EU State aid

This Quickguide provides an overview of the EU State aid rules.

1.  Introduction

What are the State aid rules?

The EU State aid rules are designed to maintain a level playing field for businesses within the EU internal market. EU State aid is a key area of EU competition policy and an ongoing priority for the European Commission to preserve fair competition between companies in the EU. In recent years, the European Commission has also used EU State aid rules to address unforeseen shocks and international crisis affecting the EU economy. Beyond crisis management, the European Commission has increasingly focused on using State aid rules as a tool to foster innovation, sustainability, the development of Important Projects of Common European Interest (IPCEIs) and the EU green and digital transitions. 

Why should State aid be of interest to business?

State aid law should be of interest to businesses in their capacity as:

• potential beneficiaries of State aid measures; or
• competitors of firms receiving illegal State subsidies.

A failure to identify unlawfully paid State aid may result in lengthy European Commission investigations and eventual repayment of State subsidies received, plus interest. Businesses, particularly in countries where in general aid to industry is sparse, are becoming increasingly aware of their right to challenge unlawful subsidies paid to their overseas competitors in breach of the Treaty on the Functioning of the European Union (TFEU). It is therefore critical for businesses to examine the possibility that State aid may arise in the context of their own transactions or for challenging any suspected unlawful State aid measures that competitors may receive that could distort fair competition.

2.  General principles governing State aid law

The TFEU generally prevents EU Member States from granting State aid. Article 107(1) TFEU provides that State aid is incompatible with the internal market except for few exceptions.
However, the European Commission can declare State aid compatible with the internal market if they meet certain policy objectives which are defined in Article 107(2) and (3) of the TFEU and further detailed in the European Commission's soft law documents. 

To enable this assessment, EU Member States are in principle required to notify the European Commission of any proposed State aid. They must then wait for the European Commission’s approval before granting the aid to beneficiaries, a requirement known as the "standstill obligation". 

These notification and suspension requirements do not apply if the aid qualifies for an exemption. Exemptions include the de minimis exception, measures covered by the General Block Exemption Regulation (GBER), or aid granted under an existing approved scheme. In such cases, Member States can implement the aid without prior European Commission clearance.

3.  The criteria for State aid

State aid is involved when an intervention meets the following cumulative conditions: 

• it is granted by the State or through State resources;
• it favours certain undertakings or the production of certain goods (i.e.; it grants a selective advantage);
• it is liable to affect trade between Member States; and
• it distorts or threatens to distort competition.

The aid does not necessarily need to be granted by the State itself. It may also be granted by a private or public intermediate body controlled by the State (including regional or local authorities, public banks and foundations or any other "emanation" of the State). 

State aid rules only apply to "undertakings". "Undertakings" for the purposes of State aid are entities engaged in economic activity. This means that they operate in a market providing goods or services in competition with other market operators. The same entity may well be an undertaking for some of its activities and not for others. For example, a school might not be considered an undertaking when it teaches its pupils but it may be considered one when it purchases textbooks and furniture.

In its 2016 notice on the "Notion of State aid", the European Commission codifies EU Courts case-law and clarifies the constituent elements of the notion of State aid.

State aid is granted through State resources

The requirement that State aid must be granted through State resources means that granting the aid must constitute some depletion of the State's resources, compared to what those resources would have been if the aid had not been provided. This condition is interpreted broadly by the European Commission and EU Courts. Direct subsidies are the most obvious form of aid. However, aid can consist of the State foregoing revenue which it would otherwise receive, for example, such aid could take the form of a "shortfall" in tax and social security revenue due to exemptions or reductions in taxes or social security contributions granted by the Member State, or exemptions from the obligation to pay fines or other pecuniary penalties. Moreover, State resources may be involved even in transactions between private parties, particularly when the resources come under public control before being transferred to the recipients.

State aid favours certain undertakings or the production of certain goods 

"Favouring" means conferring a financial benefit over and above what market forces would provide. The simple act of buying goods or lending money is not necessarily "favouring", if it is in line with normal market conditions (see below).

The limitation of the prohibition of State aid to "certain" undertakings (i.e. the selectivity requirement) means that measures which apply generally to all undertakings in the relevant Member State will not amount to State aid. In order for the measure to be considered State aid it must be selective. When Member States grant ad hoc advantages to specific undertakings, such as direct financial support, these measures are typically considered selective because they clearly benefit certain undertakings over others. However, when broader measures are introduced, such as tax exemptions, the selectivity is less obvious. In these cases, EU courts have defined a three-step test: (i) the reference system must be identified; (ii) it must be determined whether the measure derogates from this system by treating comparable operators differently; and (iii) if a derogation exists, it must be assessed whether it is justified by the nature or general scheme of the system. If justified, the measure is not considered selective under Article 107(1) TFEU.

