1. business and industrial
2. manufacturing

HUNGARY
Your Trading and Investment Partner
Why Choose Hungary?
Ten reasons why Hungary is the ideal investment location in Central Europe:
1. Location in the heart of Europe
2. Dynamic economic growth
3. Business-friendly environment
4. Membership in the European Union and NATO
5. Long term political stability
6. EU conform investment incentives
7. Highly developed logistical, transport and communications infrastructure
8. Well trained, creative and flexible human capital
9. High productivity/wage ratio
10. Strong presence of foreign and multinational companies
Contents:
I. Country Profile
I.1. General Information on Hungary
I.2. Politics
I.3. Economy
I.4. History and Culture
II. Business Climate
II.1. Infrastructure and Transport
II.2. Human Capital
II.3. Research and Development
II.4. Foreign Direct Invesment
II.5. Benefits of EU Membership
1
III. Invesment Opportunities
III.1. Priority Sectors
III.2. Industrial Parks
III.3. Private-Public Partnership
III.4. Privatization and Brownfield Investment Sites
IV. Investment Incentives
IV.1. Tax Incentives
IV.2. Direct Incentives
IV.3. Investment and Trade Protection
IV.4. Tax Treaties
V. General economic background information
V.1. General Regulations
V.2. Corporate Legislation
V.3. Taxation
V.4. Real Estate
V.5. Foreign Trade and Customs Regulations
V.6. Banking and Capital Markets
V.7. Financial Reporting and Auditing
For any further information please contact the Embassy of the Republic of Hungary:
250 North Bridge Road #29-01 Raffles City Tower, Singapore 179101
Tel: (65) 6883 0882 Fax: (65) 6883 0177
Email: [email protected]
[email protected]
2
I. COUNTRY PROFILE
I.1. General Information on Hungary
Government: parliamentary democracy
Capital: Budapest
Regional arrangement: 19 counties and the capital
Major cities: Budapest (population: 1 775 203), Debrecen (population: 211 038), Miskolc
(population: 184 129), Szeged (population: 168 276), Pécs (population: 162 502), Győr
(population: 129 415)
The largest rivers: Danube (section in Hungary: 417 km), Tisza (section in Hungary: 596 km),
Lajta, Rábca, Rába, Zala, Dráva, Ipoly, Zagyva, Sajó, Hernád, Bodrog, Szamos, Hármas-Körös,
Maros
The largest lakes: Lake Balaton (596 square km), Lake Velence (26 square km), Lake Fertő
(Southern part 75 square km)
Regions: Central Hungary, Northern Hungary, Southern-Transdanubia, Northern Great Plain,
Western-Transdanubia, Central-Transdanubia, Southern Great Plain
Population (1st July 2004, preliminary figure): 10 032 375
Population density: 109.2 people/square km
Major national and ethnic groups: Hungarian, Croatian, German, Roma, Romanian,
Slovakian, Slovenian
Official language: Hungarian
Major religions: Roman Catholic, Protestant (Reformed Church and Evangelical), Greek
Catholic, Jewish, Orthodox
Per capita GDP (2003, ppp): USD 13.900
Currency: Forint (HUF)
Composition of GDP: agriculture: 3.3%; industry: 32.5%; services: 64.2%
Transportation: (2003): railway 7768 km (2530 km electric), public road 81 680 km
Holidays:
• 1st January (New Year)
• 15th March (anniversary of the 1848/49 revolution and war of independence; a national
holiday)
• 1st May (Labour Day)
• 20th August (foundation of the Hungarian statehood, holiday of King Stephen I, a
national and state holiday)
• 23rd October (anniversary of the 1956 revolution and war of independence, a national
holiday)
• 25-26th December (Christmas)
• Easter Sunday and Monday (27-28th March in 2005; 16-17th April in 2006)
• Whit Sunday and Monday (15-16th May in 2005; 4-5th June in 2006)
• 1st November (All Hallows’ Day)
Find out more at www.hungary.hu (Government Portal)
3
I.2. Politics
Hungary is the only country in Central and Eastern Europe, where all governments were able to
fulfil their mandate, and no interim elections have taken place the regime change in 1989. This
stability is a feature of the Hungarian political system ever since, and makes the country a
predictable and reliable partner for investors.
After 1989, Hungary started its reintegration in the world economy. The country opened up to
foreign direct investments, and liberalized its trade regime. Privatization began, which was
basically finished by the second half of the ‘90s. Hungary joined the OECD in 1996 and NATO
in 1999.
During the past 15 years, conservative and social-liberal governments have been alternating each
other. The last elections were held in 2002, and based on the results, the Hungarian Socialist
Party (MSZP) and the Alliance of Free Democrats (SZDSZ) formed a coalition government with
a slight majority. The cabinet was headed by Mr. Péter Medgyessy, who was replaced by Mr.
Ferenc Gyurcsány in September 2004. The next parliamentary elections will take place in 2006.
There are two opposition parties represented in the parliament: the conservative FIDESZHungarian Civic Alliance (FIDESZ-MPSZ) and the Hungarian Democratic Forum (MDF).
Find out more at www.parlament.hu (Hungarian National Assembly)
www.meh.hu (Prime Minister’s Office)
www.mfa.gov.hu (Ministry of Foreign Affairs)
I.3. Economy
The EU accession of Hungary is a fitting tribute to a successful transition from a centrally
planned economy to a robust, fully functioning market economy, deeply integrated into the
European economy.
The conditions for the transition were more favourable for Hungary since the country had the
region’s most liberal economy before the collapse of the Iron Curtain. Many steps have been
taken toward a market economy before the political turnaround. Hungary was the first country in
Central and Eastern Europe to apply for membership of the EU, has been a member of the OECD
since 1996 and a full member of the NATO since 1999, joined the EU on 1 May 2004. The
economic development was accompanied by a major structural change. While the share of the
agriculture in the gross domestic product (GDP) has halved to 3% since 1989, the services sector
is playing an ever growing role in the economy, it already accounts for almost two thirds of the
total output. The industry supported by foreign investors underwent strong expansion and now
accounts for almost 30% of the GDP.
The foreign companies established in Hungary have helped to create a very efficient and
effective business environment. Since the mid-1990s, Hungary has boasted one of the highest
growth rates in Central Europe, exceeding the pace at which the EU has been expanding.
Hungary is forecast to enjoy steady growth also in the medium term as it achieves real
convergence with EU economies and as world economy regains its dynamism. The structure of
the economic growth promoted by investments and export will guarantee increasing rates of
GDP growth in the coming years together with decreasing public indebtedness.
Gross domestic product (%)
2001
3.8
2002
3.5
2003
2.9
2004
4.0
2005**
3.8
4
Industrial production (%)
3.6
2.8
6.4
8.3
8.0
Exports (% - volume)
7.7
5.9
9.1
16.9
13.0***
Imports (% - volume)
4.0
5.1
10.1
13.8
13.0***
Consumer prices (%)
9.2
5.3
4.7
6.8
3.6
Balance of foreign trade*
-2.5
-3.4
-4.2
-3.9
-4.0
Current account balance*
-2.0
-5.0
-6.6
-7.1
-6.9
FDI*
4.4
3.2
2.0
3.4
3.0-3.5
Unemployment rate
5.7
5.9
5.8
6.1
6.1
Dynamic Macroeconomic Growth in Figures
* in billion Euro ** forecast *** at current prices in euros
Source: Hungarian Central Statistical Office, GKI Economic Research Institute of Hungary
The enlargement of the EU has enhanced Hungary’s attractiveness as an investment location,
thus foreign direct investments into Hungary, as well as profit reinvestments within FDI are
expected to rise. Even after privatisation had practically come to an end in Hungary, FDI inflows
show a balanced confidence of foreign investors in the country’s business environment and in
good returns on investment. Hungary is one of the most attractive places in the Central and
Eastern European region for upgraded and high-value added investments.
Hungary’s industrial production grew by 6.4% in 2003 after corresponding figures of 3.6% for
2001 and 2.8% for 2002. In 2004 8.3 % growth rate has been achieved, with a further
expectation of 8 % growth in 2005 mainly supported by renewed robust foreign demand,
especially for computers, telecommunications equipment and motor vehicles.
Hungary’s export industry is also experiencing an upturn. In 2004 the volume of exports
increased by 16.9 % exceeding the rate of imports growth – 13.8 % - and showing signs of
recovery similar to the foreign trade boom characteristic in Hungary before 2001. 74 % of
Hungarian exports find their market in the enlarged EU.
Bright outlook
Upswing in industry already gained pace in the last quarter of 2003, mainly driven by the
recovery in external demand. The recent forecast for the GDP growth in 2005 is 3.8 %. Experts
expect Hungary to maintain its robust economic expansion in 2005 and exporters will continue to
benefit from the ongoing recovery of the Euro-zone, the largest trading partner of Hungary.
The encouraging outlook has impacted positively on both business and consumer sentiment. The
slowing increase in real wages and the ongoing fiscal tightening help to increase the
competitiveness of the economy.
Find out more at www.itd.hu (Hungarian Investment and Trade Development Agency)
www. gkm.gov.hu (Ministry of Economy and Transport)
www.mnb.hu (The Hungarian Central Bank)
www.ksh.hu (Hungarian Central Statistical Office)
www.amcham.hu (The American Chamber of Commerce in Hungary)
www.mkik.hu (Hungarian Chamber of Commerce and Industry)
I.4. History and Culture
A great place to live and work
The quality of life that Hungary offers foreign investors and employees in Budapest and
throughout the country is an important factor when businesses consider locating here.
5
Expats working in Hungary for extended periods have so far not been disappointed: they have
found living in Hungary pleasant and Budapest exciting and less expensive than other major
European capitals. Moreover, the country boasts a rich and internationally recognised culture,
distinctive cuisine, superb wines, a centuries-old spa tradition, excellent schools, and numerous
leisure activities and facilities.
With its millennium-old culture and awe-inspiring technological legacy, it is no wonder world
business makes Hungary its central European home.
Find out more at www.hungary.hu (Government Portal)
6
II. BUSINESS CLIMATE
II.1. Infrastructure and Transport
The Hungarian transportation infrastructure is currently undergoing major government-supported
reconstruction to extend the construction of four-lane highways, which currently only cover a
part of the country. The state-run domestic railway system is widely used for industrial shipping
due to its low cost and high reliability. Hungary's major airport, Ferihegy, is located in Budapest.
The airport currently operates on two modern terminals. Budapest is serviced by numerous major
international airlines, with strong growth in the charter air service market to closer destinations
in the region. Regular domestic air service was re-established in the summer of 2000, connecting
the capital of Budapest with Miskolc, a major industrial city in Eastern Hungary, in order to
assist the further development of this part of Hungary. Larger cities that maintain airports for
private aircraft and development plans are close to the implementation phase for transforming
several former Soviet military air bases into domestic passenger and cargo airfields.
Hungary now has a highly developed telecommunications system and the choice of 900, or 1,800
MHz mobile service with 100 percent physical coverage. To comply with EU accession
requirements, the Hungarian government passed a telecommunications liberalization law in
2001, which came into force in January 2002. The law opened the local and international fixedline market to competition (the mobile market was already open). However, MATAV, the
national telephone company, still holds the major share of the international calling and local
service market. There are about 50 Internet Service Providers (ISPs) in Hungary.
