Malta M&A Watch: Regulation of Foreign Subsidies – Impact on M&A Transactions

With the Foreign Subsidies Regulation (Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market) (the “FSR”)[1] and the Commission Implementing Regulation (EU) 2023/1441 (the “Implementing Rules”) having now entered into force, companies involved in a merger and acquisition (‘‘M&A’’) might face a more cumbersome process to get their deals across the line.

This release aims to flesh out the main obstacles that players in the M&A space should look out for to ensure that they comply with the FSR so that it does not cause unanticipated disruptions to their deals.

Notification Requirements

The extensive obligations set out under the FSR and its Implementing Rules will apply to deals signed on or after 12 October 202­3 as well as to deals which were signed on or after 12 July 2023 but which will not close before 12 October 2023.

In terms of the potential impact on M&A transactions, the FSR imposes on undertakings which are receiving financial contributions from non-EU governments, an obligation to ex ante inform the European Commission (the ‘‘Commission’’) as the sole enforcer of the FSR, of their intended concentration.  In turn, the Commission would then investigate whether the internal market is at risk of being distorted as a result of the concentration. In so doing, the Commission intends to carry out a balancing test when investigating whether there is a distortion to the internal market or not.

The FSR sets out that the notification obligation applies in cases where one of the parties involved in the transaction, the target company or the joint venture being established in the EU generates an aggregate turnover of at least EUR 500 Million EU wide and the foreign financial contribution reaches at least EUR 50 Million in the three years prior to the signing of either the share purchase agreement, the announcement of public bid or the acquisition of a controlling interest.

The FSR states that the ‘foreign subsidy’ ought to be considered granted from the moment in time where the beneficiary obtains an entitlement to receive the foreign subsidy and not when the actual disbursement of the funds is made.

It is also relevant to note that besides the turnover thresholds outlined here, the Commission may ex officio investigate a concentration where it believes that the parties may have received foreign subsidies which may distort the internal market even though the thresholds might not have been met.

Key reporting obligations

Notification to the Commission must be made using the Form FS-CO (as provided in the Implementing Rules) which sets out the information that must be shared with the Commission­­. When completing the Form FS-CO, notifying parties must inter alia provide information on:

  • for foreign financial contributions which are considered by the FSR as the most likely to distort the internal market (such as those granted to ailing undertakings, those directly facilitating a concentration or unlimited guarantees), detailed information on all financial contributions of an individual amount of at least €1 million, which have been granted to any of the parties to the Concentration over the past 3 years;
  • for all other foreign financial contributions, an overview of financial contributions granted to the notifying party/ies over the past 3 years of an individual amount of a least €1 million and in relation only to those countries that have granted to the parties to the concentration at least €45 million over the 3 years before the concentration, subject to a number of exceptions.

Given these onerous reporting requirements, it is paramount that merging parties have in place effective information gathering mechanisms and keep up to date and accurate records. This would allow the notifying parties and their council to furnish the Commission with the required information leading in a smooth and timely manner.

Note the timelines

Merging parties are also well advised to factor in the time periods that the FSR and its Implementing Rules impose when planning their deals.

The FSR makes it clear that concentrations that fall within its scope must be notified to the Commission following the conclusion of the agreement, the announcement of the public bid, or the acquisition of a controlling interest and cannot be implemented[2] before to receiving clearance from the Commission.

The review period ranges from 25 working days where only a Phase I investigation is necessary and up to a possible 105 working days where a Phase II investigation is merited.

These are all critical considerations which will impact the long stop date.

As is typical practice in merger control clearance under the EU Merger Regulation, merging parties are encouraged to engage with the Commission in ‘pre-notification’ discussions, to align themselves with the Commission’s expectations in terms of the information that needs to be provided thereafter. The Commission’s Q&A document follows a similar line of thought.

The FSR’s strong bite

Merging parties should be aware that the FSR can be quite stringent and can have far-reaching consequences. Where merging parties fail to notify the Commission of a concentration that falls within the FSR’s scope, or proceed to implement a transaction without clearance, the Commission may impose a fine not exceeding 10% of the merging parties’ aggregate turnover in the preceding year.

The FSR also includes penalties where incorrect or incomplete information is provided to the Commission.


The FSR, coupled with merger control rules and foreign direct investment screening rules makes closing M&A deals in the EU (and subsequently in Malta) slightly more complicated but adequate preparation in advance could alleviate the burden.

Our team at Ganado Advocates can help parties involved in M&A transaction assess whether their deal could potentially fall within the scope of the FSR and assist with navigating the complex web of notification requirements that it brings about.

You may access our previous publication on the FSR through the following link:

Malta M&A Watch: Regulation of Foreign Subsidies

[1] For a brief look at the rationale behind the FSR’s inception, kindly refer to the first release in our series of articles on Malta M&A Watch: Regulation of Foreign Subsidies.

[2] Concentrations that fall within the scope of the FSR cannot be implemented without clearance from the Commission. This is similar to the standstill obligation that is found under the EU Merger Regulation.