Nonetheless, this three-step approach is not always sufficient. In some cases, the design of the reference system itself may be arbitrary or biased, intentionally favouring certain undertakings. It is therefore very important to define the reference framework properly, based on national rules.

State aid distorts or threatens to distort competition

In practice, once it is clear that aid has been given, it will usually be held to distort or threaten to distort competition. Since aid is only aid if it is received by undertakings who are operating in a market, there will usually be the potential for distortion, regardless of the characteristics of the market.

State aid affects trade between Member States

"Affecting" trade means having an effect on potential, as well as existing cross-border trade. Therefore, support to an undertaking, or class of undertakings, will nearly always be held to affect cross-border trade.

4.  Situations in which State aid will be unlikely to arise

State aid is unlikely to arise in the following situations:

• A State intervention will not confer an economic advantage, and therefore will not qualify as State aid, if it could reasonably be considered to have been given under normal market conditions. This is known as the "market economy operator" (MEO) principle or test. Evaluating whether a State intervention aligns with market conditions requires an ex-ante analysis. Compliance with the MEO principle can be directly established in the following situations: (i) where the economic transaction is carried out "pari passu" by public entities and private operators; or (ii) where it concerns the sale and purchase of assets, goods and services (or other comparable transactions) carried out through a competitive, transparent non-discriminatory and unconditional tender procedure. Where this is not possible, compliance with the MEO principle can also be assessed "indirectly" through other assessment methods, such as a benchmarking analysis or a profitability analysis. The EU Courts have identified different variants, based on the structure of the transaction and the role of the State (i.e. whether it is the investor, creditor, seller or purchaser). State guarantees can also satisfy the MEO test under certain circumstances.
• Compensation for the provision of services of general interest does not amount to State aid if the following conditions are met: (i) the beneficiary is chosen by virtue of an open and transparent tender procedure; and (ii) compensation is not excessive (i.e. only meets the costs of the service plus a reasonable profit) having regard to prevailing market conditions for the service in question.

5.  Examples of State aid

Types of arrangement that require close scrutiny

None of the following is necessarily unlawful State aid but the presence of such arrangements should alert the participants to the possibility that aid is being granted:

• public sector equity injections;
• disposals of State-owned assets on highly favourable terms or without a tender process;
• State involvement in loans on favourable terms, reduced interest rates and interest payment holidays;
• State involvement in guarantees against liabilities or losses;
• fiscal measures such as relief from a tax which would otherwise be payable, if not applicable to all companies;
• public sector support to rescue or restructure firms in financial difficulty; and
• public service schemes under which certain undertakings have been entrusted with the operation of services of general economic interest.

Some surprising examples of potential State aid

Less obvious forms of potential State aid include the following:

• a support scheme for renewables financed by private resources;
• a contract for difference granted following a bidding process;
• an arbitration award for compensating damages caused by the State;
• tax rulings given by government setting transfer pricing methodology;
• an exemption from normal bankruptcy law; and
• public announcement by the government of a shareholder loan in the form of a credit line.

6.  Exemptions 

According to Article 109 TFEU, the Council may determine categories of aid that are exempted from the notification requirement and the European Commission may adopt regulations relating to those categories of State aid. The two main European Commission's regulations providing for an automatic exemption are:

• the de minimis Regulation, which among other things exempts aid below EUR 300,000 over a period of three years under certain conditions; and
• the GBER, revised in 2014, in 2017 and 2023, which exempts from notification to the European Commission several types of aid including:
  • regional aid;
  • aid to SMEs;
  • aid for environmental protection;
  • aid for research and development and innovation;
  • training aid;
  • recruitment and employment aid for disadvantaged workers and workers with disabilities;
  • aid to make good the damage caused by certain natural disasters;
  • social aid for transport for residents of remote regions;
  • aid for broadband infrastructures;
  • aid for culture and heritage conservation;
  • aid for sport and multifunctional recreational infrastructures;
  • aid for local infrastructures;
  • aid for regional airports; and,
  • aid for ports.

Specific exemption regulations cover the agricultural, forestry, fishery and aquaculture sectors.

