New restrictions introduced to the Hungarian FDI ruleset

The Hungarian Foreign Direct Investment regime (FDI ruleset) regulated by the Government Decree (no. 561/2022 (XII. 23.) since 24 December 2022 (Government Decree) has been amended by the recently adopted Government Decree No. 566/2023 (XII.14) which entered into force on 13 January 2024 (Amended Government Decree). The amendments to the FDI ruleset introduced by the Amended Government Decree narrow the scope of exemptions from the applicability of the notification obligation as well as establish a new statutory pre-emption right to the benefit of the Hungarian State in respect of solar power plant projects.

Revised exemption rule for intra-group transactions

The Amended Government Decree narrows the scope of the transactions not falling under the notification obligation pursuant to the FDI ruleset. The previous wording of the applicable Government Decree provided for an exemption from the notification obligation in case of transactions that took place with respect to foreign entities resulting in a change of control over a Hungarian strategic company or in case of transactions between foreign companies that are related parties within the meaning of the Hungarian Accounting Act. It has been discussed by professionals since the adoption of the Government Decree whether this exemption applied to related-party transactions affecting directly or indirectly Hungarian strategic companies as the relevant wording of the Government Decree was not absolutely clear in this respect.

The Amended Government Decree now combines the two elements of the previously applicable rule and clarifies that only those transactions are exempted from the FDI ruleset that are implemented directly with respect to a foreign entity and results in an indirect change of ownership over a Hungarian strategic company that is a related subordinated affiliate of the foreign entity within the meaning of the Hungarian Accounting Act. Therefore, intra-group transactions between foreign entities that are implemented directly at the level of a Hungarian strategic company (i.e. results in a direct change of control) are notifiable to the competent Minister pursuant to the FDI ruleset.

The Hungarian State’s pre-emption right in respect of solar projects

As the other new provision introduced by the Amended Government Decree, from 13 January 2024 the Hungarian State has a statutory pre-emption right in case of notifiable transactions that concern Hungarian strategic companies engaged in solar power plant-related activities as main or supplementary business activity under the TEÁOR code 3511’08 (“electricity production”). The Hungarian State’s newly granted pre-emption right prevails over all other (contractual or statutory) pre-emption rights. The Amended Government Decree clarifies that the statutory pre-emption right does not apply to small household power plants (i.e., power plants with capacity below 50 kVA).

The applicable procedure for the exercise of the pre-emption right is regulated by the Amended Government Decree as follows:

• Following the filing of the notification by the foreign investor to the Minister of National Economy (Minister), the Minister examines the submission in order to determine if the transaction falls under the scope of the FDI ruleset and if its subject to the Hungarian State’s pre-emption right. If the Minister concludes that the pre-emption right is applicable, it notifies the applicant accordingly.
• Pursuant to the Amended Government Decree, the Hungarian State has 60 business days to exercise its pre-emption right from the date of the notification provided to the applicant. The pre-emption right is exercisable through the state-owned Hungarian National Asset Management (MNV Zrt.).
• Concurrently with notifying the applicant, the Minister should send the documentation filed by the applicant to the minister responsible for the energy policy (currently the Minister of Energy), who has 15 business days to determine if the exercise of the statutory pre-emption right is justifiable and makes a proposal to exercise the pre-emption right or to waive it. The minister responsible for the energy policy should notify the Minister and MNV Zrt. of its proposal, and in case it proposes to exercise the pre-emption right, the necessary documentation should be provided to MNV Zrt in order to enable it to conclude the acquisition.
• If the minister responsible for the energy policy proposes to exercise the pre-emption right, the Minister terminates its procedure under the FDI ruleset. Nevertheless, if the Minister receives the proposal from the minister responsible for the energy policy not to exercise the pre-emption right (or it fails to provide its opinion within the 15 business-day deadline), then the Minister should proceed with the FDI screening and decide in the merit of the submission (i.e. may acknowledge the transaction or deny the approval).

Pursuant to the Government’s Resolution no. 1576/2023 (XII. 19.), the Hungarian State’s ownership acquired by exercising the statutory pre-emption right over the strategic companies will be exercised by the minister responsible for energy policy and the shareholdings in such strategic companies must be contributed in-kind to the state-owned energy holding company, MVM ZRt. within 6 months of the acquisition.