Hungary: Investing

FDI in Figures

Hungary has one of the highest stocks of foreign direct investments (FDI) per capita in Central and Eastern Europe. However, the country was severely hit by the financial crisis and the FDI fluxes greatly decreased between 2008 and 2009. In 2010, the country attracted aroun 2.3 billion USD of FDI, a tendency which should again slow down in 2011, with an FDI flow estimated at 1,2 billion USD.

During the recent years, Hungary benefitted from a change in the direction of the FDIs, which moved from low-value textile and food industry sectors to the production of luxury vehicles, renewable energy systems, luxury tourism and information technologies.

The country’s strengths include: a tax system favorable to investment and its geographic location as a bridgehead between Eastern and Western Europe.

Foreign Direct Investment	2008	2009	2010
FDI Inward Flow (million USD)	61,993	2,045	2,377
FDI Stock (million USD)	251,952	98,757	91,933
Performance Index*, Ranking on 141 Economies	1	141	-
Potential Index**, Ranking on 141 Economies	40	-	-
Number of Greenfield Investments***	146	106	-
FDI Inwards (in % of GFCF****)	258.9	32.1	-
FDI Stock (in % of GDP)	163.8	194.3	-

Source: UNCTAD - Last Available Data.

Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country's Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From the Ground Up. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.

FDI Inflows By Countries and Industry

Main Investing Countries	2009, in %
Germany	25.0
The Netherlands	14.0
Austria	13.0
Luxembourg	6.0
USA	5.0
France	5.0

Main Invested Sectors	2009, in %
Financial intermediation	80.7
Real estate, renting, business activities	4.8
Transport, storage, communication	10.5

Source: The Hungarian Agency for Commercial Development and Investment - Last Available Data.

Form of Company Preferred By Foreign Investors: The most common for foreign investors are the company limited by shares (Rt.), which may be public (Nyrt.) or private (Zrt.), and the limited liability company (Kft.)
Form of Establishment Preferred By Foreign Investors: The most common for foreign investors are the company limited by shares (Rt.), which may be public (Nyrt.) or private (Zrt.), and the limited liability company (Kft.)
Main Foreign Companies: General Electrics, Audi, Nokia, Sanofi-Aventis, Strabag AG, E-ON, Philips, Tesco, T-Com, Suzuki.
Sources of Statistics: KSH
Eurosat

Why You Should Choose to Invest in Hungary

Strong Points: - Hungary is the most advanced country in Central Europe in terms of reforms;
- Its financial system is one of the most well developed in the region;
- Its infrastructures, its work force and the framework of its regulations are of high quality;
- Integration in the EU, reinforces its political and economic stability and the support of large international organisations reduces the effects of the crisis.
Weak Points: - The situation of public finances is still in decline and the state debt is at a high level;
- Foreign accounts are largely and persistently unbalanced;
- If we are to consider its openness, the country is dependent on the economic situation of its main EU trade partners;
- The covering of financing needs depends partly on a volatile capital. Level of currency reserves is relatively low;
- The population has called for loans in foreign currency and the inflation which has followed the crisis has made these loans difficult to repay for the Hungarian borrowers;
- Banks have suffered great losses from the financial crisis due to debt repurchase and speculative investments;
- The currency has lost its value since the financial crisis.
Government Measures to Motivate or Restrict FDI: Attracting foreign investment is a priority for the Hungarian government. The Ministry of Economic Affairs established the Hungarian Investment and Trade Development Agency (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 to maintain a competitive environment and attract multinational companies.

In the context of the international crisis, the state has implemented measures to maintain the country's appeal: special loans and guarantees programs to compensate for the difficulties of banks in granting loans, the improvement of the administrative situation and the reduction of formalities and the facititated acquisition of building permits. Additionally, the exchange rate has made Hungary less expensive than before, whereas productivity which was already high, has remained at the same level. Because of this, a number of international companies have maintained their investments in the country and have outsourced entire departments such as accounting or call centres.

