HomeReportsBureau of Economic and Business Affairs2023 Investment Climate Statements…Hungary

# 					2023 Investment Climate Statements: Hungary			

 In this section										/

													EXECUTIVE SUMMARY											

                -  EXECUTIVE SUMMARY 
                -  1. Openness To, and Restrictions Upon, Foreign Investment                    -  Policies Towards Foreign Direct Investment 
                  -  Limits on Foreign Control and Right to Private Ownership and Establishment 
                  -  Other Investment Policy Reviews 
                  -  Business Facilitation 
                -  2. Bilateral Investment and Taxation Treaties 
                -  3. Legal Regime                    -  Transparency of the Regulatory System 
                  -  International Regulatory Considerations 
                  -  Legal System and Judicial Independence 
                  -  Laws and Regulations on Foreign Direct Investment 
                  -  Competition and Antitrust Laws 
                  -  Expropriation and Compensation 
                  -  Dispute Settlement                      -  ICSID Convention and New York Convention 
                    -  Investor-State Dispute Settlement 
                    -  International Commercial Arbitration and Foreign Courts 
                  -  Bankruptcy Regulations 
                -  4. Industrial Policies                    -  Investment Incentives 
                  -  Foreign Trade Zones/Free Ports/Trade Facilitation 
                  -  Performance and Data Localization Requirements 
                -  5. Protection of Property Rights                    -  Real Property 
                  -  Intellectual Property Rights 
                -  6. Financial Sector                    -  Capital Markets and Portfolio Investment 
                  -  Foreign Exchange and Remittances                      -  Foreign Exchange 
                    -  Remittance Policies 
                  -  Sovereign Wealth Funds 
                -  7. State-Owned Enterprises                    -  Privatization Program 
                -  8. Responsible Business Conduct                    -  Additional Resources 
                  -  Climate Issues 
                -  9. Corruption                    -  Resources to Report Corruption 
                -  10. Political and Security Environment 
                -  11. Labor Policies and Practices 
                -  12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs 
                -  13. Foreign Direct Investment Statistics 
                -  14. Contact for More Information 

## EXECUTIVE SUMMARY

Hungary’s central location in Europe and high-quality infrastructure have made it an attractive destination for Foreign Direct Investment (FDI), which Hungary’s government actively courts. After Germany and Austria, the United States was the third largest investor in 2020. About 450 U.S. companies are present in Hungary — mostly within the automotive, software development, and life sciences sectors — and in 2020 produced more jobs in Hungary than investment from any other country. The corporate tax rate is currently 9 percent, though the government dropped its veto to the EU directive to implement the OECD Global Minimum Tax agreement. Foreign investors generally report a productive dialogue with the government.

However, analysts remain concerned the Hungarian government unfairly promotes domestic ownership at the expense of foreign investors in the banking, media, energy, retail, utilities, telecommunications, and insurance sectors. Regarding the public procurement process, European Commission audits found an unusually high percentage of contracts were awarded after a single bidder (often government affiliated entrepreneurs) participated. In 2022, Hungary placed 77 worldwide and ranked last out of the 27 EU member states on Transparency International’s (TI) 2022 Corruption Perceptions Index, a deterioration.

The Hungarian government has granted itself uninterrupted state-of-emergency powers since November 2020 with authority to bypass Parliament and govern by decree despite the ruling party’s veto-proof two-thirds majority. Nearly all Hungary’s public development projects are EU-financed, and in the 2014-2020 budget cycle the EU funds amounted to about 3 percent of GDP. In April 2022, the European Commission launched the budget conditionality mechanism, blocking all of Hungary’s €22 billion ($23.8 billion) in 2021-2027 cohesion funds and €15.5 billion ($16.7 billion) of Recovery and Resilience funds until the country resolves concerns over the rule of law and “systemic irregularities, deficiencies and weaknesses in public procurement procedures.” The withholding of EU funds remains a significant economic risk for Hungary.

Hungary faces slowing economic growth, and high energy prices stemming from a mix of Russia’s invasion of Ukraine, government-mandated price caps on certain staple food items, the weakening of the forint, and “windfall” taxes imposed on certain economic sectors resulted in an inflation rate not seen since the 1990’s and the highest in the EU (25.7 percent year-on-year in January 2023). Analysts forecast at best an anemic 0.5 percent economic growth for the year. In July 2022 the United States cancelled the 1979 U.S.-Hungary bilateral tax treaty as of January 8, 2023. The Convention shall cease to have effect with respect to taxable periods beginning on or after January 1, 2024.

Hungary’s Green Public Procurement Strategy encourages public authorities to procure goods and services with a reduced environmental impact and aims for 30 percent of all public procurements in Hungary to be green. Although the Hungarian government plans to increase the country’s forest cover from 20 percent to 27 percent by 2030, the government loosened the rules for timber harvest even within protected areas because of the energy crisis. The government’s plan to expand the Paks nuclear power plant is years behind schedule, and significant investments are needed to accommodate more renewable energy in the power grid.

							1. Openness To, and Restrictions Upon, Foreign Investment					

### Policies Towards Foreign Direct Investment

Hungary’s government actively courts FDI. Net annual FDI in 2021 amounted to $6.9 billion, and gross FDI totaled $101.9 billion. EU countries account for approximately 89 percent of all FDI in Hungary in terms of direct investors and 67.3 percent in terms of ultimate controlling parent investor.  In terms of ultimate investor – i.e., country of origin – the United States was the third largest investor after Germany and Austria in 2020. In terms of direct investor location, the Netherlands was the largest investor, followed by Germany, Austria, Luxembourg, and Switzerland. Approximately 450 U.S. companies maintain a presence in Hungary. Most U.S. investment falls within the automotive, software development, and life sciences sectors. According to data from the Hungarian Investment Promotion Agency (HIPA), U.S. foreign direct investment produced more jobs in Hungary in 2020 than investment from any other country.

Total cumulative FDI from Asian sources has doubled since 2010, accounting for over eight percent of total FDI stock in 2020. According to HIPA, South Korea, Japan, China, India, and other Asian countries accounted for about 40 percent of the value of new foreign investment projects in Hungary in 2020 and in 2021, with $3.1 billion in investments creating 3,500 jobs.

To lure investment, the Hungarian government set the corporate tax rate at 9 percent. In December 2022, however, the government dropped its veto on the EU directive to implement the OECD Global Minimum Tax Agreement. Hungary’s personal income tax rate is 15 percent and the employee-paid welfare and payroll tax decreased to 13 percent in 2023.  Hungary’s Value-Added Tax (VAT) for most goods and services is the highest in Europe at 27 percent. The Hungarian government streamlined the National Tax and Customs authority (NAV) procedure to offer fast-track VAT refunds to customers categorized as “low-risk;” NAV has continuously updated its list of low-risk taxpayers.

Government policies have resulted in some foreign investors selling their stakes to the government or state-owned enterprises in other sectors, including banking, energy, utilities, and telecommunications.  Many foreign companies have expressed displeasure with the unpredictability of Hungary’s tax regime, its retroactive nature, slow response times, and the volume of legal and tax changes.

In 2017, the Hungarian government passed a regulation that gives the government preemptive rights to purchase real estate in World Heritage areas.  The rule has been used to block the purchase of real estate by foreign investors in the most desirable areas of Budapest. In April 2020 the Hungarian government issued a decree that levied sector-specific taxes on the banking and retail sectors to fund COVID-19 pandemic economic support. This progressive tax on retail grocery outlets was structured such that it applies mainly to large foreign retail firms. In December 2021, Parliament fast-tracked legislation to increase the retail tax and compelled retail chains with an annual revenue over $310 million to offer their food items nearing expiry date to a state-owned nonprofit company, introducing another measure which impacts only foreign-owned retailers.

In September 2016, Prime Minister (PM) Viktor Orban announced that at least half the banking, media, energy, and retail sectors should be in Hungarian hands and later added utilities, telecommunications, and insurance to the list. Sudden tax changes and regulatory policies helped increase Hungarian ownership in the banking sector to 60 percent and the energy sector to over 50 percent, and the January 2023 purchase of Vodafone with 4iG increased domestic ownership in telecommunications.  Between 80 and 90 percent of all media in Hungary belongs to the Central European Press and Media Foundation (KESMA) run by individuals with ties to the ruling Fidesz party. Various Hungarian government initiatives which reduced foreign ownership in the banking sector included a 2010 bank tax; a 2012 financial transaction tax levied on all cash withdrawals; and regulations enacted between 2012-2015 that obligated banks to retroactively compensate borrowers for interest rate increases on foreign currency-denominated mortgage loans, even though these increases were spelled out in the original contracts with customers and had been permitted by Hungarian law. In 2022 the government levied additional windfall taxes on the banking, insurance, mining, energy, retail, telecom, aviation, retailers of pharmaceuticals, and advertising sectors.

