"Until now, companies have been free to use foreign subsidies to buy up businesses here in Europe," European Competition Commissioner Margrethe Vestager said at a press conference on Wednesday.
"Some have been able to undercut their competitors in public tenders not because they are more efficient, but because they get financial support from foreign countries," the bloc's top state aid official said.
Chinese state support for business is a particular sore point for the EU, which for decades has applied strict competition rules to domestic companies.
If the proposal is adopted, any company looking to buy other firms that have an annual turnover in the EU of more than 500 million euros (601 million dollars) would have to formally notify the commission of any contributions worth 50 million euros or more from non-EU governments.
Any bids on public procurement tenders worth over 250 million euros or more would also be subject to approval by the EU executive branch.
Ultimately, the regulation would give the commission the power to issue fines of up to 10% of company annual turnover for distortive behaviour, or even stop deals going ahead, according to Vestager.
The new rules would apply to all foreign companies and fill a "regulatory gap" on subsidies distorting takeover bids and public tenders, a press release from the commission said.