7.  The compatibility assessment

The compatibility of State aid with the TFEU, if not de minimis or covered by the GBER, is assessed by the European Commission through the application of a so-called "balancing test". Essentially, this means that the compatibility of State aid will be assessed on a case-by-case basis through the application of a three-part test which examines the following questions:

• Is the aid measure aimed at a well-defined objective of common interest (such as growth, employment, cohesion, protection of the environment, and research and development)?
• Is the measure designed to deliver the objective of common interest; that is, does the aid address a market failure or another objective?
• Are the distortions of competition and effect on trade limited, so that the overall balance is positive?

The balancing test is not a substitute for notification to the European Commission. Instead it describes the approach applied by the European Commission to aid that is notified. It should help any businesses contemplating potential aid to assess the strength of their case, and it can also help to suggest how an arrangement might be adjusted to take it out of the State aid framework altogether, or render it more likely to be accepted as compatible.

European Commission's Guidelines

The European Commission issued an arsenal of soft law documents, setting out specific compatibility criteria depending on the type of aid and limiting its discretion when assessing aid. These communications are regularly updated.  

A number of communications cover horizontal objectives, such as the 2022 Climate, Energy and Environmental Aid Guidelines (CEEAG), the State aid framework for research and development and innovation (RDI Framework) or the Communication on the criteria for the analysis of the compatibility with the internal market of State aid to promote the execution of IPCEIs. 

In response to recent crises affecting the EU economy, the European Commission has also adopted temporary frameworks easing the State aid restrictions and allowing EU Member States to adopt emergency measures (see below).

Lastly, on 25 June 2025, the European Commission adopted the Clean Industrial Deal State aid Framework (CISAF), which provides a wide-ranging and flexible toolkit for EU Member States to design State aid measures that accelerate renewable and low-carbon energy deployment, facilitate industrial decarbonisation, and boost clean technology manufacturing across the entire value chain.

Moreover, there are sector-specific guidelines governing the granting of aid to, for example: banks in difficulty, audiovisual production, deployment of broadband networks, public broadcasting, postal services, shipbuilding, airports and airlines, maritime transport, rail and road transport services.

8.  Emergency measures

State aid for rescuing and restructuring firms in difficulty

State aid to individual undertakings in financial difficulty is usually assessed under Article 107(3)(c) of the TFEU and specifically under the European Commission Guidelines on State aid for rescuing and restructuring firms in difficulty. A company is in difficulty and entitled to aid when "without intervention by the State, it will almost certainly be condemned to going out of business in the short or medium term". Rescuing and restructuring aid can usually only be received once, the so-called "one time, last time" condition (in exceptional circumstances every ten years), and is subject to the following conditions in particular:

• Rescue aid must consist of reversible liquidity support in the form of loans/loans guarantees with an interest rate at least comparable to those reserved for loans to healthy firms. The aid must be limited to the minimum necessary and be reimbursed or come to an end within six months.
• The grant of restructuring aid is conditional on the full implementation of a viable restructuring or liquidation plan (i.e. a scaling down of the business) which must be submitted to the European Commission. The beneficiary is expected to make a significant contribution to the restructuring plan from its own resources.

Aid to remedy a serious disturbance to an economy

Under Article 107(3)(b) TFEU a Member State is allowed to grant emergency aid in order to remedy a "serious disturbance in the economy of a Member State". In recent years, the European Commission has shown that, in order to address serious disturbances in the economy, it can swiftly temporarily ease State aid restrictions and enable Member States to implement urgent support measures These temporary instruments serve as adaptable tools, allowing for a prompt and pragmatic response to unforeseen economic shocks. The most recent examples concern the State aid Temporary Framework adopted in 2020 in the context of the coronavirus outbreak and the Temporary Crisis and Transition Framework (TCTF) adopted to cushion the economic impact of Russia’s aggression of Ukraine, which have now both expired.

The newly adopted CISAF, which replaces the TCTF, marks a shift from crisis response to a long-term competitiveness agenda, unlocking new funding and growth opportunities in Europe in key sectors for the green transition. For further information, please see our July 2025 update. 

9.  Procedure

Notification

The system of control which has been put in place requires EU Member States to notify their plans to grant or alter aid and to obtain the European Commission's authorisation before implementation. 

The notification procedure primarily involves a dialogue between the concerned Member State and the European Commission. The aid recipient(s) and any complainants are not parties to the procedure.