The pharmaceutical industry is competitive and profitable in Hungary, but multinational enterprises complain of numerous financial and procedural obstacles including high taxes on pharmaceutical products and operations, prescription directives that limit a doctor’s choice of drugs, and obscure tender procedures that negatively affect the competitiveness of certain drugs.  Pharmaceutical companies also complain about the lengthy procedure to accept innovative medications in the national reimbursement system.

The Hungarian Investment Promotion Agency (HIPA), under the authority of the Ministry of Foreign Affairs and Trade, encourages and supports inbound FDI.  HIPA offers company- and sector-specific consultancy, recommends locations for investment, acts as a mediator between large international companies and Hungarian firms to facilitate supplier relationships, organizes supplier training, and maintains active contact with trade associations.  Its services are available to all investors. For more information, see: **https://hipa.hu/hu/.**

Foreign investors generally report a productive dialogue with the government, both individually and through business organizations.  The American Chamber of Commerce (AmCham) enjoys ongoing high-level dialogue with the Hungarian government and the government has adopted many AmCham policy recommendations. For more information, see: https://www.amcham.hu/ 

In 2017, the government established a Competitiveness Council, now chaired by the Minister of Finance, which includes representatives from multinationals, chambers of commerce, and other stakeholders, to increase Hungary’s competitiveness.  Many U.S. and foreign investors have signed MOUs with the Hungarian government to facilitate one-on-one discussions and resolve pending issues. The Hungarian government consulted foreign businesses and business associations as it developed economic support measures during the pandemic. For more information, see: https://kormany.hu/kulgazdasagi-es-kulugyminiszterium/strategiai-partnersegi-megallapodasok.

The U.S.-Hungary Business Council (USHBC) – a private, non-profit organization established in 2016 – aims to facilitate and maintain dialogue between American corporate executives and top government leaders on the U.S.-Hungary commercial relationship.  For more information, see: https://www.us-hungarybusinesscouncil.com/.****

### Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign ownership is permitted except for “strategic” sectors including farmland and defense-related industries which require special government permits. A 2018 national security law on investment screening requires foreign investors seeking to acquire more than a 25-percent stake in a Hungarian company in “sensitive” sectors (defense, intelligence services, certain financial services, electric energy, gas, water utility, and electronic information systems for governments) to seek approval from the Interior Ministry.  The Ministry has up to 60 days to issue an opinion and can only deny the investment if it determines that the investment is designed to conceal an activity other than normal economic activity. Regulation passed in 2020 required foreign investors to seek government approval for greenfield or expansion of existing investments, transferred this authority to the Ministry of Economic Development, and added several new sectors requiring prior approval. Some observers suggested this law could be used to disadvantage foreign firms or deny them access to the Hungarian market.

Foreign law firms and auditing companies must sign a cooperation agreement with a Hungarian company to provide services on Hungarian legal or auditing issues. According to the Land Law, only private Hungarian citizens or EU citizens resident in Hungary with a minimum of three years of experience working in agriculture or holding a degree in an agricultural discipline can purchase farmland.

### Other Investment Policy Reviews

Hungary has not had any third-party or independent civil organization investment policy reviews in the last five years.

### Business Facilitation

Hungary is a member of an EU initiative to create a European network of “point of single contact,” through which existing businesses and potential investors can access all information on the business and legal environment as well as connect to HIPA.  In recent years, the government has strengthened investor relations, signed strategic agreements with key investors, and established a National Competitiveness Council to formulate measures to increase Hungary’s economic competitiveness.

The registration of business enterprises is compulsory in Hungary.  Firms must contract an attorney and register online with the county-level courts of justice operating as courts of registration.  Registry courts must process applications to register limited liability and joint-enterprise companies within 15 workdays, but the process is usually complete within three workdays.  If the Court fails to act within the given timeframe, the new company is automatically registered. If the company chooses to use a template corporate charter, registration can be completed in a one-day fast track procedure.  Registry courts provide company information to the Tax Authority (NAV), eliminating the need for separate registration. The Court maintains a computerized registry and electronic filing system and provides public access to company information.  The minimum capital requirement for a limited-liability company is HUF 3,000,000 ($8,300); for private limited companies HUF 5,000,000 ($13,900), and for public limited companies HUF 20,000,000 ($55,500). Foreign individuals or companies can establish businesses in Hungary without restrictions.

Further information on business registration and the business registry can be obtained at the Hungarian government’s information website for businesses: eugo.gov.hu/starting-business-hungary****or at the Ministry of Justice’s Company Information Service https://ceginformaciosszolgalat.kormany.hu/elektronikus-cegeljaras, and the Tax Authority https://nav.gov.hu/en/taxation/taxpayer_registration**.**Hungarian business facilitation mechanisms offer no special preference or assistance in establishing a company.

Outward investment is directed toward manufacturing, pharmaceuticals, services, finance and insurance, and science and technology.  The total stock of Hungarian investment abroad amounted to $38.4 billion in 2021.  There is no restriction in place for domestic investors to invest abroad. In 2019 the Hungarian government announced incentives to promote Hungarian investment abroad. According to the Central Bank, in 2021 the Netherlands, Cyprus, and Croatia were the main destinations for Hungarian investment abroad.

							2. Bilateral Investment and Taxation Treaties					

Hungary and the United States do not have a bilateral investment treaty (BIT).

Information regarding the status of Hungary’s bilateral investment treaties with other countries may be found on the International Investment Agreements Navigator on the United Nations Conference on Trade and Development website. A list of Hungary’s double taxation treaties can be found on the National Tax and Customs Administration’s website.

In January 2014, Hungary signed the Foreign Account Tax Compliance Act (FATCA) Intergovernmental Agreement with the United States to improve international tax compliance through mutual assistance in tax matters and the automatic exchange of tax information.  The United States and Hungary signed a social security totalization agreement that eliminates double social security taxation and fills gaps in benefits for workers who have divided their careers between the two countries. In July 2022 the United States cancelled the 1979 U.S.-Hungary bilateral tax treaty as of January 8, 2023. The Convention shall cease to have effect with respect to taxable periods beginning on or after January 1, 2024.

Hungary is a member of the OECD/G20 Inclusive Framework on BEPS and indicated that it intended to join the Global Minimum Tax Agreement with a 10-year transitionary period.

							3. Legal Regime					

### Transparency of the Regulatory System

Legal, regulatory, and accounting systems are consistent with international and EU standards.  However, some executives in Hungarian subsidiaries of U.S. companies express concerns about a lack of transparency in the Hungarian government’s policy-making process and an uneven playing field in public tendering. A growing number of companies, including major U.S. multinational franchises and foreign owners of major infrastructure, report facing pressure to sell their businesses to government-affiliated investors. Those that refuse to sell report an increase in tax audits, fines, and spurious regulatory challenges and court cases. SMEs increasingly report a desire to either remain small (and therefore “under the radar” of these government-affiliated investors) or relocate their businesses outside of Hungary.

As a result of the unaddressed systemic “irregularities, deficiencies, and weaknesses” in EU-funded public procurement projects, in April 2022 the European Commission launched the budget conditionality mechanism against Hungary. To unlock the EU funds, Hungary agreed to implement changes in its public procurement system, including setting up a single bid reporting tool, improving the transparency of its electronic public procurement database, and setting up a performance measurement framework. Hungary also set up a new Integrity Authority in late 2022, tasked with improving the transparency of the public procurements and empowered to instruct contracting authorities to suspend a procurement procedure. However, the Authority has not yet used this power in practice so its effectiveness cannot yet be judged.

For foreign investors, the most relevant regulations stem from EU directives and the laws passed by Parliament to implement them. Laws in Parliament can be found on Parliament’s website (https://www.parlament.hu/en/web/house-of-the-national-assembly). Legislation, once passed, is published in a legal gazette and available online at ******www.magyarkozlony.hu**.  The Hungarian government can issue decrees that have national scope, but they cannot be contrary to laws enacted by Parliament.  However, the government has operated under various states of emergency since March 2020, during which the government decrees can override laws enacted by Parliament. Local municipalities can create local decrees, limited to the local jurisdiction.

Hungarian financial reporting standards are in line with the International Accounting Standards and the EU Fourth and Seventh Directives.  The accounting law requires all businesses to prepare consolidated financial statements on an annual basis in accordance with international financial standards. Hungary ranked 21st among 193 countries with a score of 79.01of a total score of 100 on the 2022 UN Sustainable Development Report. The government does not have a comprehensive policy framework to promote or require environmental, social, and governance (ESG) disclosure for companies operating in Hungary and has done little since the Foreign Ministry published its Voluntary National Review of Hungary on the Sustainable Development Goals of the 2030 Agenda. However, the Budapest Stock Exchange recommends its members publish ESG Reports.

