Being one of the most important financial centers in the region, Hungar´s government provides different incentives for businesses established in the country. This tendency finds its origins back in the 70s, where the head of state implemented business friendly policies moderated according to communist requirements.

Even during its communist times, Hungary was able to plant a seed that would grow into a business-friendly environment and a free market policy. In this section we will discuss some of the incentives that are available in this country and that will help your business to thrive. We will also discuss important aspects that every entrepreneur should consider, especially when operating abroad.

These aspects include labor law, licensing, restrictions, trade and import policies and others. This jurisdiction can offer excellent business advantages in an OECD compliant environment, which will make it easier to prove the source of income when expanding your business into new horizons. 

The Hungarian Government provides different types of incentives for foreign investors setting up businesses in Hungary. All incentives granted are in line with EU standards. Incentives and grants are allocated on case-by-case basis following negotiations between the investor and the government. Performance requirement/incentives are available to all enterprises registered in Hungary, regardless of the nationality of owners or location of incorporation and applied on a systematic basis.

To comply with European Union standards, the government of Hungary no longer grants tax holidays based on investment volume. 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). 

The incentives are focused on investors establishing manufacturing facilities, logistics facilities, regional service centers, R&D facilities, bio-energy facilities, or tourist facilities. Incentive packages may consist of cash subsidies, development tax allowances, training subsidies, and job creation subsidies.

Foreign Direct Investments

In Hungary Foreign Direct Investments (FDI) flow started in the late 1980’s parallel to the introduction of the Perestroika by the Soviet Union and showed a stable volume until 2004. Since Hungary joined the EU, FDI moved to a higher level and plays an important role in the incredibly open Hungarian economy.

With approximately USD 90 billion in FDI since 1989, Hungary has been a leading destination for FDI in Central and Eastern Europe over the past several years. Germany is the most important country of origin with 22 percent of all FDI, followed by Austria (14 percent) and the Netherlands (13 percent). The United States is the largest non-European investor at 10 percent of FDI. The Ministry of Economic Affairs established the ITDH in 1993, and this agency continues to help companies looking to make major investments in the country. ITDH has set up a “one-stop-shop” service for potential large investors. 

Trade and Imports

Tariff assessment and all other customs procedures take place at the first port of entry into the EU. However, Hungary still collects the Value Added Tax (VAT) on all goods with Hungary as a final destination.

The Integrated Tariff of the Community, referred to as TARIC (Tarif Intégré de la Communauté), is designed to show various rules applying to specific products being imported into the customs territory of the EU or, in some cases, when exported from it. To determine if a license is required for a particular product, check the TARIC. The TARIC can be searched by country of origin, Harmonized System (HS) Code, and product description on the interactive website of the Directorate-General for Taxation and the Customs Union. The online TARIC is updated daily.

Many EU Member States maintain their own list of goods subject to import licensing. For example, Hungary’s restricted “Import List” includes goods like arms/military equipment, explosives and pyrotechnic products, security paper, uranium, radioactive isotopes, etc. The import list indicates code numbers, applicable restrictions, and the agency that will issue the relevant license.

Goods presented to customs are covered by a summary declaration, which is lodged once the goods have been presented to customs. The customs authorities may, however, allow a period for lodging the declaration, which cannot be extended beyond the first working day following the day on which the goods are presented to customs. The summary declaration can be made on a form corresponding to the model prescribed by the customs authorities. However, the customs authorities may permit the use, as a summary declaration, of any commercial or official document that contains the particulars necessary for identification of the goods. It is encouraged that the summary declaration be made in computerized form.

Goods temporarily imported into Hungary must be kept in a bonded warehouse until re-export. Customs authorities determine the period within which these goods must be re-exported or assigned a new customs-approved treatment or use. The maximum period the goods may remain under temporary importation status is 24 months, although customs authorities may shorten or extend this. A temporary import shipment does not have to be re-exported in total. Any portion of the shipment destined for the domestic or EU market, however, is subject to duties and VAT at the time of importation.

