Foreign Investments in Hungary

Section 85, Paragraph 276 of Act No LVIII of 2020  introduced that if foreign individuals or foreign legal entities or other foreign organisations acquire shares in a strategic entity registered in Hungary, the transaction shall be reported to the Ministry of Innovation and Technology.

Originally only those delas were subject to such report that were made until 30^th of June 2021. Then the Government decree No. 189/2021. (IV. 21.) extended this period until the end of the year 2021. Thereafter Act No. XCIX of 2021 that was passed on 15 June 2021 made it a general rule to report  such legal transactions regardless of any time limit.

Which foreign entities are concerned? 

There are three groups:

1.    Purely third countries (non-EU-EEA including Switzerland)

• Legal entities, natural persons or other organizations
• If share acquisition reaches 10% directly or indirectly and its value is above HUF 350 million it is subject to report to the ministry (both conditions have to be met)
• If the share acquisition is 15%, 20% or 50% or the foreign investors jointly acquire 25% (regardless of the value)

2.     EU-EEA and Swiss companies of which controlling shareholder is a third country natural person, legal entity or other organization

• If share acquisition reaches 10% directly or indirectly and its value is above HUF 350 million it is subject to report to the ministry (both conditions have to be met)
• If the share acquisition is 15%, 20% or 50% or the foreign investors jointly acquire 25% (regardless of the value).

3.     EU-EEA or Swiss legal entity, natural person or other organization (no third country element)

• The value of share acquisition is above HUF 350 million
• Acquisition of a controlling share

What does the term strategic entity mean?

A strategic entity is a limited liability company, a private limited company, a public limited company or a higher education institution of which seat is registered in Hungary and its main or other activities include those activities that are listed in the Government’s decree.

What activities are concerned?

Government decree No. 289/2020. (VI.17.) lists those activities on the basis of which a company with a Hungarian seat qualifies a strategic entity.

Just to give you some examples within the different sectors (this is not an exhaustive list):

• chemical sector (pharmaceutical production),
• commercial facilities (motor vehicle, motorcycle trade and repair, retail, wholesale),
• information sector (publishing, telecommunication, filmmaking)
• critical industrial sector (public road vehicle manufacturing, manufacturing of personal computers, manufacturing of machinery),
• defence (manufacturing of weapons and ammunition),
• dams (construction of a water facility)
• energy (electricity, gas, steam, air conditioning),
• services connected to emergency (national defence, public safety, public order, fire protection)

As regards multinational companies, intra-group restructurings are exempted from notification.

What transactions have to be reported?

• transfer of existing ownership interest;
• capital increase;
• transformation, merger, division;
• the issuance of a convertible, subscription or convertible bond;
• establishment of usufruct rights on shares.

The acquisition of at least a 10% of the shares acquired directly or indirectly must be reported, if the total value of the investment reaches or exceeds HUF 350 million. The notification obligation also applies if the foreign investor acquires a 15, 20, or 50% of the shares, or if the joint share of foreign investors exceeds 25%.

How to report?

The foreign entity has to make the notification through its legal representative. The language of the notification is Hungarian. The procedure is electronic, in practice the notification together with the necessary attachments must be sent to the email address vallalatibejelentes@itm.gov.hu  addressed to Mr. László Palkovics minister in charge. The notification must be submitted within 10 days of the conclusion of the transaction. The notification must be accompanied by:

• a detailed description of the legal transaction,
• a detailed description of the relevant and substantial circumstances,
• documents and contracts in connection with the legal transaction,
• a documentation suitable for determining the ownership structure and beneficial owner of the foreign investor and the legal entities holding shares in the foreign investor,

The minister acknowledges the receipt of the notification without delay, but not later than within 8 days. This acknowledgement justifies the receipt of the notification. The minister has 30 days from the receipt of the notification to decide whether to acknowledge or deny the transaction. The deadline may be extended with a further 15 days. The decision of the minister may be challenged in administrative non-litigation proceedings before the Metropolitan Court of Budapest.

Monitoring

The minister is entitled to monitor compliance with the notification obligation. The inspection may be carried out for 6 months starting from the date when the minister became aware of the acquisition of ownership, but no later than 5 years from the date of the transaction.

Sanctions

If the inspection reveals that the notifier has failed to fulfill his obligations, the minister shall impose a fine. The amount of the fine is HUF 100,000 if the foreign investor is a natural person. In case of a foreign legal entity or other entity, the fine is at least 1% of the last business year’s net sales of the strategic company involved in the acquisition . But most importantly the contract concluded in breach of the above provisions is considered null and void.