The Hungarian government rarely invites interested parties to comment on draft legislation. Individual Members of Parliament may submit legislation and amendments without public consultation.  The deadline for submitting public comment is often very short, usually less than one week. The Act on Legislation and the Law Soliciting Public Opinion govern the public consultation process and require the Hungarian government to publish draft laws on its webpage and to give adequate time for all interested parties to give an opinion on the draft. However, implementation is not uniform, and the Hungarian government often fails to solicit public comments on proposed legislation. In July 2022, Parliament fast-tracked a bill in 48 hours modifying the small business tax, which effectively eliminated a tax scheme utilized by some 450,000 small entrepreneurs in Hungary. As part of the agreement between the government and the European Commission on improving the rule of law in Hungary in October 2022 the Parliament passed a law obliging the government to hold social consultations for 90 percent of the bills passed by Parliament. Despite the new obligation, since October 2022 several important legislative proposals were fast tracked and passed in a few days without any social consultation. Watchdogs also noted the social consultation process is technically cumbersome, and the government routinely dismisses any proposals submitted during the social consultation process.

The legislation processes – including key regulatory actions related to laws – are published on the Parliament’s webpage.  Explanations attached to draft bills include a summary on the aim of the legislation, but regulators only occasionally release public comments.

Regulatory enforcement mechanisms include the county and district level government offices, though county-level courts may challenge their decisions.

Hungary’s budget was widely accessible to the public, including online through the Parliament and Finance Ministry websites and the Legal Gazette.  The government made budget documents, including the executive budget proposal, the enacted budget, and the end-of-year report, publicly available within a reasonable period.  Modifications to a current budget, which in 2022 were substantial because of the war, are not consolidated with the initial budget law and do not include economic analysis of the effects of those modifications. Information on debt obligations was publicly available, including online through the Hungarian Central Bank (******https://www.mnb.hu/en******) and Hungarian State Debt Manager’s (******https://akk.hu/******) websites.

### International Regulatory Considerations

All EU regulations and decisions are immediately applicable in Hungary, without further domestic measures, while directives must be adopted by Hungarian legislation.  If a Hungarian law is contrary to EU legislation, the EU rule takes precedence. Labor, environment, health, and safety laws are consistent with EU regulations.  Hungary follows EU foreign trade and investment policy, and all trade regulations follow EU legislation. Hungary participates in the WTO as an EU Member State.

### Legal System and Judicial Independence

The Hungarian legal system is based on continental European (German, French, and Roman law) traditions.  Contracts are enforced by ordinary courts or – if stipulated by contract – arbitration centers. Investors in Hungary can agree with their partners to turn to Hungarian or foreign arbitration courts.

Apart from these arbitration centers, there are no specialized courts for commercial cases; ordinary courts are entitled to judge any kind of civil case.  The Civil Code of 2013 applies to civil contracts. The Hungarian judicial system includes four tiers: district courts (formerly referred to as local courts); courts of justice (formerly referred to as county courts); courts of appeal; and the Curia (the Hungarian Supreme Court).  Hungary also has a Constitutional Court that reviews cases involving the constitutionality of laws and court rulings. There are no special commercial courts, but first level public administration and labor cases are judged only by the county level courts of justices.

Ordinary, lower-tier courts are considered to generally operate independently under largely fair and reliable judicial procedures.  Recently, an increasing number of legal scholars and current and former judges have raised concerns about growing Hungarian government influence over the court system and intimidation of judges by court administration. Each European Commission rule of law report since 2020 has cited judicial independence in Hungary as a source of concern, that – as of the 2022 report – has remained unaddressed by the government.

The European Commission’s 2022 *Rule of Law Report* said the National Judicial Council (OBT) – a self-governing body of the judges – continued to face challenges in counterbalancing the powers of the National Office for the Judiciary (OBH) president, the position responsible for the central administration of the court system elected by parliament for a nine-year term, in terms of court management and the appointment of judges and court executives.  The European Commission’s report in 2022 noted the government had failed to address concerns highlighted in the 2021 report that appointment to the top judicial post without involvement of a judicial oversight body (such as the OBT) did not meet European standards.

After OBT spokesperson Csaba Vasvari and the OBT member in charge of international relations held a routine meeting with Western diplomatic representatives to Hungary in October 2022, government-controlled and government-friendly media launched a coordinated smear campaign against the two judges and called for their resignations. As a result, judges are reluctant to express their concerns publicly or support others who have done so. The European Association of Judges released a statement of solidarity defended the judges’ right to meet with foreign diplomats and called on authorities to avoid criticizing judges either directly or through the media.

Despite significant opposition by the National Judicial Council, the current Curia president was appointed in 2021 to a nine-year term, without any courtroom experience.

As part of the talks between the government and the European Commission over the conditionality mechanism started in April 2022, in December 2022 the government pledged to improve the independence of the judiciary – especially that of the Curia – and strengthen the OBT’s role while safeguarding its independence. Cohesion and recovery funds earmarked to Hungary remain suspended until Hungary adequately addresses the concerns of the European Commission.

Most business complaints about the court system pertain to the lengthy proceedings rather than the fairness of the verdicts. In the past three decades, the European Court of Human Rights (ECHR) has ruled against Hungary in hundreds of cases due to significant delays in court proceedings and the lack of an effective remedy to prevent such delays, despite the relevant requirements of the European Convention on Human Rights. In January 2022, a new law introduced financial compensation for those whose civil case exceeded the defined reasonable period.

Regulations and law enforcement actions pertaining to investors may be appealed at ordinary courts or at the Constitutional Court.

### Laws and Regulations on Foreign Direct Investment

Hungarian law protects property and investment.  The Hungarian state may expropriate property only in exceptional cases where there is a public interest; any such expropriations must be conducted in a lawful way, and the Hungarian government is obliged to make immediate and full restitution for any expropriated property, without additional stipulations or conditions.

The Hungarian government passed a national security law on investment screening in 2018 that requires foreign investors seeking to acquire more than a 25 percent stake in a Hungarian company in certain “sensitive sectors” (defense, intelligence services, certain financial services, electric energy, gas, water utility, and electronic information systems for governments) to seek approval from the Interior Ministry.  (Please see above section on limits on foreign control for more details). Based on this law, in April 2021 the Interior Ministry blocked Austria’s Vienna Insurance Group (VIG) from buying Dutch insurer Aegon’s Hungarian subsidiary. In February 2022 the European Commission decided the block violated EU rules, but by that time the Hungarian government and VIG agreed the state would acquire a 45 percent stake in Aegon. In 2020, as part of the measures to mitigate the economic effects of the COVID-19 pandemic, the Hungarian government passed another regulation requiring foreign investors to seek government approval for greenfield or expansion of existing investments. As of 2022, the Ministry of Economic Development is responsible for approving foreign investments in a significantly widened scope of about 30 sectors it deemed strategic.

There is no primary website or “one-stop shop” which compiles all relevant laws, rules, procedures, and reporting requirements for investors.  The Hungarian Investment Promotion Agency (HIPA), however, facilitates establishment of businesses and provides guidance on relevant legislation.

### Competition and Antitrust Laws

EU competition law is binding in Hungary. The Hungarian Competition Authority, tasked with safeguarding the public interest, enforces the provisions of the Hungarian Competition Act, and is empowered to investigate suspected violations of competition law, order changes to practices, and levy fines and penalties.  According to the Authority, the number of competition cases has decreased since 2010 but have become more complex. Out of more than 60 cases in 2022, only a few minor cases pertained to U.S.-registered companies.

### Expropriation and Compensation

Hungary’s Constitution provides protection against uncompensated expropriation, nationalization, and any other arbitrary action by the Hungarian government except in cases of threat to national security.  In such cases, immediate and full compensation is to be provided to the owner. There are no known expropriation cases where the Hungarian government has discriminated against U.S. investments, companies, or representatives.  There have been some complaints from other foreign investors within the past several years that expropriations have been improperly executed and without proper remuneration. Parties involved in these cases turned to the domestic legal system for dispute settlement.

### Dispute Settlement

#### ICSID Convention and New York Convention

Hungary is a signatory to the International Centre for the Settlement of Investment Disputes (ICSID Convention) and to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). There is no specific legislation providing for enforcement other than the two domestic laws proclaiming the New York and ICSID Conventions.

#### Investor-State Dispute Settlement

Under the UN’s 1958 New York Convention, Hungary recognizes and enforces rulings of the International Chamber of Commerce’s International Court of Arbitration.

Since 2000 Hungary has been the respondent in 16 known investor-State arbitration claims; none of these claims involved U.S. investors.

#### International Commercial Arbitration and Foreign Courts

Parties increasingly turned to mediation to settle disputes without engaging in lengthy court procedures.  Law 60 of 2017 on domestic arbitration procedures is based on the UNCITRAL Model Law.