The reason why a lot of investors choose Hungary as their location is that the country is in a
central position geographically, it is a good connection to the east and to the west. Hungary is
also an integral part of the European rail network and can be reached by international express
trains from neighbouring and numerous other European countries. The central airport is in
Budapest, but there are two more international regional airports in Hungary, namely in Debrecen
and Győr. Further regional airports will open for international purpose in the Western part of the
country.
Roads
In its preparation for EU accession, Hungary has invested heavily over the last few years to
upgrade and extend its motorway network and road infrastructure. The Hungarian transportation
infrastructure is currently undergoing major government-supported reconstruction to extend the
construction of four-lane highways, which currently only cover a part of the country. Good roads
lead to Hungary from neighbouring countries. Seven of Hungary's eight major highways start
from Budapest and all link up with the European road network.The road network in Hungary is
good and needs less improvement work than other countries in the region. The improvement of
the motorway network and four lane motorways linking all the major cities in Hungary will
result in driving times decreasing by approximately 40% on the main inter-city routes.
All Hungarian municipalities are accessible via hard surface roads.
Seven of the eight main roads start from Budapest (designated by single digit numbers, running
clockwise from the Vienna motorway M1). The No. 8 road starts from Székesfehérvár in the
direction of Rábafüzes. Secondary roads are marked by two or more digit numbers.
Water
Hungary is landlocked but has access to the Black Sea and the North Sea via the Danube. Ports
are located in Budapest and Dunaújváros. The opening of the Danube-Rhine-Main channel in
7
1992 made possible the performance of export-import traffic with the countries along the Rhine
and the maritime ports in the north too. In the end of the 1990s Freeport Budapest followed the
direction of the European economy and transformed into a logistical collecting and distributing
centre.
Air
MALÉV (Magyar Légiforgalmi Rt.), the Hungarian airline company, has regular flights to over
40 countries world-wide ensuring that one may travel to or from Budapest from or to any point
in the world. Ferihegy Airport is the international airport in Budapest and has three terminals.
Flights of foreign airline companies depart from and arrive at Ferihegy 2B while those of
MALÉV arrive at and depart from Ferihegy 2A.
Larger cities maintain airports for private aircraft and development plans are close to the
implementation phase for transforming several former Soviet military air bases into domestic
passenger and cargo airfields. Budapest is also accessible by many low-cost airlines as well.
Find out more at www. gkm.gov.hu (Ministry of Economy and Transport)
www.malev.hu (MALÉV Hungarian Airlines)
www.bud.hu (Budapest Airport)
II.2. Human Capital
In the Central and Eastern European region Hungary has the
„ highest rate of participation in adult training and education of employees
„ highest percentage of GDP spent on higher education
„ highest rate of labour force working in the R&D sector
„ most patent applications submitted and the most patents granted per capita
„ most high-technology patents per capita
Foreign language & computer skills are required for a university or college degree.
Number of students
Number of students in technical
universities and colleges
Languages learned
In percent
English
50.8
French
5.1
1994/1995
2003/2004
34,736
64,002
German
28.0
Russian
1.7
Others
14.4
Find out more at www.campushungary.hu (Hungarian Higher Education Institutions)
II.3. Research and Development
Creative, well-trained human resources constitute Hungary's main competitive edge
Hungary has internationally recognised research and development traditions, both at university
and academic levels. Hungarian research achievements and traditions are world famous – this is
particularly true in the fields of natural, technical and medical sciences – hallmarked by the
following Hungarian researchers and inventors:
Zoltán Bay - telemetrics
Ottó Bláthy - transformer
Dénes Gábor - holography
8
József Galamb - Ford T Model
Péter Goldmark - colour television
Tódor Kármán - rocket technique
János Kemény - basic programming
John von Neumann - modern computer
Tivadar Puskás - telephone switchboard
Focus on R&D at governmental level
In 2003 the Hungarian scientific and technological system underwent a successful
transformation, which continued in 2004. The new institutional system is in line with EU
requirements. Hungary is a prominent member of the European Research Area and support
system with its strategy having been adapted to the Lisbon goals.
Complementing the educational system the Hungarian innovation system consists of three main
institutional components: governmental organisations, the Hungarian Academy of
Sciences and its institutes, and separate research institutes. In the field of R&D the National
Office of Research and Technology (NKTH) acts as controlling governmental organisation.
NKTH is a budgetary body under the Government with nationwide scope, full authority and
independent operation. Supervisory rights over NKTH are exercised by the Minister of
Education.
Established network of research centres
In addition to university research laboratories the research centres related to the Hungarian
Academy of Sciences and the ministries are worth mentioning. It is the responsibility of the
Academy to maintain and supervise its network of 37 research institutes as well as the related
libraries, archives and informational systems. Besides, the Academy supports the research groups
linked to universities and joins together researchers working in various institutes in scientific
teams. Some of the institutes specialised in R&D are linked to specific ministries. With its three
research centres – one in Budapest (Material Science and Laser Research), one in Miskolc
(Logistics and Production Technical Institute), and the third one in Szeged (Biotechnological
Institute) Bay Zoltán Applied Research Foundation is considered the most significant
nonbudgetary R&D organisation.
International relations in Science and Technology
It is one of the declared goals of the already enlarged European Union to transform into a leading
knowledge-based society. In accordance with this goal was the Economic Competitiveness
Operative Program (GVOP) announced within the framework of the National Development Plan
(NFT) in Hungary. „Research and development” is listed among the priority elements of the
program. Hungarian R&D organisations have an increasing opportunity to participate in
multilateral and bilateral scientific programmes. Hungary has become a full member in most
European and Euro-Atlantic research organisations and programmes (EU R&D Framework
Programmes, Cost, Eureka, CERN, EMBL, ESA/Prodex and the NATO Science Program).
Hungary has concluded 33 intergovernmental S&T agreements and the number of bilateral
projects amounts to 500-600 in a year.
Sector specific corporate R&D centres
Automotive industry:
Audi • Continental Teves • Denso Magyarország • DHS Draixlmaier Hungária Kft. • General
Motors • Ikarus • Knorr-Bremse • Luk Savaria • Magna Steyr • Michelin • RÁBA • Valeo AutoElectric • Visteon • W.E.T. • Zenon Systems • Zeuna Starker • ZF Hungária
9
Electronics and ICT:
Continental Temic • Elcoteq • Elektrolux • Ericsson • Flextronics • GE Hungary • IBM • Nokia •
Philips • Samsung • Sysdata Siemens
Pharmaceutical industry:
AstraZeneca • Glaxo-Wellcome • Novartis/Sandoz Seeds
Other:
Bosch Power Tool Elektromos Szerszámgyártó Kft. (Electric Tools Manufacturing Ltd.) • AFT
Wide range of financial incentives
In addition to the excellent R&D educational background and institutional system the positive
decision of multinational companies is fostered by a well-thought-out and comprehensive
investment incentive system. Besides the resources available from the Research and
Development Innovational Fund the government creates favourable conditions for companies
specialised in research activities setting up in Hungary through tax allowance, non-refundable
financial subsidies awarded via tenders:
- 100% RTD corporate tax allowance (also available for subcontracted R&D activities if partner
is public/non-profit research site)
- 300% RTD tax allowance if the company lab is located at a university or public research
institute
- Tax credits on investments, including R&D investments (rate depends on volume, company
size and geographic location)
- Tax free employment of students up to the official minimum wage
- Option to create tax-free investment reserves, including R&D investments
- Tax allowance for corporate donations to organisations of public benefit supporting R&D
activities
- Tax credit for individual donors supporting R&D activities.
- Tax credit of personal income tax after the creation of intellectual property.
Find out more at www.mta.hu (Hungarian Academy of Sciences)
www.nkth.gov.hu (National Office for Research and Technology)
II.4. Foreign Direct Investment
Land of welcome for foreign investors
Since the beginning of the transition to democratic market economy at the end of the 1980s,
Hungary has attracted a steady stream of foreign capital, well-balanced across the various sectors
of the economy. The average capital influx of 2.5 - 3 billion Euros per year over the past 15
years shows just how effective the Hungarian economy has been at integrating outside
investment. A country of 10 million inhabitants, Hungary can currently boast of having attracted
Foreign Direct Investment (FDI) of approximately 47 billion Euros to date.
In the early 1990s, privatisation, conducted freely and in accordance with the rules of the market
(a unique phenomenon in the region at that time), was the main incentive for foreign investment
- although even then investments in new industrial facilities were becoming increasingly
frequent. Today, there are new incentives for foreign businesses and a new direction for
incoming capital.
10
Cumulated FDI* in Hungary
1990-2004, in million euros
A new structure for Foreign Direct Investment (FDI)
While privatisation is still in progress in other central European countries, Hungary has begun
travelling down a different road. To take one example, industry, which prior to the mid-90s had
consisted mostly of simple manufacturing processes, has gradually been transformed by the
introduction of advanced technologies and innovation into production of goods representing
higher added value. Investment in the automotive sector as a proportion of total FDI, and the
growth in the associated service sectors have become especially important: regional service
centres are being set up and R&D activities initiated at an ever-increasing rate. Today, not only
have the largest multinational car manufacturers established production and assembly facilities in
Hungary, their major international suppliers have also come and brought their subcontractors
with them.
Hungary is truly a land of welcome for foreign investors - and a land of opportunity. These
statements are justified by the fact that hundreds, if not thousands, of foreign companies have
located here. And their numbers continue to increase. While in 1990 the number of 100%
foreign-owned companies was 231 and the number of companies with foreign participation only
5,462, today their numbers are 27,000 respectively.
Find out more at www.itd.hu (Hungarian Investment and Trade Development Agency)
www. gkm.gov.hu (Ministry of Economy and Transport)
www.mnb.hu (The Hungarian Central Bank)
www.ksh.hu (Hungarian Central Statistical Office)
www.mkik.hu (Hungarian Chamber of Commerce and Industry)
www.amcham.hu (The American Chamber of Commerce in Hungary)
www.bcch.com (The British Chamber of Commerce in Hungary)
www.apvrt.hu (Hungarian Privatization and State Holding Company)
11
FDI Stock in Hungary by Sectors
FDI Stock by Countries
12
II.5. Benefits of EU Membership
Hungary became a member of the European Union on the 1st May 2004. The membership has
significant effects on the Hungarian economy, and gives important competitive advantages for
companies settled in the country.
