Hungary

Currently, there are two different sets of foreign direct investment control (“FDI”) screening mechanisms in effect in Hungary: 

1. the “General FDI Regime,” centred around Act no. LVII of 2018 and applicable from the beginning of 2019; and
2. the “Emergency FDI Regime,” which is currently centred around Government Decree no. 561/2022 (XII. 23.). This regime had originally been introduced in 2020 with regard to the COVID-19 pandemic, was amended with reference to the Russo-Ukrainian war and has by now become generally applicable.

These regimes apply in parallel, with different scope, rules, sanctions and authorities enforcing them. 

Who is a Foreign Investor?

The General FDI Regime does not apply to EEA and Swiss investors unless they are controlled by a third-country investor.

The Emergency FDI Regime differentiates between various categories of foreign investors, but acquisitions of a majority interest in a Hungarian strategic company are notifiable even if they are undertaken by investors from the EEA or the Swiss Confederation, provided that the value of the investment is over HUF 350 million (ca EUR 884,000).

What Type of Transactions must be Notified?

The filing triggers under both regimes are quite complex. Essentially, a filing is required if one of the following type of transactions is undertaken by a foreign investor with regards to a Hungarian-registered company that is active in a strategic sector:

1. the acquisition of a certain stake in (or otherwise control over) the company, the degree of which differs by investor and company type;
2. in some cases other corporate transactions such as a capital increase, a merger, bond issue or the creation of a beneficial interest over shares;
3. new strategic activity of an already existing company;
4. the acquisition of rights over essential assets, infrastructure or equipment used for a strategic activity.

Under the General FDI Regime, the scope of strategic sectors is fairly limited. It includes, amongst others, the manufacture of arms and ammunition, dual-use items, the provision of financial and insurance services, certain critical energy-related, IT and electronic communication services.

By contrast, under the Emergency FDI Regime, the list of “strategic” sectors is very broad: amongst many other examples, it includes most retail and wholesale activities, as well as manufacturing activities.

However, under the Emergency FDI Regime, a foreign-to-foreign exemption exists: this means that the transaction is not notifiable if the direct shareholders of the Hungarian company do not change, even if there is a change of control higher up in the ownership chain.

The Notification Process

The General FDI Regime provides a 10-day deadline for notification to the competent minister (currently the minister leading the Prime Minister’s Office), counted from signing. In practice, this means that filing is possible only after signing. In addition to supplying information on the transaction, the foreign investor and its ownership structure must be described and the transaction documents must be filed with a Hungarian translation.

As a rule, the deadline for the minister’s proceedings is 60 days, but it may be extended by another 60 days, and the transaction is not automatically considered cleared even if the minister misses the extended deadline.

The investor may request the judicial review of a prohibition decision from Hungarian courts.

Fines up to HUF 10 million (ca. EUR 25,000) may be imposed for failure to notify, and notifiable transactions are not considered valid without a clearance decision. Thus, for instance, the change in ownership will not be entered into the Hungarian company registry without the necessary approval.

The process under the Emergency FDI regime is similar, but the notification must be filed with a different minister (currently the minister for economy) and the deadline for the process is only 30 business days, with a 15-day extension possible. However, again there is no presumption of approval if the minister fails to adopt a decision within the deadline. The fines which may be imposed for failure to notify can reach up to twice the transaction value.

There are additional regulations in place where the target company’s activities concern solar plants. In such cases, the Hungarian State has a pre-emption right that must be exercised within 60 working days, counted from the day the minister notifies the foreign investor of the existence of the pre-emption right. This deadline may be extended by 15 days.

If the minister for energy recommends the exercise of the State’s pre-emption right, the FDI proceedings are terminated. Otherwise, the proceedings continue as normal.

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