The structure of exports is shifting towards high value-added goods, since most foreign direct investment has been in sectors such as machinery, computers, telecommunications equipment, electrical and electronic goods, and transport equipment.

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Trademarks, Patents, Industrial Designs and Models and Copyrights

Intellectual property such as patents, trademarks, industrial designs and models, and copyrights are legally recognized in Hungary. Legislation on intellectual property rights is comparable to that in other EU countries as Hungary has adopted EU rules on the protection of intellectual property. The patents system has been fully integrated into the European Patent Convention. Investors can apply for European patents at the Hungarian Patent Office. 

Patent protection in Hungary covers the use, sale, offering for sale, and import of a patented product or products made using a patented process. The definition of infringement has been extended to include "supplying the means." A person who sells or offers to sell the means of producing a patented product is liable if that person is proven to have known that the means could be used for infringement. 

The patent application process takes from six months to one year, and patents are issued for a period of twenty years from the filing date. Foreigners applying for a Hungarian patent whose permanent residence is not in the European Economic Area (EEA) must be represented by an authorized Hungarian patent agent. 

Hungarian patent law conforms to the guidelines of the European Patent Convention, to which Hungary is a signatory. Trademarks may be granted for any product-distinguishing sign capable of being graphically represented. They are issued for ten years and are renewable. The Hungarian Patent Office has competency over patent revocation and trademark invalidity proceedings, while all disputes related to the infringement of IPR fall under the jurisdiction of the courts. 

Under compulsory licensing, a patent holder may be forced to license a patent for use if, the patent holder has not introduced the patented item for availability on the Hungarian market within four years of the date of filing the application for registration; or the item is required for the business activities of a user who is entitled to use other patented items that cannot be used without the item in question. The patent holder may then attach conditions to the use of the patent, restricting it to the purpose for which the license is granted. 

Patents are protected for 20 years from the date of filing the patent application, and an annual fee is required to maintain the patent. Trademark protection is granted for 10 years and may be extended by an additional 10-year period. Industrial designs are protected for five years from the date of application and can be extended up to a maximum of 25 years.

Licensing and Restriction, Competition on Market

There are no sectors in which the government particularly encourages licensing over other forms of investments and there are no restrictions on licensing agreements.

Monopolies and market dominance are not prohibited per se. Rather the Competition Act bans the abuse of a dominant position that restricts competition. A dominant position arises when substitute goods cannot be acquired elsewhere, or can be acquired only under conditions substantially less favorable; when a company's goods cannot be sold to another party, or can be sold only to a party under substantially less favorable conditions; or when a company can pursue its economic activities in a manner substantially independent of other participants in the market or without having to consider the attitudes of its competitors, suppliers, customers or other business partners.

The Competition Act includes the following non-exclusive list of agreements or concerned practices that might not be permitted if they have, as their object or effect, the prevention, restriction or distortion of economic competition:

• Price-fixing or defining other business conditions;
• Restricting or controlling manufacturing, distribution, technical development or investment in a product or industry;
• Dividing purchasing sources, restricting freedom of choice in purchasing or excluding others from the purchase of goods;
• Dividing a market, excluding others from selling, restricting sales choices;
• Preventing others from entering a market;
• Discriminating against business partners through sales or purchase price or conditions; and
• "Tie-in" contracts, i.e. requiring specified purchases besides the original contract item.

Agreements between companies to engage in the above practices are not prohibited if the combined market share of the parties does not exceed 10% or if the companies are part of the same company group.

The Trade Act defines the concept of significant market power in the context of wholesale/retail businesses and their suppliers and prohibits the abuse of such power. A company, or any group of undertakings or purchasing alliance to which it belongs, that has annual revenue of HUF 100 billion is considered to have significant market power. Such power also exists if a company has a dominant bargaining position under market conditions.