Protection of Foreign Investment

Bilateral Investment Conventions Signed By Hungary: Consult the website of the European Union.
International Controversies Registered By UNCTAD: conflits de l'UE mettre lien vers disputes de l'UE
Organizations Offering Their Assistance in Case of Disagreement: MIGA , Multilateral Investment Guarantee Agency
WTO , World Trade Organization
Member of the Multilateral Investment Guarantee Agency: Yes

Country Comparison For the Protection of Investors

	Hungary	Eastern Europe & Central Asia	United States	Germany
Index of Transaction Transparency*	2.0	6.3	7.0	5.0
Index of Manager’s Responsibility**	4.0	4.0	9.0	5.0
Index of Shareholders’ Power***	7.0	6.2	9.0	5.0
Index of Investor Protection****	4.3	5.5	8.3	5.0

Source: Doing Business - Last Available Data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.

Procedures Relative to Foreign Investment

Freedom of Establishment: Guaranteed
Acquisition of Holdings: Up to 100 percent foreign ownership is permitted with the exception of designated "strategic" holdings in some defense-related industries. The current government’s renewed privatization concept is opening some of the strategic holdings to private participation. Foreigners investing in financial institutions and insurance must officially notify the government but do not need advance authorization. Foreign financial institutions may operate branches and conduct cross-border financial services in Hungary, in keeping with OECD commitments. Currently, foreign firms control 2/3 of manufacturing, 90% of telecommunications and 60% of the energy sector.
Obligation to Declare: For contact information at national customs authorities, please visit the European Union website or the Hungarian Customs Office.
Competent Organization For the Declaration: Hungarian Customs and Finance Guard
Requests For Specific Authorizations: To determine if a license is required for a particular product, check the TARIC.
Hungary, like many EU Member States, maintains its own list of goods subject to import licensing (arms, precious metals etc.)

Office Real Estate and Land Ownership

Possible Temporary Solutions: Locations d'usine, bureaux.
The Possibility of Buying Land and Industrial and Commercial Buildings: Under the Investment Act, a company incorporated in Hungary may only acquire real estate "required for its economic activities," but this has been broadly interpreted and has not prevented foreign entrepreneurs from engaging in property development. Only private Hungarian citizens and EU citizens resident in Hungary and engaged in agricultural activity can purchase farmland, while others may lease it. Restrictions on foreigners buying land will remain in force for seven years following EU membership and it is possible they could be extended for an additional three years
Risk of Expropriation: None.

Investment Aid

Forms of Aid: 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 rules, the government of Hungary no longer grants tax holidays based on investment volume.
Privileged Domains: Economic development
Transport and infrastructure
Social Renewal
Social infrastructure
State Reform
Electronic Public Administration Etes-vous sûr que la réponse st appropriée? Ici on demande quels secteurs sont priviligiés par les investisseurs étrangers.
Environment, Energy
Privileged Geographical Zones: The folowing subvention rates are allowed by region :
- North Hungary, North Great Plain, South Great Plain, Centre Transdanubia, and South Transdanubia: 50%,
- West Transdanubia 45%,
- Pest county 40%,
- Budapest 35%.
Free Zones: Currently no company operates in customs free zones and all of them transferred their assets and continued operation following customs handling of their assets. The Finance Ministry plans to nominate customs free zones, but currently there seems to be little demand for this service. Possible sites could include Székesfehérvár, Gy?r, Kecskemét, Miskolc, or Szombathely.
Organizations Which Finance: Magyar Fejlesztési Bank

Investment Opportunities

The Key Sectors of the National Economy: Automotive, Computer Technology, Tourism.
High Potential Sectors: Environment, Housing.
Privatization Programs: Railway, Energy.
Tenders, Projects and Public Procurement: Ted - Tenders Electronic daily, Business opportunities in EU 27
Tenders Info, Tenders in Hungary

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors: Post, public transport.
Sectors in Decline: Mining, Textile.

Finding Assistance For Further Information

Investment Aid Agency: Hungarian Investment and Trade Development Agency
Doing Business Guides: Hungarian Investment and Trade Development Agency
Hungary Commercial Guide 2010 - Buy USA

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