General Advantages
– Joining a community of stability, democracy, security and prosperity
– Growing internal market, increasing domestic demand (customs-free access to 450 million
consumers)
– Free movement of labour force, goods, services and capital
Macroeconomic Effects
– 0.8 % point increase in the GDP growth rate
– 1.0 % point increase in the rate of industrial output growth due to higher export sales dynamics
– Growing inflow of FDI due to increased business confidence
– Regional hub role – gateway to Eastern Europe
– State subsidy system in line with EU regulations
– Stronger competition and drive for innovation
– Easier access to financial institutions and funds within the enlarged European Union
– Transport infrastructural investments may reach EUR 10-11 billion until 2010
Benefits for companies
– Increasing EU funds for environment protection, education, R&D and supporting SMEs
– Transparency of taxation and business accounting rules
– No customs or quantitative limitations within the EU
– Simplified procedure in business administration when exporting to EU member states
- Free access to a market of 450 million consumers for non-European companies settled in
Hungary
Reduction of trade barriers
– Mutual certification of goods
– Single standard certification process for the entire region
– Rigorous enforcement of competition policy and intellectual property rights
– Harmonized VAT payment system in the EU
–
Outlook for EMU Membership - Date of possible entry: 2010
– Lower real interest rates boost investments
– No exchange risk and conversion charges
– A potential 0.6-0.9% increase in the economic growth due to the adoption of the single
currency
– Meeting the Maastricht convergence criteria
Find out more at www.europa.eu.int
13
III. INVESTMENT OPPORTUNITIES
III.1. Priority Sectors
The priority sectors of the Hungarian Government are the ones that produce high value added
products and/or require high level knowledge. These sectors have attracted high volumes of FDI
during the past years, and continue to be the main accelerators behind the growth of Hungarian
economy as a whole, as well as the country’s exports.
The automotive industry
Automobile manufacturing has longstanding traditions in Hungary.
Since the beginning of the 20th century, the country has been fertile ground for important
innovations, many of which are still in use today.
It's no accident that since the '90s several foreign car manufacturers (such as Audi and General
Motors) have followed Suzuki's example and set up production facilities in Hungary. (The
Japanese car maker began production here in 1992 and was followed in the mid-90s by several of
its traditional suppliers.)
Today, the number of second- and third-line Hungarian equipment manufacturers who meet
stringent quality standards is continually on the rise. There are currently 350 local suppliers in
this industry.
Electronics
The electronics industry provides one of the best options for foreign businesses looking for
investment opportunities in Hungary.
14
In the past few years, foreign investors have shown a particularly keen interest in four areas
within this sector.
In information technology, communications and consumer electronics, rapid technological
innovation continues to drive product development, broaden product lines and enhance
performance for consumers.
In telecommunications, foreign manufacturers of mobile devices and removable parts (namely
Ericsson, Nokia and Siemens) have set up centres of excellence in Hungary, spurring innovation
and new applications. The assembly of electronic components has played a decisive role in the
development of information technology (SANMINA-SCI, Flextronics and Philips). Finally, a
number of companies supplying auto electronics parts (such as Temic, Delphi and Bosch) have
made serving the large car and bus manufacturers active in Hungary (Audi, Opel, Suzuki, Ikarus,
NABI and Rába) their top priority.
And there are more than a thousand Hungarian small- and medium-sized enterprises (SMEs) to
provide the large electronics manufacturers with their capacity and know-how.
Information technology
The growth rate in IT in Hungary is around 10%, far exceeding overall GDP growth.
As with fixed-line telecommunications, outsourcing is playing an ever-increasing role, resulting
in an appreciable increase in the volume of IT services.
Its 8% share of GDP last year shows just how important IT is to the overall economy.
Many IT companies long-established in Hungary have begun relocating R&D activities here.
This is what Nokia, Ericsson, Siemens, Avaya, Motorola, Philips, TATA Consulting Services
and HP-Compaq did, just to name a few.
R&D and innovation
Non-Euclidean hyperbolic geometry, the torsion pendulum, the carburettor, the transformer, the
krypton bulb with tungsten filament, radioactive marking, the nuclear reactor, thermonuclear
fusion, the cooling tower, the electric train, supersonic flight, radio astronomy, the new measure
of a metre relying on the speed of light in the void, the ballpoint pen, holography, the radio, the
television, the computer, Basic (the first computer programming language), lead-free petrol,
15
vitamin C and Game Theory - all salient achievements of universal culture - were invented or
fundamentally advanced by scientists of Hungarian origin, who mastered the tenets of their
scientific disciplines here in their native country.
The research and development conducted at Hungarian universities and at the institutes of the
Hungarian Academy of Sciences have achieved international renown.
Biotechnology
Possessing the most developed pharmaceutical and biotechnology sector amongst the 10 EU
accession states, Hungary provides an ideal base for life science companies eyeing more distant
markets or planning further expansion within central and Eastern Europe or the European Union.
Hungary is a natural gate to minimum three countries poised to join the EU in the coming years –
enormous advantages for firms seeking new markets and new horizons. This advantageous
position is supported by world-class R&D carried out in several large pharmaceutical companies,
in a growing network of small and medium-sized biotech companies as well as in renowned
research institutions providing a large untapped opportunity for commercialization of brilliant
ideas.
Why Invest in Hungarian Life Science sector?
• World renowned science education and creativity
• Recognized academic research base with strong collaborative ties to universities and
companies in the EU, US and Japan
• Innovation-friendly legislation – Bayh-Dole-like „Innovation Act” passed in December
2004
• €150+ mn state funding into R&D in 2005 combined with supportive fiscal measures
• National pharmaceutical industry with strong roots, combined with significant FDI into
pharmaceutical R&D and manufacturing
• Over 50 core biotech companies founded in the past 15 years – most of them in the past 5
years
16
•
•
•
•
800 to 1,000 core biotech jobs currently
Most companies provide devices or tools/services to the international
pharmaceutical and biotechnogy industries
• Four biotech clusters, formed around major science universities and research
centers, with a clear dominance of Budapest
• Major strengths in chemistry, molecular biology, genomics and bioinformatics
st
1 biotech association formed in the CEE region in 2002
5-year national biotechnology strategy developed in 2005 with strong state commitment
Logistics
Currently, there are several hundred high-quality Hungarian and multinational logistical service
providers available in Hungary. In terms of the development of this service there is a favourable
competition on the market. The market of companies providing logistics for special products and
complex logistical services is growing fast. The national network of logistical service centres
was set up with bearing in mind easy accessibility of each centre. Hungary’s EU accession is a
key driving force behind the market changes, for as globalisation continues, customs regulations
and authorisation procedures become ever more simplified. Hungary’s role as a transit country
will further grow as the new EU member state bordering four non-EU countries.
During the last few years the creation of an industrial park network has been considered very
important in Hungary. There is not one town in the country that does not have an industrial park
in its neighbourhood within 30 kilometres at the minimum. Companies relocating to these parks
can enjoy all the benefits ranging from production to delivery to the target location and a wide
selection of services.
Find out more at www.itd.hu (Hungarian Investment and Trade Development Agency
III.2. Industrial Parks
Hungary offers the widest selection of industrial parks in the region: investors can choose from
more than 160 operating industrial parks on the basis of their business, professional, or cultural
demands. Establishing a business is facilitated by highly favourable conditions, including
management that is familiar with local circumstances, support from municipalities, and various
tax benefits. Another very important point is that investments are usually implemented in a fairly
short period of time (a few months).
Industrial parks in Hungary
„ Out of the 50 largest multinational companies, 39 have at least some part of their
operations in industrial parks in Hungary.
„ Up to the present, 4.1 billion USD capital has made its way to these parks.
„ The parks yield 25 percent of industrial output.
„ The parks produce 40 percent of industrial exports.
„ The productivity of activities performed in industrial parks is over 70 percent higher than
the industrial average, and just 15 percent less than the average productivity in the
European Union.
Nearly half of industrial parks are situated by motorways, and investors can expect professional
logistics services almost everywhere.
17
Location of industrial parks in Hungary
Typical services of industrial parks
„ basic infrastructure needed for production (for example, energy, water, waste-water
treatment),
„ through related technological work stages, the evolution of professional co-operation in
order to cut production costs,
„ a wide range of other quality services (for instance, banking services, customs
administration, consultancy, security guards in the area, office services)
„ promoting the development of a supplier base.
Research and development
Industrial parks are increasingly striving to create their individual professional characters. Within
and also in the vicinity of industrial parks, more and more attention is paid to research and
development. Universities and academic institutions in Budapest, Miskolc, Debrecen, Szeged
and Pécs constitute an excellent intellectual resource.
Find out more at www.itd.hu
III.3. Private-Public Partnership
Government actions to promote Private-Public Partnership (PPP)
PPP Department within the Ministry of Economy and Transport
Government Decree in May 2003 to set up an Interdepartmental Committee
- Ministry of Economy and Transport
- Ministry of Finance
- Ministry of Justice
- Prime Minister’s Office
- Central Statistical Office
Main fields of Private-Public Partnership:
Road infrastructure development program
- Long-term goal: 2500 km length of expressway network by 2015
18
- Act CXXVIII on the development of the Hungarian expressway network (accepted by the
Parliament in December 2003)
- Deficit constraints => need for alternative ways of financing: PPP projects and EU funds
- Example: M6 motorway
o Part of the V/c Helsinki corridor
o Approx. 252 km section between Budapest and the Hungarian - Croatian border to be built in 2
phases: first phase between Budapest and Dunaújváros (54 km) by 2006; second phase between
Dunaújváros and the Croatian border (198 km) by 2007
Student hostels
- Projects of the Ministry of Education
- Goal: development of university infrastructure
- Government decision on creating 10 000 accommodations in student hostels in the framework
of PPP
- The pilot project of the University of Debrecen
o Classical DBFO structure
o Decision of PPP Committee on supporting the project on 30th September 2003
o Approval of the Economic Cabinet and the Government
o Public procurement procedure completed, construction is under way
- 11 further similar PPP schemes for other universities
Penitentiary system
- Goal: the development of the penitentiary infrastructure - two new PPP prisons
- DBFO construction
o During a period of 15-20 years, 700 prisoner places / prison
o „Operate” element: only those tasks are performed by the state which cannot be carried out by
the private sector (custodial services, on site medical facilities and registering of prisoners)
o Positive decision of the PPP Committee: 10th October 2003
III.4. Privatization and Brownfield Investment Sites
For current privatization tenders, and information on future offerings, please visit the homepage
of the Hungarian Privatization and State Holding Company www.apvrt.hu
Besides industrial parks and new greenfield investment sites, there is a wide range of brownfield
sites and properties, which can make good locations for certain types of investments in Hungary.
These include:
- Former military bases;
- Former industrial and warehouse properties;
- Country side manor houses ideal for tourism-related investments;
19
IV. INVESMENT INCENTIVES
IV.1. Tax Incentives
Statutory bases: Government Decree No. 275/2003 and 85/2004, Act LXXXI of 1996
on Corporate Tax and Dividend Tax, C (2002) 315 2002/C 70/40 EU Directive
Rate of tax benefit: maximum the intensity ratio defined in EU regulation less all other direct
subsidies.
Maximum intensity ratios are:
Defined by regions:
• 35% in Budapest
• 40% in Pest County
• 45% in Western Transdanubia (except 6 less developed small regions in the area)
• 50% in all other regions of Hungary
Defined by size of investment:
• Up to EUR 50 million worth of investment – no further restriction in addition to regional
preferences is applicable
• Between EUR 50-100 million worth of investment – 50% of the regionally allowed
intensity ratio is applicable
• Over EUR 100 million worth of investment – 34% of the regionally allowed intensity
ratio is applicable
Example: Maximum intensity ratio for an EUR 135 million investment in Budapest (35%):
50 million * 35% + (100-50 million) * 35% * 50% + (135-100 million) * 35% * 34%
Defined by sectors: Sensitive sectors are described in accordance with EUregulations, for which
further decreased state subsidies or no subsidies at all are granted.
