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FDI Screening in Hungary

FDI Screening in Hungary

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This article provides an up-to-date overview of the currently existing FDI regimes in Hungary.

Legal basis

Two parallel FDI screening mechanisms now apply in Hungary:

Approval of the Ministry of the Interior

Act No. LVII of 2018 on the Control of Investments Detrimental to the Interests of Hungarian National Security (the "Act").

Government Decree No. 246/2018 (XII. 17.) on the execution of Act No. LVII of 2018 ("Decree 246/2018").

Government Decree No. 532/2020. (XI. 28.) on economic measures during the pandemic ("Decree 532/2020")

Hereinafter referred to as "MI FDI Screening".

Approval of the Ministry of National Economy

Act No LVIII of 2020 on "the transitional rules connected to the termination of the emergency situation and pandemic alert" effective until 30 June 2021 ("Act 2020") and Government Decree No 289 of 2020 (VI.17.) on the definition of strategic companies.

Hereinafter referred to as "MNE FDI Screening".

EU FDI Screening Regulation (Regulation (EU) 2019/452), OJ L 79I, 21 March 2019.

Filing requirement

1.MI FDI Screening

MI FDI Screening applies to (i) investors from outside the EU, Switzerland and EEA, and to (ii) any subsidiary of such an investor if the subsidiary is established in the EU, Switzerland or an EEA member state and the investor holds a majority of the voting rights in voting rights in the subsidiary or has a decisive influence in it. Under Decree 532/2020, investors from the EU, Switzerland and EEA must also be regarded as foreign investors until 30 June 2021. The foreign investor must obtain the prior approval of the Ministry of the Interior if it intends to:

- directly or indirectly acquire more than a 25 % interest (in the case of a publicly listed company, a 10 % interest) in an existing or yet to be established company with its registered seat in Hungary, provided this company pursues activities that are deemed to be sensitive for national security ("Hungarian Company");

  • acquire decisive influence in a Hungarian Company;
  • establish a branch office in Hungary; or
  • acquire a right to operate or use sensitive infrastructure or assets in Hungary.

All transactions that result in a foreign investor acquiring more than a 25 % interest in a Hungarian Company are subject to foreign investment screening. Moreover, prior approval is required when a foreign investor acquires an interest of less than 25 % but this acquisition results in more than a 25 % interest in the respective Hungarian Company being held by (several) foreign investors.

2.MNE FDI Screening

Under Act 2020, investments by foreign investors acquiring an interest exceeding (i) 10 % and a value of HUF 350m (approx. EUR 1m), (ii) 15 %, 20 % or 50 % irrespective of its value, or (iii) 25 % if acquired by more than one foreign investor, require the approval of the Ministry. The foreign investor must notify the Ministry if it intends to acquire the right to use or operate infrastructure necessary for pursuing activities in strategic sectors (including using such strategic infrastructure as collateral).

A "foreign investor" is (a) a company or organisation domiciled in, or a citizen of, a state outside of the EU, the EEA or Switzerland, or (b) a company or organisation whose majority owner is domiciled in, or a citizen of, a state outside of the EU, the EEA or Switzerland. However, certain acquisitions of a majority interest require the Ministry's approval if the foreign investor is a company or other organisation domiciled in the EU, the EEA or Switzerland. Act 2020 applies to investments in companies that have their seat in Hungary and:

  1. are a limited liability or private limited or public (listed) company; and
  2. operate in specified "strategic"

However, Act 2020 is not applicable if a transaction affects the foreign company directly, if the foreign company has a Hungarian subsidiary that qualifies as a strategic company. Therefore, transactions over the level of a Hungarian subsidiary (qualifying as a strategic company), may not be approved by the Ministry. This exemption applies to asset deals as well. Moreover, Act 2020 is also not applicable in case of intra- group transactions.

Relevant sectors

1.MI FDI Screening

The Act contains a complex system regarding the sectors and activities which are under scrutiny. These activities in the specific sectors include activities that:

  • are traditionally considered sensitive, g. manufacturing of arms, dual-use items and secret service equipment;
  • are under the Hungarian Gas Act and Water Supply Act, Electricity Act, Credit Institutions Act and the Electronic Communications Services Act; and
  • involve the creation, development or operation of communication systems of the Hungarian State and Hungarian municipalities.

2.MNE FDI Screening

"Strategic" sectors such as manufacturing of medicines, medical devices or other chemicals, fuel production, telecommunications, retail and wholesale (including motors and cars), manufacturing of electronic devices, machinery, steel and vehicles, defence industry (e.g. manufacturing and trade of arms and ammunition as well as technologies used for military purposes), power generation and distribution, services connected to the state of emergency, financial services (including insurance, brokering and other services), processing of food (including meat, milk, grains, tobacco, fruits and vegetables), agriculture, transport and storage, construction (including the production of building materials), healthcare, tourism (hospitality and cafeteria services) and others (e.g. constructing a dam). 

Process and timetable

1.MI FDI Screening

Competent authority: Ministry of the Interior Mandatory filing requirement: Yes

Filing deadline: The foreign investor must file its request for approval within 10 days from (i) the date of execution of the underlying agreement, preliminary agreement, or undertaking, or (ii) the date of registration of activity change by the respective commercial registry.

Responsibility for filing: The foreign investor and its management (as the acquirer) are responsible for obtaining the necessary approval.

Standstill requirement: Yes

Sanctions: Implementation of the transaction ahead of local regulatory clearance is subject to (i) criminal sanctions,

(ii) fines under Decree 246/2018, and if the Ministry of the Interior prohibits the transaction (iii) invalidity of the underlying agreement(s) and corporate actions (e.g. shareholders' resolution). In addition the foreign investor must (iv) sell its shares or eliminate its influence in the Hungarian Company or the Hungarian Company must modify its activity within three months or the foreign investor must close its branch.

Length of the proceedings:

60 days, which may be extended by an additional 60 days.

2.MNE FDI Screening

Competent authority: Ministry of National Economy Mandatory filing requirement: Yes

Filing deadline: The request for the approval must be made within 10 days from the execution of the underlying agreement.

Responsibility for filing: The foreign investor and its management (as the acquirer) are responsible for obtaining the necessary approval.

Standstill requirement: Yes

Sanctions: Implementation of the transaction ahead of local regulatory clearance is subject to (i) criminal sanctions, (ii) fines under Act 2020, and if the Ministry of National Economy prohibits the transaction (iii) invalidity of the underlying agreement(s) and corporate actions (e.g. shareholders' resolution).

Length of the proceedings:

30 business days, which may be extended once by an additional 15 calendar days.

Other articles from this series:

FDI Screening in Austria.

FDI Screening in Bosnia & Herzegovina.

FDI Screening in Croatia.

FDI Screening in the Czech Republic.

FDI Screening in North Macedonia.

FDI Screening in Montenegro.

FDI Screening in Moldova.

FDI Screening in Poland.

FDI Screening in Slovakia.

FDI Screening in Serbia.

FDI Screening in Romania.

By Kinga Hetenyi, Managing Partner, and Adrian Menczelesz, Attorney at Law, Schoenherr

Hungary Knowledge Partner

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