State aid control involves a two-step procedure:

• Step 1: preliminary examination of the notification.
• Step 2: if necessary, a formal investigation procedure.

In the first phase (step 1), the European Commission has a two-month period from the date of the complete notification to decide whether to clear the aid or initiate a more detailed enquiry. If the European Commission has doubts as to the compatibility of the aid with the TFEU, it launches a formal investigation (step 2) which involves an in-depth enquiry which can last up to 18 months or more in complex cases. The European Commission has discretion to clear the aid, to prohibit it, or to clear it subject to conditions, unless the EU Council of Ministers decides otherwise.

Procedure regarding notified aid

Chapter 2 Regulation 2015/1589

Simplified procedure

There is a simplified notification procedure for straightforward cases, pursuant to which it will adopt a short form "no aid" or "no objections" decision within 20 working days. 

Procedure for unlawful aid 

When State aid is granted without prior notification to, and approval by, the European Commission, it is considered unlawful aid. Upon becoming aware of such aid, the European Commission initiates an investigation to assess the measure and its compatibility with the internal market. 

The procedure for unlawful aid mirrors the notification procedure, but the European Commission is not bound by strict time limits for issuing its decision. The European Commission may request information from the Member State concerned and invite interested parties to submit comments. If the aid is ultimately found to be incompatible, the European Commission will issue a decision requiring the Member State to recover the aid from the beneficiary, including interest, to restore the situation that existed prior to the granting of the aid.

Procedure regarding unlawful aid

Chapter 3 Regulation

Consequences of unlawful State aid

The European Commission or a national court (the latter following an action brought by a third party) may order the State to recover unlawfully granted aid from the recipient. Interest will be charged on the aid. Any promise by the State to cover the repayment or interest will not only be unlawful and invalid but will also in itself constitute aid.

In 2019, the European Commission published a new State aid Recovery Notice providing details on various aspects of the recovery procedure.

Internal review procedure for checking compliance with EU environmental laws 

On 12 May 2025, the European Commission adopted new State aid rules allowing non-governmental organisations (NGOs) to request the review of certain State aid decisions for compliance with EU environmental law, with a view to bring EU State aid rules in line with the obligations under the Aarhus Convention on access to justice in environmental matters. For further information, please see our May 2025 update.

Code of Best Practices

The European Commission's Code of Best Practice provides guidance and details how State aid procedures should be carried out in practice, in particular as regards their duration, transparency and predictability.

10.  Participation in State aid procedures

Any legal or natural person may trigger an investigation by lodging a complaint concerning alleged unlawful State aid with the European Commission. 

The European Commission also invites interested parties to submit comments (via a notice in the Official Journal of the EU) when it has doubts as to the compatibility of a proposed aid measure and opens a formal investigation procedure. 

Third party rights are however, in practice, poorly protected in State aid proceedings with the consequence that they may take only a limited part in the European Commission's initial assessment (increased if the European Commission opens an in-depth investigation). 

However, third parties may play a major role in the appeal process of any State aid decision before the EU Courts and impact the duration of the period of legal uncertainty. While the European Commission stage of a complex State aid case could easily take up to two years (or more) if an in-depth investigation is launched, a Court appeal action would typically add at least four years to the period of legal uncertainty. 

Any person or entity who has suffered loss because illegal State aid has been granted may bring an action for damages in a national court. The European Commission's Enforcement Notice is intended to encourage private enforcement at the national level.

11.  Practical steps to manage the risk

• Identify the type of aid to understand whether it is governed by specific rules.
• Identify the basic context for the aid assessment:
  • are you a would-be beneficiary?
  • are you in a mergers and acquisitions / risk assessment scenario?
  • are you a complainant?
• Can you argue that the measure is not aid? For example:
  • does it match the actions of a market economy investor?
  • does it fulfil the criteria for a public interest service?
• Is the aid automatically exempted? For example, the aid is de minimis, covered by a block exemption or an individual aid falling within an authorised scheme.
• If the aid is not automatically cleared, identify the appropriate clearance mechanism and assess the prospects of the need for notification for the aid package.
• The State aid process is a dialogue between the Member State and the European Commission. A beneficiary and its advisers will need to push hard to ensure appropriate representation.
• The beneficiary has a clear interest in ensuring that the State aid procedures are followed, since the liability to repay with interest rests solely with the beneficiary.
• State aid authorisation is handled solely by the European Commission in Brussels. Seek specialist advice early and note that the process is susceptible to high quality advocacy, political pressure and lobbying.