(Major) eligibility criteria:
• Investment amount is HUF 3 billion (cca. EUR 12.1 million) anywhere in Hungary OR
HUF 1 billion (cca. EUR 4.03 million) in priority regions of the country or in an area
handled by a higher education institution or the Hungarian Academy of Sciences, with
the purpose of carrying out basic research, applied research or experimental development
– Act LXXXI of 1996 on Corporate Tax and Dividend Tax, 22/B§ (1)a)b)
Investment costs: see separate material on Eligible Investment Costs
• AND Minimum 30% of the value investment should be new – Act LXXXI of
1996 on Corporate Tax and Dividend Tax, 22/B§ (2)a)
• AND Maximum 20% of the value of investment can be renewal, except in priority
regions of the country – Act LXXXI of 1996 on Corporate Tax and Dividend Tax,
22/B§ (2)b)
• AND Employment of 100 persons anywhere in Hungary OR 50 person in priority
regions of the country for at least five years – Act LXXXI of 1996 on Corporate
Tax and Dividend Tax, 22/B§ (6)a)
• OR Yearly wage costs are 600 times the official minimal wage (HUF 57,000 =
cca. EUR 230) anywhere in Hungary OR 300 times the official minimal wage in
20
•
•
•
priority regions of the country for at least five years – Act LXXXI of 1996 on
Corporate Tax and Dividend Tax, 22/B§ (6)b)
• OR Procure minimum 30% of its supplies from firms qualifying as small- and
medium-sized enterprises for at least five years – Act LXXXI of 1996 on
Corporate Tax and Dividend Tax, 22/B§ (6)c)
Definition of SMEs - Act XCV/1999 on Small and Medium Sized Enterprises:
2. § Small- and medium-sized enterprise is an enterprise, where
a) total number of employees is less than 250 persons, and
b) yearly net turnover is maximum 4000 million HUF, or total assets = total
liabilities = max. 2700 million HUF, and
c) meets the requirements set in 3. § (3)
• 3. § (3) A company is a small- and medium-sized enterprise, if the shares of the
State, Local Government or any Third Party – based on capital share or voting
right – do not exceed 25%, neither individually, nor altogether.
Realising job creating investments, if investment involves the creation of new facilities or
expanding existing capacities, and is operated for five years after the start up of
investment. – Act LXXXI of 1996 on Corporate Tax and Dividend Tax, 22/B§ (1)g)
• AND Minimum 30% of the value investment should be new. – Act LXXXI of
1996 on Corporate Tax and Dividend Tax, 22/B§ (2)a)
• AND Maximum 20% of the value of investment can be renewal, except in priority
regions of the country. – Act LXXXI of 1996 on Corporate Tax and Dividend
Tax, 22/B§ (2)b)
• AND Minimum 20% of the number of employees are entrants (entrant is a natural
person who establishes labour relation with a company for the first time within
one calendar year after graduating from a full-time secondary school or higher
education institution) in the third year following the first utilisation of the tax
benefit and in the subsequent four years. – Act LXXXI of 1996 on Corporate Tax
and Dividend Tax, 22/B§ (10)a)
• AND Number of employees has increased by 300 persons anywhere in Hungary
OR by 150 people in the priority regions of the country in the third year following
the first utilisation of the tax benefit and in the subsequent four years, as
compared to the tax year preceding the start of investment. – Act LXXXI of 1996
on Corporate Tax and Dividend Tax, 22/B§ (10)
Length of tax benefit: maximum 10 years (from the first year after the activation of the
investment plus the subsequent nine years, or – upon request of the taxpayer – from the
year of activation of the investment plus the subsequent nine years) – Act LXXXI of
1996 on Corporate Tax and Dividend Tax, 22/B§ (4), or as long as the ceiling of tax
benefit as defined by the intensity ratios in Govt. Decree 163/2001 is reached, whichever
comes first.
Utilisation of tax benefit: maximum 80% of the payable tax can be tax benefit each year.
• Application for tax benefit: application should be submitted at the Ministry of
Finance, which will approve and authorize the tax benefit if applicant meets all
the requirements meet the criteria of relevant laws described above. Decision is
made within 60 days upon receipt of application, or – if completion of documents
is asked for – within 60 days upon receipt of the completed application. This
deadline can be extended once with further 60 days. If the Ministry of Finance
does not reject the application within the deadline, it should be supposed that the
application has been approved.
21
IV.2. Direct Incentives
1. European Union Grants
Non-refundable aid available by way of grant applications
Hungary has prepared its National Development Plan (Hungarian abbreviation: NFT) for the use
of European Union Structural Funds of, on the basis of which five operative programmes have
been worked out:
•
•
•
•
•
Economic Competitiveness Operative Programme (Hungarian abbreviation: GVOP)
Agricultural and Rural Development Operative Programme (Hungarian abbreviation:
AVOP)
Environmental Protection and Infrastructure Operative Programme (Hungarian
abbreviation: KIOP)
Human Resource Development Operative Programme (Hungarian abbreviation: HEFOP)
Regional Operative Programme (ROP)
1.a. Economic Competitiveness Operative Programme
This programme is primarily aimed at providing the manufacturing sector with support and
improving the competitiveness of enterprises. Its objectives are the following:
•
•
•
•
Incentive for investment is the first priority. Business enterprises with Hungarian
headquarters may apply for non-refundable grants (e.g. for building up production
capacities for modern high-tech products, the introduction of environmentally friendly,
less-polluting technologies and procedures, and the establishment of Central and East
European or European regional corporate centres in Hungary).
Development of small and medium enterprises is another important priority. (Further
details on this objective can be found in the chapter entitled “State Aid Schemes Offered
to Small and Medium Enterprises.”)
Research and development, innovation is also of primary importance. Grants for applied
cooperative research and technology development activities, as well as the strengthening
of corporate R&D capacities and innovative skills are available.
Information society and economic development, within the framework of which, among
other things, the development of e-economy and e-commerce, the improvement of the
information (digital content) sector, and the expansion of the broadband
telecommunications infrastructure are objectives for which grants are available.
1.b. Agricultural and Rural Development Operative Programme
This programme covers development in the broadly defined agricultural sector (including
farming, forestry, fisheries, and food processing) and in rural regions. The programme includes
projects aimed at facilitating agricultural investments, modernising forest management,
improving processing and marketing of agricultural products, as well as developing of the
agricultural infrastructure.
1.c. Environmental Protection and Infrastructure Operative Programme
The fundamental objective of this programme is to facilitate environmentally friendly
development. Projects with the following themes, among other things, belong to this programme:
the development of environmental protection in communities, the strengthening of
22
environmental safety, the environmentally friendly development of energy management, and the
improvement of an environmentally sound infrastructure.
1.d. Human Resource Development Operative Programme
This programme aims at increasing employment, improving education and training, developing
entrepreneurial skills, and fostering improvements in the field of medical and health services.
1.e. Regional Operative Programme
The aim of this programme is the facilitation of balanced regional development. This includes
the strengthening of potential tourism, the functional improvement of castles and forts, as well as
the development of regional infrastructure and community environments, the reuse of brownfield
areas, the human resource development of the regions, and expert assistance.
Other opportunities:
In addition to European Union sources, grant opportunities for Hungarian financing also
available to companies have appeared as well. One example is the grant from the Ministry of
Economy and Transportation for environmentally sound technological change, under which aid
is available to the environmentally sound reconstruction of technologies used in the processing
industry, whereby more environmentally friendly, cleaner, more energy efficient technologies
causing less environmental burdens can be introduced. This grant also provides assistance to the
reconstruction-type modernisation of existing technologies that may result in surplus production
capacity.
General characteristic features of grant applications:
A general feature of the grant programmes is that the applicant must have a certain percentage of
own funds (own sources or loan) as defined in the terms of the application. The investment must
be implemented within 2 years from the signing of the contract, and must be usually operated for
at least an additional 5 years. Public procurement procedures must also be carried out with
respect to the goods, construction, and other services purchased under the programme in case the
value of the investment reaches the limits set forth by the law on public procurement.
Practical advice for applicants:
• Each grant programme has a guidebook, which provides assistance in the preparation of
the applications. It is therefore important to carefully study the guidebook contents.
• As a first step, the applicant must determine whether he/she/it is entitled to apply for a
grant in the given programme.
• The formal requirements must be fully met, in the absence of which the applicant may be
disqualified without considering the merits of the application.
• No grants are available for projects that have already commenced.
Find out more at www.fvm.hu (Ministry of Agricultural and Rural Development)
www. gkm.gov.hu (Ministry of Economy and Transport)
www.kvvm.hu (Ministry of the Enviroment and Water Resources)
www.fmm.gov.hu (Ministry of Employment and Labour)
www.oth.gov.hu (National Office for Regional Development)
,
2. Special Package for Large Investors
Distinctive Governmental Decision
23
Conditions for eligibility:
• Manufacturing projects of min. EUR 50 million
• Regional service centre established with a total investment of min. EUR 25 million
• Min. 100 new jobs created
Eligible costs:
• Purchase of machines and equipment
• Site acquisition and the cost of related infrastructure
• Intangible assets needed for the project
• Wage cost of new employees for the first 24 months (services)
Project Evaluating Criteria
• Size of investment
• Number of created new jobs
• Proportion of Hungarian suppliers
• Level of technology and innovation
• Proportion of training costs
• Skill level of employed labour force
• Environmental impacts
• Financial impact on the Hungarian economy
IV.3. Investment and Trade Protection
Hungary provides full-range protection against expropriation, nationalization and any arbitrary
acts. The law forbids expropriation. Such action is executable only in case of acute national
concern. Should this happen, an immediate, just and adequate compensation is provided to the
foreign owners.
Hungary has entered into several bilateral and multilateral investment protection treaties with
strategically important investor countries. These treaties provide a more detailed description of
the applicable legal guarantees granted to foreign investors. Hungary has investment protection
treaties with following countries :
Australia
Argentina
Austria
Belgium
Bulgaria
Canada
China
Cyprus
Czech Republic
Denmark
Germany
Greece
Israel
Italy
Korea
Kuwait
Luxemburg
Malaysia
Netherlands
Norway
Russia
Singapore
Spain
Sweden
Switzerland
Thailand
Turkey
Ukraine
United Kingdom
United States
24
Egypt
Finland
France
Source: Ministry of Finance
Paraguay
Poland
Portugal
Uruguay
Vietnam
The most important international agreements Hungary has been a member to are, as follows:
Mutual Investment Guarantee Association (MIGA), Paris Industrial Property Convention, World
Intellectual Property Organizations Conventions, Madrid and Nice Agreements for the
Registration and Classification of Trademarks, Hague and Locarno Agreement on Industrial
Design, Patent Co-operation Treaty, International Court For the Settlement of Investment
Disputes. No investment permit of any kind is needed in Hungary for foreign investors, but
business entities must be registered with the local court. Apart from the registration and reporting
requirements, no licenses or permits are needed for the establishment and operations of foreign
businesses. Some exceptions, however, exist in case of privatization of state-owned assets or
certain foreign exchange transactions, when the Hungarian Privatization and State Holding
Company, in the former case, or the National Bank of Hungary, in the latter case, are competent
and authorized to negotiate or issue licenses.