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Right to Private Ownership

The Hungarian constitution guarantees the right to private ownership. Foreign and domestic private entities may establish and own business enterprises and engage in all forms of remunerative activity, except those prohibited by law. Hungarian law guarantees the right of establishment of private entities, as well as the right to acquire and dispose of interests in business enterprises. Many foreign companies operate through representative offices.

New companies shall be registered with the Court of Registration. The companies Act as well as the Act on Public Company Information, Registration of Companies and Company Dissolution, simplified company registration procedures but also tightened corporate responsibility requirements. The Court maintains a fully computerized registry, provides public access to company information, and an electronic filing system. 

International investment treaty protection

Hungary has been a prominent Member of the EU, OECD, NATO, MIGA (Multilateral Investment Guaranty Agency), ICSID and it also has a vast double taxation treaty and investment protection treaty network. Hungary has concluded 87 treaties against double taxation, the majority of which follow the OECD model treaty’s terminology and structure.

On top of the EU investment protection scheme, Hungary also has 34 bilateral investment protection treaties with third countries outside of the EU. All these treaties are approved by the EU. It is important to note that the EU itself is entering into investment protection treaties which are directly applicable in Hungary. 

Labor Environment

The Labor code contains minimum provisions for employment contracts, job descriptions, place of work, hiring out labor and rules for termination of employment. 

Working Hours

The standard working week of full-time employees is eight hours per day, or 40 hours per week. Exceptions may apply to special work schedules, but employer shall provide workers with adequate rest time. 

Regular Holiday

The Labor Code provides for an annual minimum of 20 days of regular holiday leave, with additional days depending on the age of the employee (rather than on total years of service). Employees older than age 35 are entitled to 25 days; those older than 45 are entitled to 30 days. Extra days may be awarded to employees younger than 18 (five days) and parents with children (up to seven days depending on the number of children).

Maternity Leave

The length of maternity leave in Hungary is 24 weeks. After the expiry of this period there are different types of maternity benefits until the child turns 3 years old.

Maternity allowance may be granted to persons living in the Republic of Hungary, if they

• Are Hungarian citizens, 
• Have an immigration license or a settlement permit, or are recognized by the Hungarian authority as refugees, 
• Are persons subject to Regulation (EEC) No 1612/68 of the Council of 15 October 1968 on freedom of movement for workers within the Community (citizens of countries belonging to the European Economic Area), provided that they have a valid residence permit at the time of filing the request for the allowance, with the exception of cross-border commuters . 

Sick Leave

A person is eligible for sick-pay if he/she becomes incapable of work while being enrolled in the national social security system. A person that has fallen ill is entitled to get 15 days of sick leave annually (this provision does not apply to incapacity due to an occupational disease or an industrial accident pursuant to social insurance regulations). Therefore, such person will get a sick-leave for the first 15 days of the period of incapacity for work, instead of sick-pay. An insured person eligible for sick-leave will get sick-pay as from the day following the expiry of sick-leave. 

Voluntary Fringe Benefits

Employers may support the fulfillment of the employees’ cultural, welfare and health care needs, and the improvement of their living standards. The fringe benefits provided therefore shall be specified in the collective agreement; however, employers may also provide additional support to employees.

Voluntary fringe benefits include subsidized or free meals, food coupons, childcare assistance and holiday at company resorts. Some recently privatized firms continue to subsidies employees' commuting costs and offer low-cost housing loans. There are tax-free benefits, but fringe benefits are generally subject to tax at 70% or 38% (depending on the type of the benefit).

Termination of Employment

An employer shall give a specific reason for dismissing an employee. Employees have the right to sue for damages for unfair dismissal if the reason for dismissal is untrue or unclear. In addition, the rights of an employee remain in effect after a sale of the employer company. The minimum notice period for dismissal increases with the length of employment of the worker to be dismissed; the minimum duration of the termination period varies 30 days. The termination period cannot exceed six months.

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