Category: Hungary

With respect to the declared state of danger and in order to alleviate the economic difficulties resulting from the Covid-19 epidemic, the government has taken several measures, the following document summarizes the most significant provisions of governmental decrees in the field of labour law effective as of and related to the operation of legal persons.

Provisions regarding the state aid for employment in reduced working time:

The Hungarian Government introduced state aid for supplementing the wages of employees with Governmental Decree No. 105/2020. (IV. 10.) („Governmental Decree”), due to the unfavourable economic circumstances resulting from the COVID-19 epidemic. Gov. Decree No. 141/2020. (IV. 21.) introduced several important amendments to the Governmental Decree, with effect from April 29, 2020, with the purpose of making the access to the state aid easier and bringing more persons concerned under the scope of the aid.

As a precondition for applying for the aid, the employer and the employees concerned must conclude an agreement at least for the duration of the aid, in which they shall agree on the following:

• the employment in reduced working time (in line with the calculation rules that apply to the aid, the working time may be reduced to 25-85% of the pre-existing working time);
• if the reduced working time exceeds 50% of the pre-existing working time, then the employee’s self-improvement time (the duration of the self-improvement time is by force of law 30 % of the volume of the reduction).

The pre-existing working time must be calculated in the average of 3 months.

if the reduced working time is equal to or less than 50% of the pre-existing working time, the agreement on ‘self-improvement time’ is only a possibility, not an obligation. Therefore, in this case, the application of ‘self-improvement time’ depends of the agreement of the parties.

In this case (i.e. in case of voluntary agreement on “self-improvement time”), the employer is not obliged (i) to pay the employee a salary for the duration of the aid – together with the amount of the aid – which would not be less than the employee’s pre-existing salary, and (ii) to pay salary to the employee for the self-improvement time.

In case of mandatory self-improvement time (i.e. if the reduced working time of the employee exceeds 50% of his/her pre-existing working time), these obligations are to be observed by the employer.

The aid may be granted upon the joint request of the employer and the employees concerned, and the aid application must be filed with the competent government office. The application must be filed by the employer during the state of danger or within a period of 1 month after the end of the state of danger, electronically, by using a form published on the website of the National Employment Service (in Hungarian: Nemzeti Foglalkoztatási Szolgálat). Subsequently, the government office has 8 business days to examine the application.

A number of preconditions must be demonstrated in the application:

• the employer employs the employee concerned in reduced working time in order to prevent the reduction of the number of its employees;
• the economic circumstances that substantiate the employment in reduced working time are in direct and close connection with the state of danger, and keeping the employees is in the interest of the national economy in connection with the continuous economic operations of the employer;
• the employer has been operating for a period of at least 6 months;
• at the time of filing the application, the employer does not receive – regarding any of its employees concerned with the application – either (a) ‘job creation aid’ (in Hungarian: munkahelyteremtő bérjellegű támogatás)  and/or ‘job protection aid’ (in Hungarian: munkahelymegőrző támogatás)  financed from EU sources, or (b) ‘R&D employee aid’ (in Hungarian: kutató-fejlesztő tevékenységet végző munkavállalók foglalkoztatásának támogatása);
• the employees concerned do not receive [in connection with the same employment relationship as the one concerned by the aid] any other type of part-time employment related aid;
• the employees have been employed by the employer since 15 March, 2020 (or earlier);
• the employees are not under notice period.

No appeal shall lie against the rejection of the application. In case of rejection, the application (concerning the same employee[s]) may be re-submitted once.

The aid shall terminate:

• if so requested jointly by the employer and the employee;
• if the employment relationship terminates;
• if either the employee or the employer fails to fulfil any of its aid related obligations;
• if the employer receives “job creation aid” (in Hungarian: munkahelyteremtő támogatás), “job protection aid” (in Hungarian: munkahelymegőrzési támogatás) or “R&D employee aid” (in Hungarian: kutató-fejlesztő tevékenységet végző munkavállalók foglalkoztatásának támogatása);
• if the reduced working time is amended during the aid period;
• if it turns out that the aid could not have been granted (due to lack of fulfilment of preconditions).

