Hungary: an extension to foreign investment control

The Hungarian parliament has introduced an extension to the temporary regime on foreign investment control, and as a result the screening for foreign investments under Act LVIII of 2020 on the temporary measures applicable to the termination of the state of emergency and the preparedness for pandemics (“Temporary Act”) now applies until 30 June 2021 instead of 31 December 2020.

Another change in the Temporary Act is that it no longer applies to acquisitions among affiliated companies.

To summarise, according to the Temporary Act, those entities classified as foreign investors under the temporary regime must obtain the prior approval of the Minister of Innovation and Technology in order to invest in Hungarian limited liability companies and public or private companies limited by shares which pursue certain strategic activities.

A foreign investor is defined as any company registered in the EEA or in Switzerland pursuing a strategic activity if their majority owner is a citizen of or is incorporated in a country other than the EEA or Switzerland; or any citizen of or entity incorporated in a country other than those specified above. Foreign investors must obtain approval from the minister not only for share purchases above a certain threshold, but also in relation to asset deals.

Furthermore, in certain cases investors of the EEA or Switzerland also need prior approval for their investments, but the Temporary Act only applies to direct investments.

In addition to this temporary regime, a permanent regime is in place in Hungary: Act LVII of 2018 on the Supervision of Foreign Investments Violating the National Security Interests of Hungary and the relating implementation decree, Government Decree 246/2018 (XII.17). In force since 1 January 2019, this legislation applies to investors outside the European Economic Area and Switzerland wishing to invest directly or indirectly into Hungarian companies that pursue activities classically considered sensitive (e.g. production of arms and ammunition and dual-use products, and governmental, municipal or national IT registers); provide financial services and financial auxiliary services; or provide electricity, gas, water, and telecommunications services.

For further information on this Temporary Act or the permanent regime and how it could affect your Hungarian business, contact your regular CMS partner or local CMS experts: Anikó Kircsi, Partner, Dora Czegledi, Senior Associate.

Also see the multi-jurisdictional FDI that CMS has made in partnership with LexisNexis and includes guides on the FDI regimes in Austria, the EU, France, Germany, Hungary, Italy, Mexico, Poland, Romania, Russia, Singapore and South Africa with more to follow. The database is accessible here.