Foreign investment related notification obligation in Hungary

Following the implementation of wide range of decrees on market protection, a new government decree was enacted and is effective from 26 May 2020 until 31 December 2020 that imposes a notification obligation on foreign investors as a precondition to their planned investment in certain strategic sectors in Hungary (Government Decree No. 227/2020. (V.25.)) (hereinafter: “Decree”).

1. Investments triggering notification obligation

The Decree requires foreign companies (companies with non-EU, non-EEA or non-Switzerland based majority owners) to file a prior notification towards the Ministry of Innovation and Technology (“Ministry”) and to obtain an acknowledgement of such notification by the Ministry as a pre-condition to their investment into a strategic company in Hungary.

According to the concept of the Decree any Hungarian company with a main or ancillary activity in the fields of commerce (including food industry), energy, transport, communication, defense, finance, healthcare, tourism sector qualify as a strategic company under the Decree and thereby an investment in any such company may trigger a notification obligation.

For such purposes, any of the following type of transactions qualify as an investment:

• Transfer of shares or quotas of strategic companies;
• Transfer of essential assets of strategic companies;
• Capital increase in strategic companies;
• Transformation, merger or demerger of strategic companies;
• Issuing bonds in strategic companies;
• Establishment of usufruct rights on shares or quotas of strategic companies.

If a foreign investor plans to acquire at least 10% of ownership ratio either directly or indirectly in a strategic company and the value of such investment reaches HUF 350,000,000, or if the joint ownership of foreign investors would thereby exceed 25%, any such transaction may only be implemented following the notification and receipt of acknowledgment of such notification by the Ministry.

2. Special rules for acquisition of controlling interest

We note that according to the Decree acquisition of a controlling interest in a Hungarian strategic company seem to trigger the requirement of notification and receipt of acknowledgement of notification of the Ministry as a precondition to the closing of the transaction even in the case of an EU or EEA resident acquirers, with the sole exception of acquirers being registered in Hungary with Hungarian majority owners.

3. The procedure of the Ministry of Innovation and Technology

The official language of the procedure is Hungarian and the notification needs to be filed with the Ministry within 10 days of the date of the transaction. During the whole process legal representation by a Hungarian attorney at law is mandatory. The notification shall contain certain data of the foreign investor, the detailed description of the transaction with the relevant circumstances and the complete set of documentation regarding the referred transaction.

The Minister shall adopt his decision about the notification within 45 days from the date of the electronic submission of the necessary documents. The Minister shall acknowledge the notification if all of the necessary documents have been submitted properly and if the transaction does not jeopardize the public interest and public safety in Hungary.

4. Legal consequences

The transaction shall not be completed until the acknowledgment of the Minister, therefore the ownership of the foreign investor cannot be registered by the Hungarian Court of Registartion without the duly executed acknowledgement document.

A company that breaches its notification obligation may be subject to an administrative penalty up to the twice of the amount of the value of the transaction but in case of private individuals at least HUF 100,000 or in case of a company at least one per cent of the strategic company’s net turnover for the financial year preceding the current year and all of the agreements concluded disregard of the Decree or the Minister’s prohibition shall be considered null and void.