It is important to note that on the one hand, if it turns out that the aid could not have been granted due to lack of fulfilment of preconditions and this is attributable to the employee, then s/he must repay the aid received and, on the other hand, if this is attributable to the employer, then the employer shall make payment to the National Employment Fund equal to the aid received by the employee.

By force of law, as a result of using the aid, the employee undertakes

• that should s/he establish another employment relationship (in addition to the one concerned by the aid), then such additional employment relationship will not be an obstacle for him/her to return working in the pre-existing working time after the duration of the aid;
• to carry out work during the reduced working time;
• to remain available for the employer during the self-improvement time (without being required to actually carry out work).

By force of law, as a result of using the aid, the employer undertakes that

• for the duration of the aid and for a further period of 1 month, the employment of the employee(s) concerned will not be terminated;
• for the duration of the aid, it will not request the employees concerned with the aid to work in extraordinary working time;
• it will notify the competent government office – within 2 business days – if there is any change that may affect the conditions of the aid and/or the length of the reduced working time;
• for the duration of the aid, the employee’s base wage – together with the amount of the aid – will not be less than the employee’s pre-existing salary (except if the parties voluntarily agree on ‘self-improvement time’, as described above);
• it will pay salary for the self-improvement time (except, if the parties voluntarily agree on self-improvement time, as described above).

The aid may only be granted for the future (i.e. for a period of time following the filing of the application). The duration of the aid shall be calculated in months, and the maximum duration of the aid is 3 months. No aid may be granted for the duration of unpaid leave (if any) of the employee concerned.

It is important to note that the amount of the aid is capped: the maximum basis for the calculation of the aid is the net amount of the double of the statutory minimum wage (In Hungarian: kötelező legkisebb munkabér) applicable at the time of filing of the aid application (as of today, this amount is net HUF 214,130 pursuant to Section 2 (1) of Governmental Decree no. 367/2019 [the statutory minimum wage for a month is gross HUF 161,000 Ft). The amount of the aid is 70 % of such proportion of the salary that corresponds to the working time reduction agreed by the parties.

The above rule of calculation is illustrated by the following example.

• the net amount of the employee’s salary is HUF 214,130, and the parties agreed to reduce the working time by 75 % (i.e. by the maximum volume of reduction under the Gov. Decree);
• we shall accordingly calculate the 75 % of HUF 214,130 (= HUF 160,598);
• the amount of the aid is 70 % of the so calculated amount: HUF 160,598 x 0,7 = HUF 112,418.25 (practically, HUF 112,418).

The above-mentioned amount of HUF 112,418 is nevertheless the maximum monthly amount of aid under the Governmental Decree. It is important to highlight that if the net salary of an employee exceeds HUF 214,130, we shall still use the amount of HUF 214,130 as the basis for the calculation given that this is the statutory threshold, thus the amount of the monthly aid cannot exceed HUF 112,418.

The aid is paid to the employee on a monthly basis, following the subject month, however, the Governmental Decree does not specify an exact date as a deadline for payment.

Please note that the Gov. Decree contains a number of specific restrictions which are not described herein (due mainly to their rather exceptional nature). For example, among others, the employer may not be under liquidation, winding up procedure, bankruptcy or other proceedings specified by law regarding the termination of the employer (Governmental Decree Section 5 (1) b) bb)).

Provisions affecting the rules of work time frame:

Pursuant to Section 1 (1) of Governmental Decree no. 104/2020. (IV. 10.), the provisions of Act I of 2012 on the Labour Code (“Labour Code”) shall be applied with the exception that the employer may order a maximum work time frame (in Hungarian: munkaidőkeret) of 24 months. The work time frame ordered prior to the entry into force of the decree may be extended by the employer for a maximum period of 24 months. It is important to highlight that the work under the work time frame ordered by the employer as described above or agreed upon by the employer and the employee (by deviating from the provisions of the Labour Code) is not affected by the termination of the state of danger.

Provisions on the aid for research and development employees:

Governmental Decree no. 103/2020. (IV. 10.) establishes special rules for the economic support of research and development employees. The Decree refers to Act LXXVI of 2014 on scientific research, development and innovation in connection with the definition of research and development employees: a natural person who is engaged in the creation, development of a new knowledge, intellectual work, product, service, procedure, method, system or in the management of the implementation of projects for the purpose of the abovementioned.