IV.4. Tax Treaties
Hungary has concluded tax treaties with the following countries:
Albania, Australia, Austria, Belgium, Brazil, Bulgaria, Cyprus, the Czech Republic, Denmark,
South Africa, South Korea, Egypt, Finland, France, the Philippines, Greece, Holland, Croatia,
India, Indonesia, Ireland, Israel, Japan, Yugoslavia (valid for all successor states on a reciprocal
basis until new treaties are signed), Canada, Kazakhstan, China, Kuwait, Poland, Luxemburg,
Macedonia, Malaysia, Morocco, Malta, Moldavia, Mongolia, Great Britain and Northern Ireland,
Germany, Norway, Italy, Russia, Pakistan, Portugal, Romania, Spain, Switzerland, Sweden,
Singapore, Slovakia, Thailand, Turkey, Tunisia, Ukraine, Uruguay, the U.S.A, and Vietnam.
25
V. GENERAL ECONOMIC BACKGROUND INFORMATION
V.1. General Regulations
According to the prevailing laws, no special permit is required to establish a commercial
enterprise in Hungary. Companies can be founded by natural or legal entities, Hungarians and
foreign nationals alike. Even a single person can found a joint-stock company (JSC, or Rt. in
Hungarian) or a limited liability company (LLC, or Kft. in Hungarian); the only requirement is
that the headquarters of such companies must be located within Hungary. The articles of
association (the deed of foundation and the articles of incorporation) must be signed by all
members of the corporation.
The articles of incorporation must specify the following:
- company name
- location of headquarters
- a list of the company’s members, with their respective addresses and their mothers’ maiden
names
- the company’s business activities (certain activities require special administrative permits)
- the amount of the equity capital, the method and date of its availability
- the method of the company’s registration
- names and addresses of the company’s officers as well as their mothers’ maiden names
- the duration of the company, if founded for a fixed period of time
- all other items of information relevant to the given form of corporation as required by the
prevailing act of law.
Company registration
The registration of business associations is a must in Hungary. The Articles of Association or the
Deed of Foundation, respectively, must be drafted and countersigned by a Hungarian registered
attorney. The Company Act determines the minimum basic information that such founding
documents should contain, such as the name of the company, domicile, capital founders/owners,
basic data on the executive officers etc.. Since the company registration is public, the basic
corporate documents are available to any person, thus it is customary that the owners sign a
separate syndicate agreement in case they intend to stipulate provisions they would not like to
unveil (e.g.: transfer of know-how).
The registration application must be filed with the competent Hungarian Court of Registration
within 30 days from the conclusion of the Articles of Association. If the applicable laws require
for the establishment of the company any official license, it must be attached to the application
form. Once the registration is submitted, the company may start its operations as a pre-company
until the registration is made or refused. A pre-company may pursue business activities, but may
not conduct business activities requiring an official license.
The Court of Registration must decide on the registration within 30 days in the case of non-legal
entities (unlimited partnership and a limited partnership), or within 60 days in the case of
companies having legal personality (limited liability company, joint enterprise, company limited
by shares). This period commences at the delivery of the application to the Court of Registration.
If the Court fails to meet these deadlines, the company is considered to be automatically
registered on the 9th day following the expiry of the deadline.
A newly registered company must also register with the local municipality, State Taxation
Office, Central Statistical Office and Social Security Authorities. Branch offices and commercial
26
representation offices should also be registered by the Court of Registration and may start their
activities only after the registration.
The registration fees are as follows:
• HUF 600 000 in case of a public company limited by shares or a European company
• HUF 100 000 in case of a private company limited by shares or a limited liablity
company
• HUF 100 000 in case of any other company bearing a legal personality and not listed in
above
• HUF 50 000 in case of a company not bearing a legal personality
• HUF 250 000 in case of a branch office of a foreign company
• HUF 150 000 in case of a representative office of a foreign company
Practical Tasks Following an Application for Incorporation
If the company intends to build a relationship with a taxpayer(s) in an EU Member State, the
company must apply for an EU tax number upon registration with the tax authority if it did not
apply for one when submitting the application for incorporation (the EU tax number must be
indicated on all documents related to EU trading, such as correspondence, orders, etc.).
Branch businesses of foreign corporations as well as direct trade agencies must submit, to the tax
authority, a certified Hungarian translation not older than 90 days of the identification of the
foreign corporation within 15 days following the notification of the corporation’s tax number.
If a foreign national’s expected work period exceeds 183 days in the given year, registry form
no. 04104 must be completed and mailed to the appropriate authority within 20 days of when
said employee’s employment starts.
When special permits are required for a given activity, the company must obtain all necessary
permits and notify the tax authority of such permits within 15 days following the date of receipt,
and submit such permits to the Court of Registry. A company pending incorporation can start its
activity only after it is registered (if a permit is required for the foundation of such company, said
permit must be attached to the application for incorporation).
Preparation of the regulations required by the Accountancy Act (Accountancy Policy, etc.) and
any other articles of association.
Any bookkeeping obligations must be fulfilled by the 15th day of the month following the date
of submission of the application.
Companies with employees or that pay honorariums must make their payments of taxes and
contributions by the 12th day of the following month.
Preparation of a preliminary corporate report and tax returns by the deadlines specified by law.
V.2. Corporate legislation
The Company Act determines five different corporate forms that may serve for investors as a
basis to carry out business activity in Hungary. All of these forms can exclusively be established
and operated by foreign owners and management:
- limited liability company
- company limited by shares
- joint enterprise
- limited partnership
- unlimited partnership.
These corporate forms enable the foreign investors to carry out all kinds of business activities,
provided that the necessary licenses have been granted (e.g.: banking), if such license is a
27
precondition of the operation. The Hungarian laws may prescribe that certain business activities
can exclusively be carried out in particular corporate forms. Thus, for example, banks can only
be founded and operated as a company limited by shares.
There are two other forms foreign investors might choose in Hungary to establish presence in
Hungary. Through a representative office foreign investors can perform normal liaison
functions, including assisting with contract negotiation, advertising and exhibiting products and
other forms of marketing on behalf of the parent company; but the office is not allowed to pursue
core business activities. This vehicle can be useful if the foreign undertaking intends to
familiarize itself with the local business conditions before embarking on an investment. The last
form to establish a presence in Hungary can be done via a branch office, which is an
organizational unit of a foreign company, being authorized to carry out independently normal
business activities.
Of the five business associations, the joint enterprise, the limited liability company and company
limited by shares have legal personality. The two partnership forms do not bear legal personality.
All companies, however, have legal capacity and under their own name they may acquire rights
and undertake obligations. The only noteworthy consequence of the afore-mentioned distinction
relating to the company’s legal personality is the fact, that non-legal personalities are registered
within a shorter period and at a smaller cost.
Capital requirements
No minimum capital is required to found and operate an unlimited partnership, a limited
partnership and a joint enterprise. The Company Act determines a minimum amount of
subscribed capital for the limited liability company and the company limited by shares. The
minimum initial capital is HUF 3 million (USD 12,500) for the former and HUF 20,000,000
(USD 83,300) for the latter.
The subscribed capital can be contributed in the form of cash or in kind contributions. Upon
foundation, the amount of contribution in cash is the greater of HUF 1 million (USD 4,165) or
30% of the company’s subscribed capital in the case of a limited liability company, and HUF
10,000,000 (USD 41,650) or 30% of the subscribed capital in the case of a company limited by
shares.
To be registered, the founders of a limited liability company and a company limited by shares
have to make available the in kind contributions fully, and deposit at least half of each cash
contribution into the company’s bank account prior to the submission of the application for
registration. The unpaid cash contributions must be contributed within one year from the date of
registration of the company.
If the limited liability company or the company limited by shares is founded as a single-person
company, the capital must be fully paid up (contributed) prior to the submission of the
application for registration.
There are no capital requirements for branches and commercial representative offices.
Limited liability company (LLC)
This corporate form is the most popular vehicle for foreign investors. The legal characteristics of
an LLC are very similar to those of the German GmbH or the US limited liability company,
while its nearest English equivalent is the private limited liability company.
This form is suitable to coordinate the co-operation of a small number of shareholders, where the
members are actively participating in the company’s affairs. An LLC can be founded as a singleperson company as well.
28
The members have a limited liability, which means that – under normal circumstances – they are
not liable for the obligations of the company. The Company Act, however, determines certain
cases when the corporate veil can be lifted.
The supreme body of an LLC is the members’ meeting, which must be convened at least once a
year and where all members are entitled to participate. The members’ meeting decides the most
important strategic business issues, elects and removes the managing director(s), the auditor and
the members of the supervisory board and it may alter the Articles of Association. The members’
meeting has a quorum if – unless the Articles of Association otherwise provide – at least half of
the subscribed capital or the majority of the eligible votes are represented. The members’
meeting passes its resolution by the simple majority of the votes cast.
The day-to-day operations of an LLC are headed by one or more managing directors, who may
be the members of the company or outsiders. An LLC need not appoint a supervisory board or an
auditor as a main rule; however, the laws determine the conditions when the establishment of a
supervisory board and the appointment of an auditor is mandatory.
Company limited by shares (CLS)
This is the most strictly regulated corporate form, which shows similarity to the German AG or
to the English Plc. A CLS is particularly suitable to large business entities with several investors,
but it is also possible to establish such entity as a single-person company. A CLS can be operated
as either a public or a private company. A public CLS has to have at least a portion of its shares
publicly traded.
The shares embody membership rights. A CLS may issue several classes of shares, namely ordinary shares, preference shares, employee shares and interest shares. One share class
constitutes identical rights to its holders. In general the shareholders’ voting rights are in
proportion to the sum of the face value of the shares they hold. The statutes of the company,
however, may provide otherwise by creating the above-mentioned share classes, and may specify
the maximum voting power an individual may exercise.
The supreme body of a CLS is the shareholders’ meeting, which decides strategic issues,
appoints and recalls the board of directors, the supervisory board and the auditor. The election of
a supervisory board and the appointment of an auditor is mandatory requirement of the Company
Act.
A CLS is the only corporate form that may issue securities. The Company Act specifies two
types of bonds that a share company may issue. A convertible bond guarantees the right of
conversion to shares upon the request of the bondholder. The other bond form grants
subscription rights upon the issue of new shares.
Joint enterprise
This corporate form is a profit-oriented association of at least two foreign and/or domestic
companies and individuals to pursue business activities of common objectives and where the
members are jointly liable to stand surety for the unsettled obligations of the companies.
Unlimited partnership
Partners in an unlimited partnership bear joint and several liability in respect of the unsettled
obligations of the company and at least two partners are required for the formation and operation
of such entity. Any company, with the exception of partnerships, may become a partner in an
unlimited partnership. Individuals may also become partners, however minor persons and
individuals already bearing a joint and several liability in another company are excluded.
The active participation of the partners in conduct of the partnership’s business is legally
required.
29
Limited partnership
In a limited partnership the minimum number of members is two, of which at least one, the
general partner bears unlimited liability. The other partners’ liability is limited to the amount of
their capital contribution.
