INSIGHTS

HUNGARY | Foreign Acquisition Need Permit From The Government

Category
Accounting, Company Formation, News, Onshore

As part of the economic protection package introduced by the Hungarian Government, another measure restricting the acquisition of property by foreigners in Hungarian companies appeared in the National Gazette of Hungary published on 25 May 2020.

Pursuant to Government Decree No. 227/2020 (V.25.), the acquisition of ownership in strategic companies is, in certain cases, subject to the notification obligation and the consent and approval of the Minister responsible for the economy, in the following legal transactions:

  • Transfer of a certain share of ownership in a strategic company,
  • capital increase,
  • transformation, merger, division of a strategic company,
  • the issuance of convertible bonds, bonds with subscription rights,
  • establishment of a usufruct right on the shares of a strategic company.

As regards the size of the transaction, the Decree requires notification if a foreign investor acquires, directly or indirectly, at least 10% of the shares in a strategic company as a result of an acquisition, ownership of a bond or usufruct and the total value of the investment reaches or exceeds 350 million HUF (app. EUR 1 million).

The obligation to notify also applies if the foreign investor acquires a 15, 20 or 50 percent ownership right, or if, with its appearance, the proportion of ownership held by foreigners exceeds 25 per cent.

In the notification submitted to the Minister, in addition to the personal identification data and citizenship of the foreign investor, the main data of the legal person must also be recorded, along with a detailed description of the legal transaction. The document must also detail the circumstances that are relevant to the transaction, and all necessary and generated documents must be attached.

Based on these, the Minister will make a decision within 45 days of submission: either take note of the transaction or make a prohibitive decision. In the latter case the Minister must give reasons, if the applicant does not agree, he may contest the decision in administrative non-litigation proceedings before the Metropolitan Court.

The annex to the government decree lists a total of 21 sectors in which companies can be considered strategic companies in this respect. The following sectors are affected (non-exhaustive list):

  • tourism,
  • building industry,
  • health,
  • nuclear sector,
  • government facilities,
  • Financial sector,
  • food sector and agriculture,
  • defense industry,
  • energy sector
  • communication sector,
  • commercial facilities,
  • chemical sector.

Since the regulations of the Decree takes effect until the end of 2020 (at least) our Company shall gives additional steps to avoid the abovementioned proceeding in cases of our Clients.

After all it is important to note that the legistlative text of the Decree a little bit „dim”, that is  why the practice need to show the real nature of the introduced measures.