Deloitte sees Hungary worth considering for quality investment and operations

Published: 18 January 2017

There is an emerging trend of investment by Chinese companies into Hungary, underpinned by strong economic ties between China and Hungary in recent years and its geographical convenience in the heart of Europe. The recent effort by the Hungarian Government to cut corporate tax rate to the lowest level in the EU is expected to benefit existing foreign business and help attract further inbound investment into Hungary, Central Europe and EU, from overseas countries including China, according to professional services firm Deloitte.

Hungary has imposed new 9 per cent corporate tax rate in 2017, while formerly, Hungary taxed companies at a rate of 10 per cent on profits up to 500m forints, approximately 1.6m euros, and 19 per cent above that level. As an attempt to invigorate the labour market, Hungary also introduced a flat rate of 16 percent for its personal income tax system, and it was cut to 15 percent in 2016.

Based on Deloitte’s observation, the corporate tax cut would mainly benefit mid-sized and foreign owned companies. Hungary had been a leading destination for foreign direct investment (FDI) in Central and Eastern Europe. In the first half of 2016, the Hungarian Investment Promotion Agency (HIPA) successfully negotiated 38 investment projects, a 27% increase compared to the same period in 2015. In recent years, the Hungarian government has been aggressive in attracting new investors to the country. While the largest foreign investors come currently from German, the U.S., Japan, Korea, France, Russia and the Middle East, there appears to be growing interest from Chinese investors in Hungary.

“The development of economic ties between the two countries was reflected by the increasing number of Chinese companies establishing operations in Hungary. Apart from traditional trading activities, many companies have arrived to Hungary in the field of technology, manufacturing and energy”, said Gabor Gion, Deloitte EMEA Chinese Services Group Leader, citing that Chinese FDI in Hungary is estimated to have surpassed 3.5 billion euros¹.

According to Deloitte, the latest tax cut has given Hungary the lowest rate in the EU, as well as one of the lowest anywhere in the world. From now, the only places with lower corporate rates than Hungary will be island tax havens like the Caymans and British Virgin Islands.

For those Chinese companies who has already setup business in Hungary, Central Europe or other places in EU, this tax cut policy could be leveraged to optimize their international business structure for more efficient and quality strategic development to move up value chain, according to Deloitte Global Chinese Services Group Chairman, Rosa Yang.

In addition to the favourable tax rate, Chinese investors can also benefit from its large Chinese community, growing bilingual talent pool and geographical location of Hungary at the heart of Europe, The country has an investment friendly environment, with more than 1,100 industrial parks and 480 green field and brown field investment sites awaiting foreign investors, said Csaba Wolf, Deloitte Central Europe Chinese Services Group Business Development Director, noting that “a business can be started within a period as short as 5 days, the quickest in Central Europe.”

Looking ahead, Chinese investors are expected to become more active in Hungary in 2017.

¹ Source: https://hipa.hu/investments-still-on-the-rise-in-h1-2016