Investment dispute settlement clauses are frequently included in investment contracts between foreign enterprises and the Hungarian government.  Hungarian law allows the parties to set the jurisdiction of any courts or arbitration centers or set up an ad hoc arbitration court.  The law allows investors to agree on dispute resolution via foreign arbitration centers, such as the International Centre for Settlement of Investment Disputes (ICSID), UNCITRAL’s Permanent Court of Arbitration (PCA), or the Vienna International Arbitral Centre.  In Hungary, foreign parties can turn to the Hungarian Chamber of Commerce and Industry arbitration court, which has its own rules of proceedings  ( https://mkik.hu/en/court-of-arbitration ) and in financial issues to the Financial and Capital Market’s arbitration court. Local courts recognize and enforce foreign or domestic arbitral awards.  An arbitral ruling may only be annulled in limited cases and under special conditions. According to Law 60 of 2017, a local arbitration court’s decision is equally binding to that of a court ruling.

Local courts recognize and enforce foreign arbitral awards against the Government of Hungary. Domestic courts do not favor State-owned enterprises (SOEs) disproportionately.  Investors can expect a fair trial even if SOEs are involved and in case of an unfavorable ruling, may elevate the case to the European Court of Justice (ECJ).  Investors do not generally complain about non-transparent or discriminatory court procedures.

### Bankruptcy Regulations

The Act on Bankruptcy Procedures, Liquidation Procedures, and Final Settlement of 1991, covers all commercial entities except banks (which have their own regulatory statutes), trusts, and State-owned enterprises.  Debtors can initiate bankruptcy proceedings only if they have not sought bankruptcy protection within the previous three years. Within 90 days of seeking bankruptcy protection, the debtor must call a settlement conference to which all creditors are invited. Majority consent of the creditors present is required for all settlements.  If agreement is not reached, the court can order liquidation. The Bankruptcy Act establishes the following priorities of claims to be paid: 1) liquidation costs; 2) secured debts; 3) claims of the individuals; 4) social security and tax obligations; 5) all other debts. Creditors may request the court to appoint a trustee to perform an independent financial examination.  The trustee has the right to challenge, based on conflict of interest, any contract concluded within 12 months preceding the bankruptcy.

The debtor, creditors, the administrator, or the Criminal Court may file liquidation procedures with the court.  Once a petition is filed, regardless of who filed it, the Court notifies the debtor by sending a copy of the petition.  The debtor has eight days to acknowledge insolvency. Once insolvency is acknowledged, the company declares whether it requests respite for debt settlement.  Failure to respond results in the presumption of insolvency. The Court may allow up to of 30 days for the debtor to settle the debt upon request. If the Court finds the debtor insolvent, it appoints a liquidator. Following the March 2022 closure of the Russian Sberbank network in Hungary, deposit holders have been compensated in accordance with the Act on Bankruptcy Procedures.

Bankruptcy itself is not criminalized unless it is claimed in a fraudulent way, deliberately, and in bad faith to prevent the payment of debts.

Law 122 of 2011 obliges banks and credit institutions to establish and maintain the Central Credit Information System to assess creditworthiness of businesses and individuals to facilitate prudent lending (http://www.bisz.hu).

							4. Industrial Policies					

### Investment Incentives

Hungary has a well-developed incentive system for investors, the cornerstone of which is a special incentive package for investments over a certain value (typically over EUR 10 million or $11 million), designed to benefit investors who establish manufacturing facilities, logistics facilities, regional service centers, R&D facilities, and bioenergy facilities, or those who make tourism industry investments.  Incentives may include cash subsidies, development tax allowances, training subsidies, and job creation subsidies. The incentive system is compliant with EU regulations on competition and state aid and is administered by the Hungarian Investment Promotion Agency (HIPA) and managed by the Ministry of Economic Development and the Ministry of Foreign Affairs and Trade (MFAT). The government provides non-refundable subsidies to foreign investments in less developed areas and certain sectors including research and development, innovation, and high-tech manufacturing, based on case-by-case government decisions. For more information please see: ******https://hipa.hu/additional-favourable-changes-in-the-non-refundable-cash-incentives-system******.

In 2017 Hungary introduced a new Renewable Energy Support Scheme (METAR) – replacing the former feed-in tariff system (KAT) – in which producers of renewable energy can bid for state subsidies, paid as a premium over the market reference price. Newly established renewable energy producing facilities from 0.5 to 1 MW can apply for a feed-in premium in addition to the market price, and over 1 MW the support level is set through competitive auctions. Companies with a registered office in the EU, the EEA or the Energy Community, Hungarian branch offices of foreign companies and Hungarian business entities or municipalities may apply, but the tender is only available to projects located in Hungary. For more information on the METAR scheme, please see: http://www.mekh.hu/information-on-the-renewable-energy-support-system.

The so-called brown premium was designed to ensure the continued operation of existing biomass or biogas fired power plants. Entitlement for the brown premium is determined by the Energy Authority at the request of the producer. The Energy Authority updates the amount of the support annually.

In November 2022 the Hungarian government launched a “Factory Rescue Program,” allowing companies to apply for grants between €500,000 and €15 million to support energy efficiency and energy production investments. Companies receiving aid will be required to maintain their labor force at 90 percent of their 2021 level when reviewed in 2023. The program is administered by the Hungarian Investment Promotion Agency.

### Foreign Trade Zones/Free Ports/Trade Facilitation

There are no foreign trade zones in Hungary. The central government has designated some areas as “special economic zones” where tax is diverted to the national government rather than the local government while limiting the local government’s ability to interfere in the investment activities. Critics claim the government uses the structure to divert tax revenue to the central government budget away from opposition-held municipal budgets.

### Performance and Data Localization Requirements

Hungary has no forced data localization policy.  Foreign IT providers do not need to turn over source code or provide access to encryption.  Hungary follows EU rules on transfer of personal data outside the economy. Storage of personal data is regulated by a data protection law and falls under the authority of a Data Protection Ombudsman.

There are no general performance requirements for investors in Hungary.  However, investors may receive government subsidies in the event they meet certain performance criteria, such as job creation or investment minimums, which are available to all enterprises registered in Hungary and are applied on a systematic basis.  To comply with EU rules, the Hungarian government no longer grants tax holidays based on investment volume. There is no requirement that investors must purchase from local sources, but the EU Rule of Origin applies. Investors are not required to disclose proprietary information to the Hungarian government as part of the regulatory process.

Hungary, as an EU Member State, follows the General Data Protection Regulation (GDPR) on transmitting data outside of the EU and local data storage requirements.  The National Authority for Data Protection and Freedom of Information is responsible for enforcing GDPR rules.

							5. Protection of Property Rights					

### Real Property

Hungary maintains a reliable land registry which provides public information on the ownership, mortgage, and usufruct rights of a real estate or land parcel.  Secured interests in property (mortgages), both moveable and real, are recognized and enforced, but there is no title insurance in Hungary.

Please see the section on Limits on Foreign Control and Right to Private Ownership and Establishment for information regarding restrictions on purchasing farmland.

Hungarian law allows acquisitive prescription for unoccupied real property if the user of the property occupies it continuously for at least 15 years. Real estate and land purchase contracts must be countersigned by an attorney registered in Hungary.

### Intellectual Property Rights

Hungary is not included in the U.S. Trade Representative’s (USTR’s) Special 301 Report or the Notorious Markets List.

Hungary has an adequate legal structure for protecting intellectual property rights (IPR), although sentences for civil and criminal IPR infringement cases are not adequately harsh enough to serve as a deterrent.  There has been no new major IPR legislation passed in the last year. According to some representatives of the pharmaceutical and software industries, enforcement could be improved if the Prosecutor General’s Office were to establish specialized IPR units.  The most common IPR violations in Hungary include the sale of imported counterfeit goods including pharmaceuticals, internet-based piracy, and software license abuses. Most counterfeit goods sold in Hungary are of Chinese origin.

Hungary is a party to the European Patent Convention, the World Trade Organization’s (WTO’s) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and many other major international IPR agreements, including some administered by the World Intellectual Property Organization (WIPO), such as the Berne Convention, the Paris Convention, the WIPO Copyright Treaty, and the WIPO Performance and Phonograms Treaty.  As an EU Member State, Hungary is required to implement EU Directives and so is party to the EU Information Society Directive and EU Enforcement Directive, among others.

The United States and Hungary signed a Comprehensive Bilateral Intellectual Property Rights Agreement in 1993 that addresses copyright, trademarks, and patent protection.

In 2010, the U.S. Patent and Trademark Office (USPTO) and the Hungarian Intellectual Property Office (HIPO) launched a pilot program to facilitate patent recognition between the United States and Hungary.  In 2012 the USPTO and HIPO signed a Memorandum of Understanding to further streamline and expedite bilateral patent recognition. More details about this Patent Processing Highway (PPH) program can be found on HIPO’s website at  https://www.sztnh.gov.hu/en/pph-patent-prosecution-highway****.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

							6. Financial Sector					

### Capital Markets and Portfolio Investment

The Hungarian financial system offers a full range of financial services with an advanced information technology infrastructure.  The Hungarian Forint (HUF) has been fully convertible since 2001, and both Hungarian financial market and capital market transactions are fully liberalized.  The Capital Markets Act of 2001 sets out rules on securities issues, including the conversion and marketing of securities. As of 2007, separate regulations were passed on the activities of investment service providers and commodities brokers (2007), on Investment Fund Managing Companies (2011), and on Collective Investments (2014), providing more sophisticated legislation than those in the Capital Markets Act.  These changes aimed to create a regulatory environment where free and available equity easily matches with the best investment opportunities. The 2016 modification of the Civil Code removed remaining obstacles to promote collection of public investments while establishing a public limited company.

