FDI Regimes in Hungary

I. Two FDI regimes work in parallel in Hungary

Across Europe, an increasing number of countries are adopting legislation to monitor foreign direct investment (FDI), and Hungary is no exception. As of October 2024, there are two separate foreign direct investment screening mechanisms to consider in connection with investments in Hungary:

(i) the 2018 FDI Regime regarding investments made in certain strategic sectors that are important for the national security of Hungary (Act LVII of 2018); and 

(ii) the 2020 FDI Regime which was originally introduced to mitigate the consequences of the COVID-19 pandemic during the state of emergency, but is still in force with the same fundamental concepts (Act LVIII of 2020, currently replaced by emergency Gov. Decree 561/2022 (XII.23.)). 

The two FDI regimes may be applicable in parallel to each other and a foreign investment falling within the scope of one or both FDI regimes may not be completed without the prior acknowledgement of the competent Hungarian minister. In certain scenarios, the Hungarian FDI regimes are quite broad in scope and may cover investments that foreign investors and other professionals would often not anticipate. For example, the 2018 FDI Regime may apply to the adoption of a new business activity by an existing Hungarian company, while the 2020 FDI Regime applies to the direct or indirect acquisition by an EU person of a majority control in a Hungarian company if the transaction value exceeds HUF 350M (approx. EUR 0.9M). 

To determine whether an investment may fall under the scope of any of the Hungarian FDI screening regimes, the following questions must be assessed: 

(i) does the investment or action to be carried out fall under the scope of either FDI screening regime;

(ii) does the target company fall under the scope of either FDI screening regime; 

(iii) does the investor fall under the scope of either FDI screening regime; and 

(iv) are the necessary monetary and/or ownership related thresholds met (where applicable)? 

If the answer is yes to each question, the relevant investment will fall under the scope of either or both FDI screening regimes.

II. FDI monitoring applies to a wide range of transactions

It is worth noting that acquisitions of ownership interests are not the only investment forms that may trigger the applicability of the Hungarian FDI screening regimes. The 2020 FDI Regime and the 2018 FDI Regime may be applicable in case the foreign investor wishes to acquire assets, equipment or tools that are essential for the conduct of activities subject to FDI screenings. In addition, the 2018 FDI Regime may also be applicable during the establishment of a Hungarian company or branch office that wishes to pursue activities subject to FDI screening as well as the commencement of FDI triggering business activities by existing companies. 

Apart from acquisitions, the 2020 FDI Regime is also applicable to the increase of capital, a merger or demerger, the issuance of convertible bonds or the establishment of use rights.

III. Concerned sectors and activities

Gov. Decree 561/2022 (XII.23.) of the 2020 FDI Regime lists the NACE codes of the business activities which trigger the notification obligation under the 2020 FDI Regime. If the target company pursues any business activities falling under any of such NACE codes or if any of such business activities  are indicated in the Hungarian company register as a business activity of the target company, the 2020 FDI Regime must be considered. 

The 2018 FDI Regime is not as straightforward when it comes to its applicability. It must be considered if the target company pursues activities in, among others, the defense, financial services and energy sectors, but Hungarian IT companies may also pursue activities that trigger the applicability of the 2018 FDI Regime. As a result, it is usually only after a thorough due diligence that the applicability of the 2018 FDI Regime can be assessed.

IV. Who is a foreign investor?

The FDI regimes will apply to investments made by an investor who is:

(i) a national of countries outside of the EU/EEA/Switzerland (the “Third Countries”);

(ii) a company incorporated in one of the Third Countries; and

(iii) all undertakings in which a shareholder falling within the scope of either (i) or (ii) above has a majority control (whether directly or indirectly) as defined by the Civil Code. 

In addition, the investment of a non-Third Country investor (i.e., EU, EEA and Swiss investors) may also be subject to FDI screening under the 2020 FDI Regime if: (i) the value of their investment reaches a monetary threshold of HUF 350M (approx. EUR 0.9M); and (ii) such investor acquires a majority control in the target company (usually meaning an over 50% interest).

