Greenfield Investments – Why Hungary? – Investment framework
Key sectors in Hungary: automotive, battery, business service centres, electronics, information and communication technologies, food industry, life sciences, logistics, and medical technologies are considered to be industries in which Hungary actively invites investors. More than 170 000 people are employed in the automotive industry.
1. Key information
More Hungarian firms are engaged in international trade than is typical across the EU (70% versus 63%). Manufacturers (92%) are far more likely than construction (35%) or infrastructure firms (48%) to trade outside their home market. Only in manufacturing (85%) do a majority of firms trade.
A higher proportion of large firms than SMEs are trading internationally (79% versus 58%).
The greatest growth of Hungarian GDP occurred in the 1st-2nd quarter of 2021; after the 1st quarter of 2020, a moderate recession of the economy began. The first quarter of 2023 ended almost completely flattening the trend. At the same time, according to the European Commission’s conclusions, the debt-to-GDP ratio fell by 3.3% due to high inflation and robust GDP growth to 73.3% in 2022. It is projected to decrease further to 70.7% in 2023 before rising again to 71.1% in 2024 due to a high deficit and slower nominal GDP growth.
Generally, an investment transaction means any purchase, acquisition, exchange, sale or disposition, merger or interest exchange that results in the acquisition or disposition of, or other transaction involving, an investment.
Restrictions and controls on investment transactions may affect interest in investing in a particular jurisdiction. Developing countries often reduce restrictions to increase the volume of investment. At the same time, the availability of investments is opposed by public security, which can be considered from the point of view of the public interest since, in the event of a dispute with an investor, the other party is the state, represented by authorised persons.
2. Restrictions – Hungary: To buy agricultural land, a national of the EU should declare that:
– he or she wishes to settle in Hungary as someone independently engaged in agricultural production; and
– he or she has been legitimately residing in Hungary for at least three consecutive years and is pursuing agricultural activities.
– The authorisation of the competent Budapest or county government agency is required to acquire non-agricultural real estate.
Usually, national legislation restricts foreigners’ possibility, duration, and property disposal. Despite the principle of equal treatment, national legislation may favour own nationals in the possibility of owning property.
In the case of the application of the right to property, it is usually guaranteed both at the level of national legislation and at the international level. Thus, Law XXIV of 1988 law on foreigners’ investments in Hungary establishes that foreigners’ investments in Hungary enjoy full protection and security. Expropriation and nationalisation are prohibited by a mandatory rule and can be permitted only in cases defined by law. In addition, a foreigner must be compensated immediately at the actual value for any damage resulting from possible nationalisation, expropriation, or measures with similar legal effects.
3. Some legal aspects
As for the international level, investments are protected both with the help of BITs and with the help of multilateral agreements that may apply to investment activities.
In most cases, a building permit must be applied for a construction project. For certain construction works (determined by the law), it is sufficient to notify the building authority before commencing the construction works (but no permit is needed).
Compliance with the relevant requirements of local legislation is required for construction. Usually, cities are divided into zones where construction can be carried out with certain technical characteristics. In addition, the object of regulation is often also the exterior of the building.
Once the works have been completed, and the building is safe and suitable for the intended use, an occupancy permit may be required before the building is put into commercial use (depending on the specifics of the construction).
dr. Dobos István attorney at law
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