, such as sales of land or loans on non-market terms, can be void or require adjustment under German civil law. In transactions, buyers should therefore review the target's public funding and include specific warranties and indemnities for repayment risk.

The Foreign Subsidies Regulation in M&A and tenders

The FSR applies since 12 July 2023, and the notification obligations since 12 October 2023. It covers financial contributions granted by non-EU states, including grants, loans, guarantees, tax exemptions, capital injections and the provision of goods or services, and also contributions from public entities and from private entities whose actions are attributable to a third country. It works through three tools: mandatory notification of concentrations, mandatory notification in public procurement procedures, and ex officio reviews of any market situation.

Concentrations

A concentration must be notified to the Commission before implementation where at least one of the merging undertakings, the target or the joint venture is established in the EU and generates EU turnover of at least EUR 500 million, and the parties received combined financial contributions of more than EUR 50 million from third countries in the three years before signing (Article 20(3) FSR). The Commission has 25 working days after complete notification to open an in-depth investigation and then 90 working days to decide, and the concentration may not be implemented in the meantime. Breaching the standstill or failing to notify can result in fines of up to 10% of aggregate turnover.

Public procurement

In public procurement procedures with an estimated value of at least EUR 250 million, bidders must notify their foreign financial contributions, or declare that they have none to notify, where they, including relevant subsidiaries, holding companies and main subcontractors and suppliers, received aggregate financial contributions of at least EUR 4 million per third country in the previous three years (Article 28 FSR). The contract cannot be awarded to a notifying bidder until the Commission's review is complete. In Germany, the contracting authority forwards the notification, so the FSR has become part of tender preparation for major infrastructure, energy and transport projects.

Ex officio reviews and redressive measures

Below the notification thresholds, the Commission can review foreign subsidies on its own initiative in any market situation, can request prior notification of concentrations and tender participations that fall below the thresholds where it suspects foreign subsidies, and has investigative powers that include requests for information and inspections inside and outside the EU.

Its powers to review a foreign subsidy are limited to ten years from the grant. Where it finds that a foreign subsidy distorts the internal market, and the negative effects are not outweighed by positive effects, it can accept commitments or impose redressive measures, such as divestments, access remedies, repayment of the subsidy or, in a concentration, a prohibition. In public procurement, it can prohibit the award of the contract to the bidder concerned.

State aid and FSR compliance in practice

For German companies and investors, state aid and the FSR intersect in practice. A company receiving German grants for a new plant may also be acquired by a buyer that received support from a non-EU state, triggering an FSR filing alongside merger control and foreign investment control. Investment funds with sovereign or state-linked limited partners need to collect information on financial contributions across their portfolio to assess FSR thresholds. And bidders for large public contracts must manage FSR notifications on the tender timetable.

Responsibility for these questions often sits in different departments: funding with the finance or grants team, transactions with the legal and M&A team, and tenders with sales. A short internal policy that defines who records public funding, who checks FSR thresholds and who signs off funding conditions avoids gaps, particularly in groups with many subsidiaries and foreign operations.

• Create an inventory of public funding received in the EU and outside it, by entity and year.
• Check the legal basis and conditions of every German or EU grant before signing.
• Build FSR and state aid questions into M&A due diligence and transaction timetables.
• Prepare template FSR data for tenders above EUR 250 million.
• Monitor reporting, clawback and change-of-control clauses in funding decisions.

Under Article 46 FSR, the Commission had to publish guidelines on the assessment of distortions, the balancing test and its call-in powers by 12 January 2026, and by 13 July 2026 it had to review its enforcement practice and the notification thresholds (Article 52 FSR). Companies should monitor how this guidance and any threshold changes affect their filing analysis.

How TRW & Co helps

We advise companies, investors and public bodies on state aid and the FSR. We analyse funding programmes and individual measures, structure projects to fit the GBER, de minimis rules or approved schemes, and support applications for climate, energy and innovation funding. We review funding decisions for clawback and change-of-control risks and assess state aid issues in due diligence. In recovery and complaint proceedings we represent beneficiaries and competitors before the Commission and the German courts. Under the FSR, we assess notification obligations, prepare notifications for concentrations and tenders and coordinate them with merger control and investment screening. To discuss a matter, please contact us.