The Budapest Stock Exchange (BSE)****is a member of the Central and Eastern Europe (CEE) Stock Exchange Group and uses the internationally recognized trading platform Xetra.  In 2023, the BSE has 22 members and 153 issuers. The issued securities include shares, investment notes, certificates, corporate bonds, mortgage bonds, government bonds, treasury bills, and derivatives.  In March 2023, the BSE had a market capitalization of $27.5 billion. The most traded shares are OTP Bank, Richter, MOL, Magyar Telekom, 4iG, and OPUS.

Financial resources flow freely into the product and factor markets.  In line with IMF rules, international currency transactions are not limited and are accessible both in domestic and foreign currencies. Individuals can hold bank accounts in either domestic or foreign currencies and conduct transactions in foreign currency. Since March 2020, commercial banks introduced real time bank transfers for domestic currency transactions.

Commercial banks provide credit to both Hungarian and foreign investors at market terms.  Credit instruments include long-term and short-term liquidity loans. All banks publish total credit costs, which includes interest rates as well as other costs or fees.Money and Banking System

There are no rules preventing a foreigner or foreign firm from opening a bank account in Hungary.  Valid personal documents (i.e., a passport) are needed and as of 2015, when the Foreign Account Tax Compliance Act (FATCA) came into force, also declaration of whether the individual is a U.S. citizen.  Banks have not discriminated against U.S. citizens in opening bank accounts based on FATCA.

The Hungarian banking system has strengthened over the past few years, and the capital position of banks is generally adequate even in the aftermath of the challenging economic environment created by COVID-19.  Following several years of deleveraging after the 2008 crisis, the banking system is mainly deposit funded. The penetration of the banking system decreased slightly in 2019 due to a relatively high GDP growth rate. The sector’s total assets amounted to 112.1 percent of GDP by the end of 2021.

The Hungarian banking system is healthy, and banks have a stable capital position.  The loan-to-deposit ratio has been gradually decreasing from its 160 percent peak in 2009 after the financial crisis to 85 percent in 2015. In spring 2020, during the first wave of the COVID-19 in Hungary, it reached 91.6 percent and since then gradually decreased to 65 percent by the second half of 2022. The liquidity cover ratio was 160 percent in the first wave of COVID-19, then climbed to 220.8 percent by the end of 2022. In response to the COVID-19 crisis, the Central Bank restructured and expanded its monetary policy tools to provide liquidity to the financial sector through currency swaps, fixed-rate loans, and exemptions from minimum reserve requirements and introduced instruments to influence short- and long-term term yields. It offered low-interest loans through commercial banks to the SME sector and launched a government securities purchase program on the secondary market. As the economy recovered, it gradually phased out these tools and by mid-2021 embarked on monetary tightening which included increasing the base rate from 0.6 percent to 13 percent by 2023 and raised a new overnight deposit rate to 18 percent. On March 2, 2020, MNB launched an immediate e-transfer system up to a maximum of HUF 10 million (about $32,000) for domestic transactions in HUF.

The ratio of non-performing loans (NPLs) decreased to 1.5 percent in 2022 because of portfolio cleaning, the improving economic environment, and increased lending.  The banking sector became profitable after several years of losses between 2010 and 2015, reaching a return on equity (ROE) record high of 16.8 percent in 2017. ROE decreased to close to zero in 2020 but recovered to 10.6 percent by the first quarter of 2022. Return on assets has also turned positive from -1.5 percent in 2015 to 0.9 percent by the first quarter of 2022. The banking sector’s total assets exceeded 112 percent of GDP in 2021, of which 73 percent were held by five banks. The largest bank in Hungary is OTP Bank, which is mostly Hungarian-owned and controls about 25 percent of the market.

The Hungarian Financial Supervisory Authority (PSZAF), in conjunction with the MNB, managed a strong two-pillar system of control over the financial sector, producing stability in the market, effective regulation, and a system of checks and balances until the MNB absorbed PSZAF, strengthening its supervisory role over the financial sector and establishing a customer protection system.

In accordance with the Hungarian government’s stated goal of reducing foreign ownership in the financial sector, the proportion of foreign banks’ total assets in the financial sector decreased to about 40 percent in 2022, down from a peak of 70 percent before the 2008-2009 financial crisis. Foreign banks are subject to central bank uniform regulations and prudential measures, which are applied to Hungary’s entire financial market without discrimination. Commercial banks have extensive direct correspondent banking relationships and can transfer domestic or foreign currencies to most banks outside of Hungary.  Since 2018, however, the cashing of U.S. checks is no longer possible. No loss or jeopardy of correspondent banking relations has been reported.

Recent regulations restrict foreign currency loans to only those that earn income in foreign currency, an effort to eliminate the risk of exchange rate fluctuations.  Foreign investors continue to have equal – if not better – access to credit on the global market, apart from special Hungarian government credit concessions such as small business loans.

### Foreign Exchange and Remittances

#### Foreign Exchange

The Hungarian forint (HUF) is convertible for essentially all business transactions and foreign currencies are freely available in all banks and exchange booths.  Hungary complies with all OECD convertibility requirements and IMF Article VIII.

Hungary’s EU accession agreement dictates that Hungary must adopt the Euro once it meets the relevant criteria. The Hungarian government has not set a specific target date even though Hungary meets most of the necessary fiscal and financial criteria.  According to the Ministry of Finance, Hungary’s economic performance should mirror the Eurozone average more closely before adopting the Euro.

Short-term portfolio transactions, hedging, short- and long-term credit transactions, financial securities transactions, and assignments and acknowledgment of debt may be conducted without any limitation or declaration.  While the Forint remains the legal tender in Hungary, parties may settle financial obligations in a foreign currency. New consumer loans, however, must be denominated in Forints only, unless the debtor receives regular income in a foreign currency.

Market forces determine the value of the Hungarian Forint. Analysts note that the MNB’s consistently low interest rates (until the 2022 tightening cycle) contributed to a nearly 30 percent decline in the value of the of the Forint against the Euro since 2010.

#### Remittance Policies

There are no recent changes or plans to change investment remittance policies. There are no time limitations on remittances.

### Sovereign Wealth Funds

Hungary does not maintain a traditional sovereign wealth fund. The Corvinus International Investment Private Limited Company owned by the Hungarian government makes investments in private companies on behalf of the government.

							7. State-Owned Enterprises					

Since the COVID pandemic, the central government redirected several sources of local municipality revenues toward the central budget (such as half of the business tax and the vehicle tax), leaving many Hungarian cities to face budget shortfalls. The central government then used the opportunity to take over unprofitable municipality-owned companies such as water and sewage utilities.

As of 2022, there are more than 1500 publicly owned companies with the majority ownership of the state or city governments, including more than 200 SOEs. SOEs are particularly active in the energy and utility sectors, banking, transportation, telecom, forestry, and postal services. SOEs have independent boards, but in practice, all strategic decisions require government approval.

Major SOEs include the state asset manager, the National Asset Management Company (MNV), Magyar Posta, state energy company MVM, Hungarian State Railways (MAV), state gambling monopoly Szerencsejatek, car manufacturer RABA, and state-owned banks Exim bank, Hungarian Development Bank (MFB) and Hungarian Bank Holding (MHB).  Although the government does not have a direct stake in hydrocarbon company MOL, 20 percent of the company is owned by two higher education foundations closely affiliated with the government. In January 2023, the state – together with 4iG, a private company closely affiliated with the government – acquired Vodafone Hungary, the second biggest mobile service provider for $1.8 billion. Under the deal, the state will have a minority ownership of 49 percent and 4iG will hold a majority 51 percent stake.

A 2011 law on national assets lists the SOEs of strategic importance, which are to be kept in state ownership (https://net.jogtar.hu/jogszabaly?docid=a1100196.tv);**** as of March 2023, there were more than 50 such companies.  There is no officially published, complete list of SOEs, but the State Asset Manager MNV has a list of companies under its control on its webpage.  The list does not cover all publicly owned companies:  https://mnv.hu/tarsasagi_portfolio/mnvportfolio/tarsasagiportfolio/tarsasagi_portf**.**

In principle, the same rules apply to SOEs as to privately owned companies in most cases, but in practice, some companies report that SOEs often enjoy preferential treatment from certain authorities. SOEs competing on the domestic market operate usually in accordance with commercial considerations. A notable exception from this rule is the media-advertising market, as the SOEs’ advertising budget is spent exclusively on the government-controlled or government friendly media outlets.

