Temporary changes in the FDI ruleset

The Hungarian Foreign Direct Investment regime (FDI ruleset) introduced during the COVID-19 pandemic situation was originally intended as a temporary regulation to protect Hungarian companies active in strategic sectors from the hostile takeovers that might threaten the national interest and public order in Hungary; however, its applicability has been extended for an indefinite period, so the ruleset has become a part of an investor’s everyday life in Hungary. On 23 December 2022, a new Government Decree (no. 561/2022 (XII. 23.) hereinafter: Government Decree) was published supplementing the effective FDI ruleset with the following new temporary rules from 24 December 2022 until the end of the term of the state of emergency announced with respect to the armed conflict in Ukraine (i.e. 30 May 2023):

Threshold

According to the original ruleset applicable before 24 December 2022, if a foreign investor planned to acquire at least 10% business share either directly or indirectly in a strategic company and the value of such investment reached HUF 350,000,000 (or, if computed together with any other foreign investors’ interest(s), the joint share of foreign investors would thereby exceed 25%), the transaction could have been implemented only following the notification and receipt of acknowledgment of such notification by the minister responsible for domestic economy. Also, any acquisition of an increased business share reaching 15%, 20% or 50% needed to be notified.

With the effect of the Government Decree the above rule has been amended as follows:

(i) The 10% threshold is reduced to 5% (3% in case the acquisition takes place in a public stock company); and

(ii) any acquisition of an increased business share reaching 10%, 20% or 50% needs to be notified.

The above amended rules only apply to those foreign investors who are citizens of a state outside the European Union, the European Economic Area, and the Swiss Confederation, or legal persons or other organizations registered in such a state. It means that the original ruleset applicable to an investor with an EU background remains unchanged, so the investor with and EU background is only obliged to notify the transaction if it directly or indirectly acquires a majority interest in the strategic company and the total value of the investment reaches HUF 350 million.

Scope

The list of activities carried out in the strategic sector (by strategic companies) has been extended with the following two activities of the financial sector:

(i) ‘64 Financial brokerage (in Hungarian: Pénzügyi közvetítés); and

(ii) ‘65 Insurance, reinsurance and pension funding (in Hungarian: Biztosítás, viszontbiztosítás, nyugdíjalapok).

The definition of “strategic company” now includes higher education institutions as well.

Other

Beside some other technical amendments of the FDI ruleset, the Government Decree introduced a new procedural rule according to which, when examining an FDI notification, the minister responsible for domestic economy might make inquiries to any other governmental authorities, which shall answer to the minister’s inquiries within 5 days.

Recently, as a result of changes within the Government’s structure and termination of the Ministry of Technology and Industry, the notification shall be submitted to and acknowledged by the Minister of Economic Development.