Only the unlimited partners may manage the partnership and represent the partnership in its
dealings with third parties.
The profit distribution is generally proportional to the capital contributed, but the parties are free
to agree otherwise. It is against the law, however, to exclude any partner from the distribution of
profits.
New forms of companies
In addition to the unaltered forms of Hungarian commercial enterprises (rt., kft., limited
partnerships [Hungarian abbreviation: bt.], unlimited partnerships [Hungarian abbreviation: kkt.]
and joint ventures) some new forms of corporations have appeared with Hungary’s accession to
the European Union: European Economic Interest Grouping, European Company (European
Joint-Stock Company) and European Cooperative Society.
The objective of a European Economic Interest Grouping is to facilitate and develop its
members’ activities, as well as to improve and increase their success, but it cannot have the
direct goal of making profit. Its main function is to ensure that identical conditions are applied on
the Community market and to create an efficient and flexible cooperative form for small and
medium enterprises. At least two founding members are required, either foreign or Hungarian
nationals or legal entities, or commercial enterprises without legal status. The “European
Economic Interest Grouping” company form was instituted by Council Regulation (EEC) No.
2137/85, dated 25 July 1985. The Decree automatically became part of our internal body of law
upon the country’s accession to the EU.
The European Company most closely resembles a Hungarian joint-stock company, therefore it
is referred to in Hungarian as a European Joint-Stock Company. Typically a merger of two
joint-stock companies registered in at least two member states is required, with one of them
being registered in the relevant member state. Therefore, a joint-stock company registered in
Hungary cannot simply be transformed into a European company just because it has a presence
in several member states at the same time. A corporation must pay taxes (on its entire earnings)
in the members state where it is registered, but conventions on the avoidance of double taxation
allow for companies with a base of operations abroad, but headquarters in Hungary, to pay taxes
on the earnings attributable to the foreign base of operations in the country where said base is
located. The equity capital of a European Company is 120,000 EUR. The “European Company”
company form was instituted by Council Regulation (EEC) No. 2157/2001, dated 8 October
2001.
Members of a European Cooperative Society may retain their independence while
endeavouring to improve their business and social activities through internal agreements. Such
agreements are typically related to shipping or performing services. Such companies must have
at least five natural persons as founders, of whom at least two must be residents of another
member state. A European Cooperative Society can also be created as a result of a merger or the
restructuring of an already existing cooperative society. The “European Cooperative Society”
company form was instituted by Council Regulation (EEC) No. 1435/2003, dated 22 July 2003.
30
V.3. Taxation
Basic taxes
Regardless of the legal form of businesses, business profits are subject to corporation tax.
Income earned by individuals is subject to personal income tax. The majority of business entities
– with the exception of the smallest businesses – are also subject to value-added tax. In addition
to the above, a number of other taxes are also levied.
Taxes – with the exception of local taxes – are collected by the tax authority, (Adó- és Pénzügyi
Ellenőrzési Hivatal, or APEH), based on self-assessment.
Double taxation treaties override the local income tax legislation. To date, Hungary has entered
into tax treaties with 56 states.
The most important tax rules valid from 2005 are shown below:
1. Taxation of corporations
Corporation tax
Business entities (including companies limited by shares, limited liability companies, general
partnerships and limited partnerships, as well as local branch offices of foreign companies) –
with the exception of private entrepreneurs – are subject to corporation tax.
Tax rates
• Corporation tax - tax is levied at a single rate of 16 percent on taxable income.
• Dividend tax - Profits distributed abroad to non-resident corporate owners, shareholders
are subject to dividend tax of 20 percent, dividend tax is however reduced in accordance
with the relevant double taxation treaty. Tax is not withheld from dividends paid to
corporate shareholders resident in a member state of EU if before the payments the
company holds at least in a two years period continuously at least 20 percent of the
capital of the company paying dividends. Dividend is exempt of tax also in the case if the
capital share has ceased to exist for two years, provided that the dividend payer or
another individual guarantees the payment of the tax. As of 2006 dividend tax is to be
abolished.
• Bank tax – In 2005 and 2006 credit institutes and financial enterprises have to pay, in
excess to corporation tax, a special tax (bank tax) based on the interest margin (the
difference between received and paid interest). The tax rate is 6% of the interest margin.
The taxpayer has the option of paying the bank tax based on pre-tax earnings, at a rate of
8%.
•
Taxable income
The corporate income tax base should be calculated by adjusting the accounting profit by addups and deductions as provided by corporate income tax act. See below.
• Dividends received (except in the case of controlled foreign companies) are tax free
income.
• The following are the major items of non-deductible expenses to be added back to taxable
income: fines, late payment penalties and similar charges, provisions, loss of value, nonbusiness related expenses, interest on loans exceed three times the shareholders equity
Depreciation
For corporation tax purposes tax depreciation adjustment is done as follows:
31
•
•
•
•
•
•
Following assets may be amortized for tax purposes in accordance with the method used
in the financial statement: intangibles, utilities of industrial parks, assets used for basic
research, applied research or experimental development, appliances not exceeding
200.000 forint in value, assets which may be amortized for tax purpose at a rate of 33 %.
Buildings depending upon their construction: 2 %, 3 % or 6 %
Machinery, equipment: 14.5 or 33 %. Computers, film- and video making equipment, as
well as appliances installed after January 1, 2005 may be amortized within two years.
Vehicles: 20%
Land is not subject to amortization
Fixed assets rented or hire out: buildings 5 %, other assets 30 %.
Losses carried forward
Losses as from 2004 can be carried forward without time limit. Once a taxpayer has been in
existence for four tax years, a large annual loss resulting from expenses exceeding twice the
revenue received can be carried forward only with the approval of the tax authority. This
approval will be given if the losses were unavoidable. Banks have no right to loss offset in other
years.
Tax incentives
Tax incentives deductible from corporation tax base:
• Development reserves - 25 percent of taxable income, but no more than HUF 500
million. Assets financed from development reserves may not be amortised. If
development reserves are not appropriately invested within five years, tax (plus penalty)
is payable.
• Incentive for research and experimental development – total expenses (100%) of basic
research, applied research and experimental development.
• Capital gains realised on the stock market, interest margin, royalties received - profit
making businesses (with the exception of banks and investment corporations), may
reduce profit by up to a combined 50 percent of before tax earnings under the indicated
three titles.
• Practical training of vocational school students - Taxable income of businesses
participating in the project may be reduced by 12 percent of the monthly minimum wage
(6840 forint) or under certain conditions by 20 percent (11400 forint) per capita during
the training period; after passed examination, during the first 12 months of the continuing
employment, the employer’s social insurance contribution (29 %).
• Employment of unemployed individuals - If a corporate taxpayer employs individuals
previously unemployed in excess of 6 months, social security contribution (29%) may be
deducted from the taxable income for one full year.
• Local Business tax - Taxable income may be reduced by 50 percent of local business tax
paid, provided that the corporation has no outstanding public debts at the end of the tax
year.
Investment tax incentives
Tax incentives, which are in accordance with EU regulations on government subsidies, are
available on a per case basis through a permit issued by the Ministry of Finance. The corporate
income tax may be reduced by up to 80 percent under the title of investment tax benefit. The
incentive is available within ten years. The most important terms of the tax incentive:
32
Major investment projects
•
•
•
Investments over 3 billion HUF (approx. 12 million EUR), investment over 1 billion
HUF (approx. 4 million EUR), the investment has been installed and operated in
preferred regions (northern Hungary, the northern and southern Great Plains, the central
and southern Trans-Danubian planning/strategic region as well as the small regions of
Celldömölk, Letenye, Őriszentpéter, Tét, Vasvár and Zalaszentgrót within the western
Trans-Danubian planning/strategic regions)
• or settlements belonging to a small region; or
• investment up to a limit of 100 million HUF (400.000 EUR) if used for
environment protection (self-contained investment), broad-band Internet service,
provision of food-hygienic conditions, film and video making, as well as basic
research, applied research, or experimental development. In such cases,
investments must be implemented and operated in an area managed by an
academic institution or a research institution (research site) founded by the
Hungarian Academy of Sciences.
For a period of five years following the first incentive year the company must also meet
additional terms. The recipient of the tax holiday has three options:
to increase the number of employees by at least 100 (or 50 in underdeveloped regions), or
to increase wage costs by at least six times (or three times in underdeveloped regions) the
annual minimum wage.
In case of job creation investments the number of employees must be increased by at
least 300 (or 150 at medium-size enterprises, 30 at small enterprises), 150 in
underdeveloped regions (75 at medium-size enterprises, 15 at small enterprises), in
addition at least 20 percent of new jobs must be filled by school leavers.
The investment is financed at least up to 25 percent of own resources, at least 30 percent
of the investment project must include new facilities or assets and renovation cannot
exceed 20 percent of the investment costs.
Tax allowance for small and medium-size enterprises
Small and medium size corporate tax payer are supported by special tax allowances, if they
employ no more than 250 employee, and the annual net sales revenue does not exceed HUF 4
billion (EUR 16 million) or the total balance does not exceed HUF 2,7 billion )EUR 11 million)
•
•
Taxable income may be reduced by the value of investments in assets. Deduction is
limited to the amount of profit before tax and also to HUF 30 million. (EUR 120000)
40 percent of the interest on an investment loan (including financial leasing), is
deductible from the corporation tax payable (limited to HUF 6 million /EUR 24000 per
year.
Transfer pricing
Just like in international taxation systems, the Hungarian taxation law provides that in case
related parties do not apply the normal market price in their business transactions between each
other, when and how they have to adjust the corporation tax base. An entity qualifies as related,
if at least one person of the taxpayer plus another individual holds a controlling majority share in
each other or a third person in both of them. A controlling majority – which may also be indirect
– means a voting right in excess of 50 percent, or the right to appoint or dismiss the majority of
leading office-holders and supervisory board members.
33
If related parties enter into a transaction, they have to report it to the tax authority. The economic
entity (also foreigners) – except small enterprises – prior to the tax return, has to determine the
method of fixing the usual market price. Taxpayers may choose between the comparable
uncontrolled price, the resale price and the cost-plus methods as defined by OECD. If none of the
three methods are appropriate, the taxpayer may choose another justifiable method. If the actual
price is not the normal market price, the corporation tax base has to be adjusted.
Returns and assessments
The deadline for corporate tax returns is May 31 of the year following the tax year. This is also
the time limit for submitting the annual report upon which the tax return was made. Advance tax
payments must be made monthly or if the corporation tax due for the previous year was HUF 5
million or less. Advance payments must be brought up to the anticipated actual amount due for
the year by December 20. If annual revenue in the previous year exceeds HUF 50 million,
advance payments must be brought up to the anticipated actual amount due for the year by
December 20 of that year. In the event that at least 90 percent of the final amount due was not
paid by the previous December 20, the tax payer must pay fine of 20 percent of the difference.
2. Taxation of individuals
Residents of Hungary are taxed on their worldwide income (unlimited tax liability), while non
residents are taxed only on Hungarian source income or income to which under a double taxation
treaty tax may be levied (limited tax liability). Foreign source income may be taxed even if it is
not transferred to Hungary.