The government has stated its interest in nationalizing some private energy firms. In the 2010’s the government acquired most foreign-owned utility and energy companies operating in Hungary, making state-owned MVM the sole retail natural gas provider by 2016 and the only electricity provider for households by 2022.

Hungary adheres to OECD Guidelines on Corporate Governance as well as to EU rules on SOEs.

In a March 2023 State Audit Office (SAO) report on the monitoring of 1574 publicly owned companies, the SAO said that 54 percent of the investigated enterprises’ integrity, accounting and compliance regulations did not meet the criteria set by Hungarian laws, but 80 percent of them took measures after the investigation to remedy the deficiencies.

In a December 2021 report investigating 208 SOEs, the SAO said 26 percent of investigated companies had a high integrity risk and lacked transparent and accountable operations. Forty-five percent of the companies were identified as carrying medium integrity risk, because of deficiencies in accountability regulations.

Hungarian SOEs are mostly active only on the Hungarian market; the most notable exception is state energy company MVM which is present on the electricity and natural gas wholesale trading market of several European countries and owns assets in the Czech Republic and Romania. No major SOE is known to be an active investor in the United States.

### Privatization Program

Since 2010 the state has taken more ownership or de facto control in certain sectors, including energy, public utilities, and banking.

							8. Responsible Business Conduct					

Hungary encourages multinational firms to follow the OECD Guidelines for Multinational Enterprises, which promotes a due diligence approach to responsible business conduct (RBC) and established a National Contact Point (NCP) in the Ministry of Finance for stakeholders to obtain information or raise concerns in the context of RBC. Members of the Hungarian NCP include representatives of the Ministries of Finance, Foreign Affairs and Trade, Economic Development, and Agriculture. The Hungarian NCP submits annual reports to the OECD Investment Commission, though it did not in 2020 due to the COVID-19 pandemic. For more information, see: http://oecd.kormany.hu/a-magyar-nemzeti-kapcsolattarto-pont****.

The Hungarian NCP has organized conferences to promote RBC and OECD guidelines, the most recent was held in January 2020. It announced in 2017 its intention to formulate a new National Action Plan on Businesses and Human Rights.  According to the first National Corporate Social Responsibility (CSR) Action Plan formulated in 2015, key RBC priorities of the government included the employment of discriminated, disadvantaged, and disabled groups, environmental protection, and the expansion of a sustainable economy.  Hungary’s NCP peer review is scheduled in 2023. The Hungarian Public Relations Association, CSR Hungary, and other NGOs participate in elaborating the second National Action Plan. The Hungarian NCP reviews complaints from trade unions against multinational companies’ subsidiaries operating in Hungary and coordinates with relevant NPCs of the multinational company’s home country. RBC does not typically play a role in government procurement decisions, although the 2015 Public Procurement Act integrates concepts of CSR, responsible business conduct, and good practice.

Several NGOs and business associations promote RBC and CSR, including CSR Hungary Forum, which recognizes businesses’ CSR efforts, as well as the Hungarian Public Relations Association, “Kovet.”

According to a 2018 survey conducted by CSR Hungary, 60 percent of businesses have a CSR policy and 44 percent of businesses attribute a CSR orientation to increased competitiveness.  However, only about 34 percent of multinational and SOEs and 9 percent of SMEs report formally formulating a CSR action plan. A 2021 study on corporate social responsibility in Hungary showed weak stakeholder pressure and predicted increased state-level intervention in CSR issues.

In 2017, Hungary’s independent agencies for labor rights protection, consumer protection, cultural heritage protection, and environment protection were merged into relevant ministries and county-level government offices.  Environmental NGOs criticized the transformation of the system and warned about the lack of independent agencies.

The government does not have any requirements or proposals for businesses to conduct due diligence or reporting regarding human rights.

In December 2020, Parliament abolished the Equal Treatment Authority (ETA) and assigned the tasks and authority the ETA had held to the Office of the Commissioner for Fundamental Rights (Ombudsperson) in January 2021. In its October 2021 opinion, the Council of Europe’s Venice Commission concluded that the merger of offices created a risk “that may undermine the effectiveness of the work in the field of promoting equality and combatting discrimination.” In May 2022 the Global Alliance of National Human Rights Institutions downgraded the Hungarian Ombudsperson to observer status without the right to vote for failing to demonstrate its independence and adequately address issues in human rights, press freedom, and judiciary, or to refer these issues to the Constitutional Court.

In June of 2021 an “antipaedophile” law was adopted by parliament that banned the “promotion” and “portrayal” of “gender reassignment” and homosexuality to minors in media, advertisements, and education. Notably, all programs and advertisements deemed to promote or portray these topics must be rated as not recommended for minors. In July of 2021 the European Commission launched an infringement procedure challenging the law on the basis that it that it “violates the internal market rules, the fundamental rights of individuals (in particular LGBTIQ people) as well as – with regard to those fundamental rights – EU values.” In 2023 the European Parliament and 15 members states joined the case against Hungary.

Trade Unions and investigative outlets reported that although battery plants owned by foreign investors in Hungary have violated industrial safety, labor, and construction rules several times over the past years, the low fines levied by Hungarian authorities did not deter battery plants from repeatedly violating these rules.

### Additional Resources

Department of State

- Country Reports on Human Rights Practices ;
- Trafficking in Persons Report ;
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities ;
- U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises ; and;
- Xinjiang Supply Chain Business Advisory 

Department of the Treasury

- OFAC Recent Actions

Department of Labor

- Findings on the Worst Forms of Child Labor Report ;
- List of Goods Produced by Child Labor or Forced Labor ;
- Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World  and;
- Comply Chain .

### Climate Issues

In January 2020, the Hungarian government published its new long-term energy strategy and an EU-required National Energy and Climate Plan, both of which focused heavily on decarbonization and sustainable climate policy. Hungary aims to reduce its carbon emissions by at least 40 percent by 2030 (compared to the 1990 level), an additional 10 percent by 2040, and achieve carbon neutrality by 2050.  Given that Hungary emits 33 percent less CO2 than it did in 1990, the real cut would be seven percent in the next eight years and 17 percent in the next 20 years. The seven percent cut could be achieved with the phase-out of the lignite coal fired Matra Power Plant by 2025. Experts have noted the plan to achieve carbon neutrality in the 2040-2050 period is ambitious. Although in December 2020, the Hungarian government committed itself to the new EU goal of reducing carbon emissions by 55 percent by 2030 (“Fit for 55”), the details of achieving the more ambitious goal are yet to be worked out. According to the Hungarian government, achieving climate neutrality by 2050 would cost $145 billion. The European Union approved the Hungarian Recovery and Resilience Plan in December 2022; the plan included funding for the energy transition, a circular economy, and sustainable transport. However, the EU would deliver this financing only upon the meeting of 27 “super milestones” regarding institutional reforms to strengthen rule of law and fight corruption. Private sector contributions to reach the climate goals include increasing Hungary’s solar power capacity from 4 GW (including 2500 MW industrial size and 1500 MW household size rooftop capacity) to 12 GW by 2030. A major challenge to achieve this goal is the inadequacy of Hungary’s power grid.

As a result of high energy prices in 2022, many households added photovoltaic panels to their homes. Hungary’s electricity grid was unable to manage the rapidly increasing photovoltaic power generation capacities, and in October 2022 the government ended the ability for household-size photovoltaic units to upload excess production into the national power grid. For the same reasons, since 2021 Hungary’s electricity transmission system operator has not given new permits for businesses to install new solar plants. According to Hungary’s agreement with the European Commission, the country should lift the ban by December 2024 to allow access to the EU’s recovery funds. An overall ban to install wind farms – introduced by the government in 2016 – also needs to be lifted under the same agreement with the European Commission.

In energy efficiency, the Hungarian government aims to limit Hungary’s total final energy demand at the 2005 level by 2030. To reach this goal, the Hungarian government introduced a tax incentive for businesses investing in energy efficiency. Although the Hungarian government’s strategies stress the potential from decreasing household energy demand, apart from the tax break, the government has made limited efforts to address the problem. Skyrocketing energy prices in 2022 were a strong incentive for businesses and households to invest in energy efficiency despite the lack of government programs.

Despite the February 2021 ruling of the European Court of Justice that Hungary had “systematically and persistently” breached legal limits on air pollution, the Hungarian government has failed to take any efficient measures to deal with the problem.

Although the Hungarian government maintains an extensive system of national parks and nature reserves, there are no other government policies or regulatory incentives helping to preserve biodiversity.

Although the Hungarian government plans to increase the country’s forest cover from 20 percent to 27 percent by 2030, the energy crises induced by the war in Ukraine loosened the rules for timber harvest even within protected areas.

The second National Climate Change Strategy adopted in 2018 contains the National Adaptation Strategy based on the climate vulnerability assessment of ecosystem and industrial sectors.

At COP 26 the Hungarian government joined key climate initiatives including the Glasgow Declaration on Forests and Land Use and the Agriculture Innovation Mission for Climate (AIM4 Climate). It also supported the Global Methane Pledge under the EU umbrella but did not prepare a separate national pledge.

