Hungary extends scope and deadline for application of temporary FDI control regime during state of emergency

Under FDI Act 2020, Ministry of Innovation and Technology approval is required for closing a transaction if the following conditions are met:

• The transaction involves the acquisition of a strategic company; and
• The acquiror is a foreign entity registered in the EU, the EEA or Switzerland (or the acquiror is directly or indirectly owned by a foreign company registered in the EU, the EEA or Switzerland) that is acquiring a controlling majority ownership or voting rights in a strategic company, and the total transaction value is higher than HUF 350 million (EUR 1 million); or
• The acquiror is a Hungarian entity or a foreign entity registered in the EU, the EEA or Switzerland, which is directly or indirectly owned by a foreign company registered outside of the EU, the EEA or Switzerland (or the acquiror is a foreign entity outside of the EU, the EEA and Switzerland) and the acquiror acquires more than 15% of the ownership rights in a strategic company.

The above conditions remained unchanged following the adoption of the Decree, but the Decree extends the scope of those entities, qualifying as a strategic company under FDI Act 2020. In addition, the Decree prolongs the deadline for the ministerial acknowledgement procedure. Currently, the ministerial acknowledgement procedure applies to those transactions signed prior to or on 31 December 2021.

Pursuant to the amended wording of FDI Act 2020, an entity qualifies as a strategic company if it is operating in a company form of a limited liability company, a private company limited by shares or a public company limited by shares or if it is a higher education institution being a legal person whose main and other activities match activities listed in the supplemental government decree of FDI Act 2020 and these activities fall within a strategic sector, particularly energy, transportation, communication and those sectors listed in para (1) a) – e) of Article 4 of EU Regulation 2019/452.

The list of activities included in the supplemental government decree of FDI Act 2020 were complemented with the following activities in the communication and the education sector: publishing services; motion picture, video and television programme production services; sound recording and music publishing; programming and broadcasting services; and higher education and educational support activities.

Based on the previous wording of FDI Act 2020, to qualify as a strategic company an entity must meet the following two conditions: some of the company’s activities match the ones listed in the supplemental government decree of FDI Act 2020; and the matching activities fall within the energy, transportation, and communication sectors or those sectors listed in para (1) a) – e) of Article 4 of EU Regulation 2019/452.

According to the provisions of the Decree, the definition of the strategic company is now a company that has an activity listed in the supplemental government decree of FDI Act 2020 that belongs to a strategic sector, such as energy, transportation, communication and the sectors listed in the EU Regulation as examples. In addition, the list of entities, for which the provisions of FDI Act 2020 apply to, was extended and now higher education institutions also fall under the scope of FDI Act 2020.

For more information on this eAlert, contact your regular CMS advisor or local CMS experts: Anikó Kircsi or Szabina Marsi.