Under Hungarian law Hungarian nationals are deemed to be tax resident. A foreign national is
tax resident, if he has permanent home or habitual abode or the centre of his vital interests is in
Hungary. Residence status may also be affected by the terms of a double taxation treaty. Tax
treaties override the local legislation.
Tax rates
Most of the incomes (income from employment and independent business activities, other
income) are aggregated and taxed at progressive rates. Others are taxed separately at flat rates.
Taxable income
• Up to HUF 1,5 million 18 percent
• Over HUF 1, 5 million 38 percent
The minimum wage (57,000 HUF per month, approx. 240 EUR as of 1 January 2005) is tax
exempt.
Personal tax allowances
Personal allowances are granted as deductions from the progressive tax due on consolidated
earnings. Total amount of allowances may not exceed HUF 100000 and are generally not due
above an annual income of HUF 6 million.
The most important allowances are as follows:
• Employment tax credit – 18 percent of wages, (annually limited to HUF 123120), if
annual income does not exceed HUF 1 million.
• Family allowance – for a single child HUF 3000 per month, for two children HUF 8000
per month, for three and more children HUF 10000 per child and per month (annual
income limit HUF 8 million).
• Housing loan repayment – 40 or 30 percent of repayment (plus interest), limited to HUF
120000 per annum (annual income limit HUF 3 / 4 / 4,4 million).
34
•
•
•
•
Intellectual work – 25 percent (limited to HUF 50000) of annual intellectual work
income.
Contribution to voluntary insurance funds – 30 percent of contribution, limited to HUF
120000 (from time to time HUF 150000) per annum at the most.
Donations – 30 percent of donation (limited to HUF 50000, under certain conditions
100000/year).
30 percent (limited to HUF 60000 per annum) of Hungarian higher education tuition fees.
Certain incomes are taxed separately:
• Dividend: 25 and 35 percent (25 percent up to 30 percent share of the equity capital).
• Interest is normally not taxable.
• Capital gains (on the sale of shares, real estate): 25% (gains on stock exchange
transactions are exempt of tax).
• Real estate leasing – 25 percent.
• Prizes – money 25 percent, object 33 percent.
• Benefits in kind (under certain conditions) – 44 percent withholding tax (paid by the
employer). Employer pays monthly fix tax for the private use of the company car –
depending on purchase price and age the vehicle. E.g. for a HUF 3 million (12000 euro)
worth car less than five years old, the monthly tax amounts to HUF 26000 (104 euro) per
month.
Advance tax payment, tax returns (personal income tax)
Hungary operates a system of advance payments of tax, whereby employers and payers are
required to deduct personal income tax at source and individuals are required to make advance
payments on a quarterly basis on taxable income from abroad.
The tax year for individuals is the calendar year, the deadline of tax return is May 20, in the year
following the tax year.
3. Social security and other payroll taxes
Compulsory social security applies to employees, including contracted work, as well as other
legal relationships involving the performance of work.
Social security is paid by employers and employees:
Employee pays
• pension contribution 8.5% - in 2005 the basis of the contribution cannot exceed HUF
16440 per day (annual maximum HUF 6 000 600) health care contribution (4%)
• unemployment contribution 1 %
•
Employer pays
• social security 29%
• unemployment contribution 3 %
• contribution to state training fund 1.5%
• health care tax HUF 3,450 per month per employee (as from November 1, 2005 HUF
1950)
•
Social security of expatriates
Compulsory social security also applies to expatriates employed by Hungarian employer.
Employees on secondment (non resident employer):
35
•
•
EU rules (Council Regulation 1408/71) apply to EU nationals assigned to Hungary.
Provisions of reciprocal agreements have to be applied to citizens of countries with which
Hungary has entered into such agreements. (Bulgaria, Romania, non-EU member
successor states of Yugoslavia, CIS countries, Switzerland, Canada).
Compulsory social security does not apply to expatriates (citizens of “third countries”)
employed by non resident employers.
4. Simplified Entrepreneurial Tax (EVA)
EVA is a flat tax paid on sales revenue. Only private entrepreneurs and those business entities
can opt for this form of taxation that have been in business for at least two years, with an annual
income (including VAT) that does not exceed 25 million HUF (approx. 94,000 EUR), where all
of the owners are individuals, does not hold shares in any other corporations (with the exception
of publicly traded shares) and which have no EU tax number. EVA payers are not subject to
corporation tax, dividend tax, company car tax, and value-added tax. The rate of EVA is 15
percent. EVA is levied on annual sales revenue adjusted by increasing or reducing items. EVA
payer may not export goods to EU member states, and import of goods from EU may not exceed
annually 10000 euro.
5. Indirect taxes
Value-added tax (general sales tax or ÁFA)
VAT act is in conformity with the EC directive No 77/388 on the coordination of turnover tax
laws of the EU. VAT is the most significant indirect tax in Hungary. Its major characteristics are
as follows: besides the general tax rate of 25 percent, there are two preferential rates: 5 percent
applies to certain medications and medical accessories, books, and a 15 percent rate applies to
food items, mineral combustibles, in catering, etc. Banking services and certain other business
activities “inter alia” insurance, real estate leasing, and general education are tax exempt.
Businesses, other than banks and others with turnover tax exemption, can generally recover the
amount of input VAT in excess of output VAT or it may be transferred for the next tax return
period. The tax authority pays a tax refund if the amount of ÁFA sales exceeds 4 million HUF
(approx. 16000 euro) within the tax year, or if VAT paid on assets acquisition exceeds output
VAT by at least HUF 200000 (approx. 750 euro).
Tax is levied by self-assessment. Tax returns must be filed monthly, quarterly, or annually,
depending on the amount of VAT paid in the previous year. VAT payer is required to issue
invoices in accordance with the specifications of the tax law regarding form and content. A
foreign business registered in an EU country without its own VAT registration may apply to the
tax authorities for a refund of the Hungarian VAT it has paid.
Excise tax
Excise tax is imposed on the domestic production and import of petroleum products, alcoholic
beverages and tobacco products at a percentage rate or fix amount. Some typical tax rates: leadfree petrol HUF 103500 per 1000 litre, wine HUF 800 per hectolitre, cigarettes at 6,450
HUF/1000 sticks and at 23 percent of the retail price. Sales abroad are generally not subject to
tax. Hungarian legal provisions are EU conform.
6. Local taxes
Each local authority has the right to levy local taxes within the confines of a centrally prescribed
set of rules, systems and maximum rates. These may include the following: property tax, utility
tax, tourist tax and business tax. Local taxes are tax deductible for purpose of corporation tax.
36
Business tax is the only one of these taxes with a significant cost effect on businesses. Tax is
levied on the sales revenue (increased by 50 percent of interest income received) less cost of
goods sold, material costs and fees paid to subcontractors. The rate is fixed by the local
authority, but may not exceed 2 percent. Local governments may grant tax holiday or tax
allowance exclusively to businesses whose income subject to business tax does not exceed HUF
2.5 million.
7. Other taxes
Motor Vehicle tax
Motor vehicle tax is paid by the owners or users of most motor vehicles registered in Hungary
(excluding motor vehicles registered in EU member states). Tax is levied on the empty weight,
which is increased by 50 percent of load weight in case of trucks. The tax rate is annually HUF
1200 (EUR 4,50) per 100 kg .
Innovation contribution
Corporations (excluding micro-businesses and new corporations) are liable to pay innovation
contribution to the Funds of Research and Technological Innovation, promoting R&D. The
general rate of contribution is 0,25 percent in 2005 and 0.3 percent in 2006, levied on sales
revenue like with local business tax. Businesses may apply for grants at the Funds.
Environmental pollution fee
Entities emitting environment-polluting materials into the air, the waterways, or the soil must
pay this tax in proportion of the type of materials emitted, their concentrations and the location
as specified by the prevailing laws.
Energy tax
This tax must be paid in certain cases on natural gas and electric energy (except population
consumption). Under certain terms taxpayers may be entitled to tax reimbursement on consumed
energy.
Registration tax
With Hungary’s EU accession the former consumption tax was replaced by the registration tax,
levied on cars, caravans and motorcycles. The amount of limp sum tax depends on the technical
and environmental features of vehicles. Tax is payable by first domestic seller or importer.
Most important acts
Act LXXXI/1996. On Corporation Tax and Dividend Tax
Act CXVII/1995 On Personal Income Tax
Act LXXIV/1992 On VAT
Act CIII/1997 On Excise Tax
Act C/1990 On Local Taxes
Act XCII/2003 On Tax Administration Act LXXXXIX/2003 On Environmental Pollution Fee
Act LXXXVIII/2003 On Energy Tax
V.4. Real Estate
Office buildings
37
The development of the office building market has been spectacular from early in the nineties
and has concentrated mostly in Budapest. At the end of 2002 the newly built modern office
building stock exceeded 1,300,000 m2. Developments initially began in the center of the city,
and then expanded outside of the downtown area and into the proximity of the motorways. The
center area was developed so intensively that by the end of the past decade, no developable land
remained in the downtown area, thus development was limited to the refurbishment of existing
buildings.
The construction for the new modern office buildings continuously increased from the beginning
of the 1990-s, with the exception of 1994, when a short pause occurred, the volume of leasing of
newly built offices also dynamically increased. Since 1998, however, the supply of new offices
has continuously exceeded the demand, thus leading to considerable overcapacity in the
Budapest office building market. In 2002 the average capacity rate ranged between 73% and
80%, depending on the location and quality of the office building in Budapest. The highest
quality buildings with good location tend to have a higher use rate than those of lower quality
buildings, or high quality buildings with less favourable geographic location. Estimates for the
upcoming years forecast growing capacity rate, due to the decreasing volume of new
construction and to the possible favourable effects of the EU accession in 2004.
The existing overcapacities resulted in moderately decreasing rentals both in Budapest and in the
countryside. Rentals in newly built modern office buildings located in downtown Budapest range
between EURO 13 and 22 /m2/month. In older buildings of downtown Budapest, the range is
between EURO 13-17/m2/month, while in lower category offices one m2 is available from
EURO 9/month. The overhead costs per m2 vary between EURO 2 to 4 per month. In
countryside cities the prices are significantly lower, ranging between EURO 6 and 12
/m2/month.
Retail premises
Privatization passed the ownership of national chains and smaller outlets, previously owned by
the state, to domestic and foreign hands, which dominated the Hungarian retail segment until
1995. In 1995 a spectacular construction wave of shopping malls, shopping centers and
hypermarkets began, first in the Budapest area, but later in the countryside as well. This led to a
fast penetration by these retail forms new to Hungary into the domestic retail market. In just a
few years 42 shopping malls and 49 hypermarkets have begun to operate in the Hungarian retail
market. They had an accumulated gross sales of HUF 650 billion (2.7 billion USD) in 2002,
which is approximately 15.5% of the total Hungarian retail market. There is a clear tendency for
large shopping malls and hypermarkets to gain markets share year by year over smaller outlets
and large chains with less favourable geographic locations.
Currently, there are 1,150,000 m2 of shopping malls in Hungary, of which 756,000 m2 are
located in or around Budapest and the remaining 394,000 m2 are located in other major cities.