Hungary adopted its Green Public Procurement Strategy for 2022-2027 in December 2022. In line with the EU objectives, the strategy encourages public authorities to procure goods and services with a reduced environmental impact throughout their life cycle when compared to goods, services, and works with the same primary function that would otherwise be procured. Although Hungary’s Public Procurement Act of 2015 allows the government to consider environmental and green growth aspects, there is no law or decree in Hungary governing the detailed rules of green procurements or making them mandatory in state procurement procedures, so only EU regulations currently set some mandatory requirements for green public procurements. The Strategy aims for 30 percent of all public procurements in Hungary to be green by 2027 and envisages a mandatory green procurement regime.

In April 2021, Hungary’s Public Procurement Authority launched a sustainability working group and in September 2021 issued a Green Codex to provide some guidelines on green procurements.

							9. Corruption					

### Resources to Report Corruption

The Hungarian Ministry of Interior, the Prime Minister’s Cabinet Office, law enforcement agencies (Prosecution Office, police, Tax Office), and the Integrity Authority are responsible for combating corruption.  Although a legal framework exists to support their efforts, critics have asserted the government has done little to combat grand corruption and rarely investigates cases involving politically connected individuals, even when recommended to do so by the European Antifraud Office (OLAF).

Hungary is a party to the UN Anticorruption Convention and the OECD Anti-Bribery Convention and has incorporated their provisions into the penal code, as well as subsequent OECD and EU requirements on the prevention of bribery.  Parliament passed the Strasbourg Criminal Law Convention on Corruption of 2002 and the Strasbourg Civil Code Convention on Corruption of 2004. Hungary is a member of GRECO (Group of States against Corruption), an organization established by members of the Council of Europe to monitor the observance of their standards for combatting corruption.  GRECO’s reports on evaluation and compliance are confidential unless the Member State authorizes the publication of its report.  For several years, the Hungarian government kept GRECO’s compliance reports on corruption prevention with respect to members of parliament, judges, and prosecutors, and transparency of party financing confidential.

Following calls from the opposition, NGOs, and other GRECO Member States, and a March 2019 visit by senior GRECO officials to Budapest, the Hungarian government agreed to publish the reports in August 2019. The reports revealed Hungary failed to meet 13 out of 18 recommendations issued by GRECO in 2015; assessed that Hungary’s level of compliance with the recommendations was “globally unsatisfactory,” and concluded that the country would therefore remain subject to GRECO’s non-compliance procedure. The compliance report on transparency of party financing noted some progress but added that “the overall picture is disappointing.” A November 2020 GRECO report came to the same conclusion, adding that Hungary had made no progress since the prior year on implementing anticorruption recommendations for MPs, judges, and prosecutors. In its latest report published in September 2022 GRECO said only six of its 18 recommendations had been implemented satisfactorily by the government – including some improvements to the operation of the Prosecution Office, but the overall result is still “globally unsatisfactory.”

Following a letter of concern by transparency watchdogs to Open Government Partnership (OGP)’s Steering Committee in summer 2015, OGP launched an investigation into Hungary and issued a critical report.  The OGP admonished the Hungarian government for harassment of NGOs and urged it to take steps to restore transparency and to ensure a positive operating environment for civil society. The Hungarian government, only the second Member State to be reprimanded by the organization, rejected the OGP report conclusions and withdrew from the organization in 2016.

The Hungarian government has amplified its attacks on NGOs including transparency watchdogs, accusing them of acting as foreign agents and criticizing them for allegedly working against Hungarian interests.  Observers assess that anti-NGO rhetoric endangered the continued operation of anti-corruption NGOs crucial to promoting transparency and good governance in Hungary. In 2017 and 2018, Parliament passed legislations that many civil society activists criticized for placing undue restrictions on NGOs. In its June 2018 and November 2021 rulings, the European Court of Justice found both laws in conflict with EU law.

Transparency International (TI) is active in Hungary.  TI’s 2022 Corruption Perceptions Index rated Hungary 77 out of 180 countries, the worst ranking among EU member states. TI attributed this ranking to the decade-long erosion of the rule of law, state capture, and increasing systemic corruption.  TI and other watchdogs note that data on public spending remains difficult to access since the Hungarian government amended the Act on Freedom of Information in 2013 and 2015. Moreover, according to watchdogs and investigative journalists, the Hungarian government, state agencies, and SOEs are increasingly reluctant to answer questions related to public spending, requiring lengthy court procedures to receive answers.  Even if the court orders the release of data, by the time it happens, the data has lost significance and has a weaker impact, watchdogs warn. In more cases, even when ordered by court to provide information, state agencies and SOEs fail to comply with the court ruling or release data in nearly unusable or undecipherable formats.

A 2019 European Commission study found that Hungary had the second-highest rate (40 percent) of single-bidder EU funded procurement contracts in the European Union. Each rule of law report of the European Commission since 2020 expressed concerns over the “systematic lack of determined action to investigate and prosecute corruption cases involving high-level officials or their immediate circle.” The 2022 report noted that “concerns remain regarding the lack of systematic checks and insufficient oversight of asset declarations as well as the lack of conflict-of-interest rules for the public interest trusts.”

The European Anti-Fraud Office (OLAF) has found high levels of fraud in EU-funded projects in Hungary and has levied fines and withheld development funds on several occasions. Indicating the inefficient use of funds, OLAF requested the Hungarian authorities to investigate 18 cases of misuse of EU funds between 2017 and 2021 and proposed the repayment of 0.7 percent of domestic funds, compared to the EU average of 0.3 percent.

TI and other anti-corruption watchdogs have highlighted EU-funded development projects as the largest source of corruption in Hungary. According to their criticism, public procurements in practice lack transparency and accountability and are characterized by uneven implementation of anti-corruption laws.  Additionally, transparency NGOs calculate that government-allied firms have won a disproportionate percentage of public procurement awards.

A TI study found indications of corruption and overpricing in up to 90 percent of EU-funded projects. The Corruption Research Center (CRCB) analyzed more than 240,000 public procurement contracts from 2005-2020 and determined companies owned by individuals with links to senior government officials enjoyed preferential treatment in public tenders and faced less competition than other companies. The studies also revealed that the share of single-bidder public procurement contracts was over 40 percent in 2020, and that the corruption risk reached its highest level since 2005. In a March 2022 report CRCB found that 42 companies owned by 12 entrepreneurs closely affiliated with the government won more than 20 percent of the EU-funded public contracts in the 2011-2021 period. In 2020, a year which was particularly difficult for many businesses because of the COVID pandemic, this small group of entrepreneurs won almost one-third of the EU-funded public tenders.

The business community and foreign governments share many of these concerns.  Multinational firms have complained that competing in public procurements presents unacceptable levels of corruption and compliance risk. In addition, observers have raised concerns about the appointments of Fidesz party loyalists to head quasi-independent institutions such as the Competition Authority, the Media Council, and the State Audit Office. Because it is generally understood that companies without political connections are unlikely to win public procurement contracts, many firms lacking such connections do not bid or compete against politically connected companies.

As a result of the unaddressed systemic “irregularities, deficiencies, and weaknesses” in EU-funded public procurement projects, in April 2022 the European Commission launched the budget conditionality mechanism against Hungary. In its letter sent to the government on April 27, the European Commission reportedly mentioned systemic irregularities in the government’s allocation of EU funds, including a €44 million ($47 million) public lighting project implemented by a firm co-owned by Prime Minister Orban’s son-in-law. In October and November 2022, Hungary passed a series of laws to address the European Commission concerns including setting up a new Integrity Authority, a new remedy process in corruption cases, and new rules for asset declarations.  On November 30, the Commission assessed Hungary had not made sufficient progress in implementing the 17 remedial measures agreed during the negotiations, and it maintained its recommended suspension of €7.5 billion ($8 billion) of funding from the 2021-2027 EU budget.  On December 12, the European Council approved the European Commission recommendation to withhold the funds, but reduced the amount withheld to €6.3 billion ($6.7 billion). Hungary agreed to implement a series of anti-corruption and rule of law reforms to unlock access to those funds and to €5.8 billion ($6.2 billion) in EU Recovery and Resilience funds.

Hungary has legislation to combat corruption, but the implementation of the laws is deficient.  Giving or accepting a bribe is a criminal offense, as is an official’s failure to report such an incident.  Penalties can include confiscation of assets, imprisonment, or both. Since Hungary’s entry into the EU, legal entities can also be prosecuted.  Legislation prohibits members of parliament from serving as executives of state-owned enterprises. An extensive list of public officials and many of their family members are required to make annual declarations of assets, but there is no specified penalty for making an incomplete or inaccurate declaration.  It is common for prominent politicians to be forced to amend declarations of assets following revelations in the press of omission of ownership or part-ownership of real estate and other assets in asset declarations. Politicians are not penalized for these omissions.