V. Thresholds

The 2018 FDI Regime applies if the investor, directly or indirectly, acquires: 

(i) at least a 25% stake in a target company (or at least a 10% stake in case of a publicly traded target company) or a controlling interest; or 

(ii) a less than 25% stake in a private company if this results in the combined shareholding of the foreign investors reaching a 25% threshold

regardless of the deal value.

The 2020 FDI Regime applies if the investor under point IV.(i) or (ii), directly or indirectly, acquires:

(i) at least a 5% stake in a target company (or at least a 3% stake in case of a publicly traded target company) in case the deal value reaches a monetary threshold of HUF 350M (approx. EUR 0.9M); or

(ii) at least 10% stake in a target company regardless of the deal value; or

(iii) a less than 25% stake in a private company if this results in the combined shareholding of the foreign investors reaching a 25% threshold regardless of the deal value.

For the applicability of the 2020 FDI Regime in case of non-Third Country investors, please see point IV above.

VI. Exemption and preemption

As mentioned, indirect acquisitions (i.e., the acquisition of a parent company of a Hungarian entity) may also be subject to an FDI screening. Under a recent amendment to the 2020 FDI Regime, the exemptions from the FDI filing have been narrowed in a way that the only exempt transactions are those performed on an “international level” (i.e., indirect acquisitions) where the Hungarian subsidiary involved in the transaction is a related company (in Hungarian: “kapcsolt vállalkozás”) as defined in Act C of 2000 on Accounting of the foreign target company the stakes of which are being sold.

The same amendment also introduced provisions under which the Hungarian State, through MNV Zrt., has been granted a preemption right over the sale and purchase of strategic companies whose business activity includes the production of electricity (TEAOR code 3511, NACE code D35.1.1) in the photovoltaic sector.

VII. Timing

Under both FDI regimes, the filing with the relevant minister must be made within 10 days of the execution of the underlying documents (e.g., an SPA) supplemented by documents suitable to determine the ownership structure and the ultimate beneficial owners of the investor. The filing must include the official Hungarian translations of any document submitted, therefore the preparation for the FDI filing must commence before the execution of the transaction documents.

Under the 2018 FDI Regime, the minister brings a decision within 60 days after the receipt of the FDI acknowledgement request which may be extended by a further 60 days, while the competent minister has 45 working days to bring the decision under the 2020 FDI Regime, which may be extended by a further 15 days. As a result, the FDI filing(s) may prolong the date of completion of an investment by approx. 4 months.

VIII. Consequences of non-compliance

In the absence of an acknowledgement of an investment triggering either or both of the Hungarian FDI regimes (either by failing to notify the minister or by receiving a prohibiting decision), a foreign investor will not be able to exercise any rights stemming from its stake in relation to the target company and may not be entered into the shareholders’ register of the target company.

If the foreign investor does not notify the competent minister of an investment triggering the 2018 FDI Regime, such foreign investor may be subject to a fine up to HUF 10M (approx. EUR 25.000) while such non-compliance with the 2020 FDI Regime may result in a fine equal to up to two times the value of the investment, but at least 1% of the net turnover of the target achieved in the most recent financial year for the foreign investor.

If an investment that triggers the 2018 FDI Regime was completed without the necessary acknowledgement and in an ex-post FDI screening, the minister concludes that the investment breaches the national security interests of Hungary, the foreign investor must sell its shareholding within 3 months with the Hungarian State having a pre-emption right in connection with any such sale. Under the 2020 FDI Regime, in the absence of notification and acknowledgement, or if the acknowledgement is denied, the agreement, statement or corporate resolution underlying a notifiable investment is null and void. The nullity resulting from a failure to notify may be remedied if the minister issues a resolution approving the investment.

IX. Summary

FDI monitoring in Hungary captures a wide range of transactions with limited transparency in the practice of the competent ministers. Therefore, if you or your company are considering an investment in a Hungarian company or a foreign company with a Hungarian subsidiary, we recommend that you consult with your transactional and/or regulatory advisors as early as possible. Bird & Bird Budapest has extensive experience in supporting clients in structuring transactions and preparing FDI analyses as well as filing FDI acknowledgement requests under both FDI screening regimes. 

If you need more information or further guidance on the FDI regimes in Hungary, please contact Dániel Arányi and Balázs Rudinszky. Two FDI regimes work in parallel in Hungary.

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