Hungary is number one in the Eastern European region in the m2 per capita shopping mall and
hypermarket category. The largest shopping and entertaining malls are the West End City
Center, Duna Plaza, Mammut and Polus Center. Major European hypermarket chains, such as
Cora, Auchan, Tesco, Metro have already established presence on the Hungarian market. The
monthly rental per m2 depends on the location of the mall and the size of the outlet. The range in
2002 was between EURO 5 and 70.
Due to the large number of shopping malls and the maturity of the retail segment, few new malls
and hypermarkets are expected to open in the next few years.
38
Industrial and warehouse properties
The creation of modern warehouses, as well as the developments of industrial/logistics centers,
to meet the needs of sophisticated customers increased significantly in the past four years. Most
of the developments arise from the fact that many multinational companies consider Hungary’s
favorable geographic location to be the logistics center of Central and Eastern Europe. The road
and railway network and the River Danube make it possible for freight carriers to reach quickly
and easily the major harbours of the Black Sea, Adriatic Sea and markets of the northern and
western countries. Multinational development agencies recognizing the opportunity, and with the
support of the Hungarian government, implemented significant investments in Hungary in this
area. The size of newly built modern logistics centers in and around Budapest already exceeded
280,000 m2 in 2002. All these facilities are capable of being expanded as demand arises.
Rental fees are slightly decreasing, moving around EUR 4 to 5 /m2/month plus EUR 0.5-1/m2
overhead costs.
Foreign ownership
The acquisition of real estate other than arable lands or land in protected areas, which cannot be
purchased by foreigners, is subject to a formal permit. Such permit in nearly 100 percent of the
cases is granted. No permit is needed if the real estate in question is acquired by a Hungarian
registered company, whose owners can all be foreigners.
The purchase of real estate must be in written form and prepared and countersigned by a
Hungarian-registered attorney or a public notary. Attorney fees are negotiable, but are usually
around 1 to 2% of the purchase value.The purchase agreement has to be submitted to the
competent land registry office within 30 days after the date of signing. The final registration of
ownership rights takes about 6 months.
The rental of real estate by a foreign owner is not subject to any permit or approval. The written
form of the lease agreements is not required; to avoid disputes, however, it is useful. Most lease
agreement are medium or long term; it is not uncommon, however, to make an arrangement only
for a couple of months. Owners usually ask for a 2 to 3 month deposit.
V.5. Foreign Trade and Customs Regulations
With Hungary’s accession to the European Union, EU customs regulations, (i.e. the Community
customs code), have become effective in the country. This, however, does not entail any
significant change for those that already have business contacts in Hungary (either as investors or
traders), thanks to the successful and trouble-free legal harmonisation process of the last several
years.
A general rule in customs issues is that Community goods imported from the customs area of the
Community are no longer within the scope of customs regulations; non-Community goods
imported from the same region, however, must undergo customs procedures. There are many
possible customs status categorisations of such goods, and the relevant status is determined by
submitting a customs declaration. The existing categories are as follows:
· Community goods (this status is lost once the goods leave the customs area of the EU):
o goods fully produced or manufactured within the customs area of the EU;
o goods imported from outside the customs area of the EU and cleared for free traffic,
o goods from the abovementioned category, but produced or manufactured within the customs
area of the EU.
39
· Non-Community goods:
Goods that do not meet the criteria of Community goods, as well as those already shipped out of
the customs area of the EU with a definite aim but subsequently returned.
The customs status of all goods imported from outside the Community’s customs area must be
verified. In case of non-Community goods, their customs designation must be determined. This
can be completed using the following methods:
· By bringing the goods under a customs procedure,
· By transporting the goods to a duty-free zone or a duty-free storage facility,
· By shipping the goods outside the Community’s customs area,
· By destroying the goods,
· By offering the goods for the benefit of the Hungarian state.
Customs procedures
The most common method of determining the customs designation of the goods is to bring them
under a customs procedure. These may include the following:
· putting the goods into free circulation: aimed at granting non-Community goods with the
customs status of Community-goods. In this case customs duties must be paid along with other
customs-related dues (e.g. duty surcharge, if applicable) but the so-called non-Community taxes
and fees specified by the regulations of the individual member state (e.g. VAT, excise tax,
registration tax) must also be paid on a self-assessment basis and the prevailing trade policy
measures must also be enforced.
· goods forwarding, which can be
o external goods forwarding where the shipping of non-Community goods is completed between
two points in the Community’s customs area as well as the forwarding of Community goods for
export if some discount or measure (export subsidy, export refund) applies to the goods in
question. (For the customs duties on goods undergoing external forwarding and for the nonCommunity taxes and fees to be paid within the territory of the given member state, a customs
surety must be provided. Transportation by air, rail, pipeline or by water on the Rhine River are
exempt from this obligation.)
o internal goods forwarding where the forwarding of Community goods is completed between
two points in the Community, but through a third country.
· Economic customs procedures
o Bonded warehousing,
o Active processing,
o Processing under customs supervision,
o Passive processing,
o Temporary import.
· Export: involves the controlled exit of goods and includes the application of trade policy
measures related to export and, in certain cases, even the assessment of export duties.
· Locations of customs procedures: customs procedures may be initiated at customs offices,
customs districts, and upon special request and with appropriate advance information, at the site
of the enterprise (ad hoc or regular inspection site).
· Insurance for customs duties and non-Community taxes and fees payable along with duties: the
full amount of the customs duties of non-Community goods under customs supervision as well as
all non-Community taxes and fees payable along with the duties must be insured. This may be
executed by way of bonds, cash (e.g. bank guarantees, verification of bank coverage towards the
assignee, insurance bond, actual cash deposit), or special documents for forwarding, which
(along with the conditions of such securities) are governed by Community law. The latter are
called Transit Agreement security bonds, such as special letters of guarantee or joint surety.
40
· Payment of customs duties and non-Community taxes and fees payable along with the duties:
upon putting the goods into free circulation or upon any equivalent proceedings by prompt or
deferred payment methods. Deferred payments include:
o Special itemized payments (the delay may not be less than 10 or more than 30 days),
o weekly tallying, where all duties assessed and levied must be paid by the fourth Friday
following the current business week.
o monthly tallying, where all amounts due must be paid in a lump sum by the 16th day of the
next month.
Further information and relevant legal statutes
- www.vam.hu
- The basic regulations of the Community customs code are as follows:
· Council Regulation (EEC) No. 2913/92 On the Creation of the Community Customs Code.
· Commission Regulation (EEC) No. 2913/92/ECC On the Detailed Implementation of the
Council Regulation Establishing the Community Customs Code.
· Council Regulation (EEC) No. 918/83 On a Community System of Relief from Customs Duty.
· Council Regulation (EEC) No. 2658/86 on Customs and Statistical Nomenclature and the
Common Customs Tariff.
These statutory rules are available on http://europa.eu.int/eur-lex/ or along with other EU acts in
Hungarian on the website of the Ministry of Justice at www.im.hu
· Act CXXVI/2003 on the Implementation of the Community Customs Code.
V.6. Banking and Capital Markets
The Hungarian financial system has grown into a sector offering a full range of financial services
with an advanced information technology infrastructure. The transition to a market economy
took place together with the establishment of a legal system in harmony with that of the
European Union; foreign companies, therefore, can now expect the same legal security and
regulatory environment on the Hungarian financial markets as they are accustomed to at home.
The financial supervisory authority is of international standard, and the transfer and securities
clearance systems, as well as custody services, provide full security for Hungarian financial
services.
The Hungarian Forint (HUF) has been fully convertible since the summer of 2001, and both the
Hungarian financial market and capital market transactions are entirely liberalised.
Banks
The milestone event in the development of the current financial system was the privatisation of
the banking sector during 1995-96 when, in addition to the establishment of “greenfield” foreign
bank branches, the majority interest of the previously state-owned banks also changed hands and
entered into foreign ownership.
As a result of these changes, financial institutions whose controlling interest is owned by foreign
professional investors constitute more than 90 percent of the registered capital of the sector,
consisting of 36 commercial banks. Only the Hungarian Development Bank and Eximbank, two
banks with special governmental functions, remained in state ownership.
As the subsidiaries of German, Austrian, Italian, French, American, and Russian parent banks,
these commercial banks adapted their financial know-how and banking technology to the
characteristic needs of the Hungarian market; therefore, the range of banking products and
services offered, as well as their quality and the electronic techniques used, are not really
41
different from those used in Western European countries. The capital supply of the owners
provides stability and the necessary security to the clients of these banks.
The banking market is otherwise quite concentrated, with 10 leading banks in keen competition
for increasing their market shares; therefore, foreign companies may expect favourable terms and
conditions in the field of financial services.
The classic commercial banking activities are also supplemented by the services of leasing,
factoring, mortgage banking, and other specialised financial services, usually offered by
companies owned by the banks.
The Budapest Stock Exchange (BÉT)
The Budapest Stock Exchanged (re-)opened in the summer of 1990 as the first stock exchange of
the Central and East European region. The number of companies offering investment services is
48, with the majority owned by commercial banks. More than 100 asset management and
investment funds now also compete for private and corporate client investments.
Insurance companies
The current number of insurance companies is 31, and they offer a full range of insurance
products. Institutional pension funds and insurance companies are exhibiting especially quick
development.
Related laws and regulations
Act 93/2001 On the Elimination of Foreign Exchange Restrictions and the Amendment of
Related Laws
Act 112/1996 On Credit Institutions and Financial Enterprises
Act 96/1995 On Insurance Companies and Insurance Activity
V.7. Financial Reporting and Auditing
The Hungarian accounting system has been brought in line with the EU Accounting Directives
and the International Accounting Standards.
Reporting
All companies registered in Hungary, public and other organisations are obliged to report on
their activities, assets, financial position and earnings. According to the Act C/2000 on
Accounting, there are four methods of reporting:
- Annual financial statements, which consists of a balance sheet, an income statement, notes to
the financial statement and an annual report.
- Summary annual financial statements, where the annual report is not required, is only
permissible to companies fulfilling at least two of the three criteria listed below in two
consecutive years:
o Worth of total assets is less than HUF 150 million (approx. EUR 600 000)
o Annual net sales revenues do not exceed HUF 300 million (approx. EUR 1 200 000)
o The average workforce is not more than 50 employees.
Stock companies, companies that are consolidated and the branch establishments of foreign
companies are not permitted to prepare a summary annual financial statement, even if they meet
two of the criteria listed above.
42
- Consolidated annual financial statements, which must be prepared by a company acting as
parent company or by a company which’s equity interest in a jointly managed company gives it
certain rights regarding that company.
- Summary financial statements (summary balance sheet and summary income statement).
The financial statements must be prepared in Hungarian, and figures must be in HUF 1 000. The
annual financial statements must be lodged at the Commerical Registry Court, but a copy must
also be sent to company registration and information office of the Ministry of Justice.
Obligation of Audit
All companies are required to undergo audits if their net sales proceeds exceed an average HUF
50 million (approx. EUR 200 000) in two consecutive years.
Audit is also mandatory
- if it is specified by legal provisions (e.g. stock corporation, one-man company);
- for savings banks;
- for companies which are consolidated;
- for branch establishments of foreign companies.
Relevant legal statutes:
Act C/2000 on Accounting
43