Transparency advocates claim that Hungarian law enforcement authorities are often reluctant to prosecute cases with links to high-level politicians.  For example, they reported that, in November 2018, Hungarian authorities dropped the investigation into $50 million in EU-funded public lighting tenders won by a firm co-owned by a relative of the prime minister, despite concerns raised by OLAF about evidence of conflict of interest and irregularities involving the deal. According to media reports, OLAF concluded that several of the tenders were won due to what it considered organized criminal activity. In December 2021, the Prosecutor General’s Office charged a senior government politician for accepting bribes to influence cases at the request of the president of the Court Bailiff Chamber. The senior government official resigned from his positions but was left at large for the duration of the investigation.

The Public Procurement Act of 2015 initially included broad conflict of interest rules excluding family members of Hungarian government officials from participating in public tenders, but Parliament later amended the law to exclude only family members living in the same household.  While considered in line with the overarching EU directive, the law leaves room for subjective evaluations of bid proposals and tender specifications tailored for favored companies.The Hungarian government does not require private companies to establish internal codes of conduct.

Generally, larger private companies and multinationals operating in Hungary have internal codes of ethics, compliance programs, or other controls, but their efficacy is not uniform.

Resources to Report Corruption

Hungarian government Office Responsible for Combatting Corruption:

National Protective ServiceGeneral Director Szilvia TominPhone: +36 1 433 9722Fax: +36 1 433 9751E-mail: nvsz@nvsz.hu

Integrity AuthorityPresident Ferenc Biro1051 Budapest, Szechenyi Istvan ter 7-8.E-mail: bejelentes@integritashatosag.hu

Transparency International Hungary1055 BudapestFalk Miksa utca 30. 4/2Phone: +36 1 269 9534Fax: +36 1 269 9535E-mail: info@transparency.hu********

							10. Political and Security Environment					

The security environment is relatively stable.  Politically motivated violence or civil disturbance is rare.  Violent crime is low, with street crimes the most frequently reported crimes in the country. Political violence is not common in Hungary; the last major events of political violence occurred in 2006.

							11. Labor Policies and Practices					

Hungary’s civilian labor force of 4.9 million is highly educated and skilled.  Literacy exceeds 98 percent and about two-thirds of the work force has completed secondary, technical, or vocational education.  Hungary’s record low 3.3 percent unemployment rate at the end of 2019 increased to 3.9 percent in March 2023, but is still lower than the EU average of 6.0 percent.  Hungary’s employment rate for the population aged 15-64 years was 74.5 percent in the fourth quarter of 2022, higher than the EU average of 70.1 percent. Hungary is particularly strong in engineering, medicine, economics, and science training, although emigration of Hungarians from these sectors to other EU member states has increased in recent years. In the first wave of the COVID-19 pandemic, out-migration temporarily declined but has resumed since the second half of 2020.

Multinationals increasingly cite a skilled labor shortage as the biggest challenge in Hungary and note that Hungarian vocational institutions and universities need to adapt more quickly to changes in the marketplace.  Many multinational corporations employ a dual education/training model to fill gaps in Hungarians’ technical knowledge and/or higher education levels. An increasing number of young people attend U.S.- and European-affiliated business schools in Hungary. Foreign language skills, especially in English and German, are becoming more widespread, yet Hungary still has the lowest level of foreign language proficiency in the EU.  According to 2018 data, only 37 percent of working-age Hungarians speak at least one foreign language, while the EU average is 66 percent.

As Hungarians increasingly seek work abroad, driving down the unemployment rate, shortages of highly educated and skilled labor negatively affect growth in certain regions and industries.  In addition, declining scores in the OECD Program of International Student Assessment (PISA) may signal that the workforce is losing its ability to learn new skills and adapt to changing market conditions. The government has attempted to address labor shortages by increasing the minimum wage, offering retraining programs, incentivizing employment of young mothers and pensioners by lowering employer-paid welfare contributions, and reforming the education and vocational training system.  Shortages of skilled workers, particularly in the IT, financial, and manufacturing sectors, are more acute in the northwest and central regions of the country. In the eastern half of the country, unemployment levels are above average, even though the cost of labor is lower. Wages in Hungary are still significantly lower than those in Western Europe, despite annual increases in minimum wage since 2017. Average Hungarian labor productivity is lower than the EU average but exceeds that of other Central and Eastern European economies.

The government, trade unions, and employer representatives signed a three-year agreement in 2016 to increase the minimum wage for unskilled and skilled workers. In subsequent years the parties signed annual minimum wage agreements which increased the minimum wage by 8 percent in 2020, 3.6 percent in 2021, 20 percent in January 2022, and 16 percent in January 2023. The Hungarian government also facilitates the employment of workers from neighboring countries, primarily from ethnic Hungarian minority communities. The Hungarian government requires hiring of nationals in certain strategic sectors and some areas of public administration.

Labor law stipulates a severance payment in case of lay-off, as well as under certain conditions for an employee terminating a work contract.  The government pays unemployment benefits for three months and offers the services of local employment offices. The Hungarian government did not extend this benefit beyond the normal three months during the pandemic. Labor laws are uniform and there are no waivers available to attract or retain investment.  Collective bargaining is increasingly common in large companies, education, public transport, retail, and medical services.

Hungary’s trade union membership rate is below 10 percent, while the EU average is 25 percent. About 20 percent of businesses have a collective bargaining agreement on labor conditions and benefits, well below the EU average of about 80 percent. During the COVID-19 pandemic the government passed regulation that allowed businesses to unilaterally terminate collective bargaining agreements, which led to a few strikes, subsequently resolved by negotiations. Beginning in 2021, the Hungarian government decreased state support to trade unions and implemented budget changes to allow discretional funding to each trade union, which replaced the previously uniform system. Hungary has ratified all eight International Labor Organization (ILO) core conventions. Labor dispute resolution includes mediation as well as court procedures.  Employees, however, typically agree with employers outside court or mediation procedures.

Hungary is a member of the ILO.  Hungary’s labor law and practice are in line with international labor standards.  Discussions between the ILO and the Hungarian government are ongoing on certain provisions of the 2012 modification of Hungary’s labor law, including the freedom of expression, registration of trade unions, and minimum level of public service in case of strike. New legislation placed schools under a centralized supervisory system, increased the burden on both teachers and students, limited teachers’ ability to choose appropriate teaching materials, and limited teachers’ as well as health care workers’ rights to strike. Teachers’ trade unions staged a series of demonstrations and organized nationwide rolling strikes in 2022.

Hungary passed amendments to its Labor Code in December 2018 that increased the amount of overtime an employer can request and gave employers up to three years to reconcile and pay for overtime.  These highly unpopular changes led to a series of large protests throughout Hungary and currently are being reviewed by the European Commission. As a part of its COVID-19 economic response plan, the government decreed in 2020 that employers can implement flexible working hours and a 24-month working time frame to calculate overtime without prior agreement from the employee or union. Local labor organizations complained that the move rolled back hard-won concessions from the 2018 labor reform and that certain businesses abuse overtime possibilities to compensate for shutdowns during the COVID-19 pandemic.

The constitution and laws prohibit discrimination based on race, sex, gender, disability, language, sexual orientation and gender identity, infection with HIV or other communicable diseases, or social status. The labor code provides for the principles of equal treatment. The government failed to enforce these regulations effectively. Penalties were not commensurate with those under laws related to civil rights.

Observers asserted that discrimination in employment and occupation occurred with respect to Roma, women, persons with disabilities, and LGBTQI+ persons. According to NGOs, women faced economic discrimination in the workplace, particularly job seekers older than 50 and those who were pregnant or had returned from maternity leave. The country does not mandate equal pay for equal work. A government decree requires companies with more than 25 employees to reserve 5 percent of their work positions for persons with physical or mental disabilities. While the decree provides fines for noncompliance, many employers paid the fines rather than employ persons with disabilities. The National Tax and Customs Authority issued “rehabilitation cards” to persons with disabilities, which granted tax benefits for employers employing such individuals.

Roma are the country’s largest ethnic minority. According to the 2011 census, approximately 315,000 persons (3 percent of the population) identified themselves as Roma. A University of Debrecen study published in 2018, however, estimated approximately 9 percent of the country’s population to be Roma (876,000). There were about 1,300 de facto segregated settlements in the country where Roma constituted most of the population. Romani communities are not socially integrated with broader Hungarian society and are characterized by considerably lower socioeconomic indicators compared to the average population. Conditions for the community deteriorated since the collapse of communism in 1989-90 but were rooted in centuries of social exclusion. Lacking advanced education and employment skills, many Roma occupied the margins of society and experienced long-term unemployment, which bred a cycle of poverty and welfare dependence.

							12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs					

The U.S. International Development Finance Corporation’s (DFC) offers U.S. investors financing through direct loans or guarantees, political risk insurance, and capital for private equity funds.  DFC’s financial support ranges from small micro financings to large infrastructure project loans.

							13. Foreign Direct Investment Statistics