The aid is granted by the competent government office upon the request of the employer,

• if the employee
  1. does not receive other aid with regard to the same employment relationship,
  2. is in employment relationship with the employer at least on the day of declaration of the state of danger as a research and development worker,

• is not under the notice period,

• if the employer
  1. demonstrates the economic circumstances that substantiate the application of the employer, its connection with the state of danger, and the measures already applied and expected to be applied,
  2. does not receive state aid for reduced working time in connection with its employee named in the application concerning the same employment relationship,

• does not receive – regarding any of its employees concerned with the application – job creation aid, or job protection aid at the time of filing the application, and

1. has been operating for a period of at least 6 months,

• if the application is filed according to the form published on the website of the National Employment Service.

The amount of the aid and the conditions for its payment are as follows. The duration of the aid shall be calculated in months, and the maximum duration of the aid is 3 months. The monthly amount of the aid may not exceed HUF 318,920 per employee. This maximum amount shall be paid if the employee’s gross salary is HUF 670,000 or more on the day of declaring the state of danger. If the salary is less than HUF 670,000, the proportionate amount of HUF 318,920 is due to the employee calculated on the basis of the ratio of the employee’s gross salary and of HUF 670,000. The aid is paid to the employer on a monthly basis, following the subject month.

When applying for the aid, the employer must undertake the following:

• the employee is further employed for at least the same duration as the duration of the aid (the further employment is checked after the end of the said duration),
• it does not reduce the existing salary of the employee on the day of the declaration of the state of danger during the duration of the aid and further employment,
• it will notify the competent government office – within 2 business days – if there is any change that may affect the conditions of the aid.

In addition to the commitments, the employer must also comply with certain legal requirements:

• it fulfils the conditions of organized employment relationships laid down in separate legislation and provides proof of this,
• it is not under liquidation, winding up procedure, bankruptcy or other proceedings regarding the termination of the employer,
• it did not specify as an undertaking in difficulty as defined in separate legislation on 31 December 2019.

The aid cannot be granted for certain types of employment according to the Labour Code (employment other than an employment contract, downtime, exemption from work with the consent of the employer, temporary work).

The application shall be filed with the competent government office regarding the registered seat or site of the employer during the state of danger or within a period of 1 month after the end of the state of danger. A decision to grant aid may be made by 31 December 2020 at the latest. The Decree restricts the possibility to apply for the same site and employees. As a general rule, this application may be filed once, and the application can only be filed at the same time for employees of the same site. If the application is rejected, the employer may refile the application, once more at the most. The government office has 8 business days to examine the application. If the application complies with the legal conditions, the government office will conclude an official contract with the employer, on the basis of which it provides the aid to the employer.

The aid constitutes as State aid under EU law, and can be granted in the form of a non-repayable aid. The monthly amount of the aid, together with other aids according to the amended version of the European Commission Communication C (2020) 1863 final of 19 March 2020, may not exceed 80 % of the monthly salary of the employee, including contributions. This shall be taken into account when calculating the maximum amount of the aid. The Governmental Decree defines certain cases where it is possible to use multiple aids for partially or completely identical identifiable eligible costs, however this cannot lead to the overcompensating of the salary of employees with regard to the employer. All documents relating to the aid must be kept for 10 years.

The aid shall terminate:

• if the employer requests it so,
• if the employment relationship of the employee terminates,
• if the employee receives state aid for employment in reduced working time concerning the same legal relationship,
• if the employee does not qualify as research and development worker,
• if the employer
  1. fails to fulfil any of its aid related obligations,
  2. reduces the existing salary on the day of the declaration of the state of danger of its employee concerned with the aid,

• receives job creation aid or job protection aid regarding any of its employees concerned with the aid,

• if it turns out that the aid could not have been granted due to lack of fulfilment of the preconditions.

The employer is obliged to pay back the aid in certain cases. It shall pay back the entire aid if it could not have been granted due to lack of fulfilment of the preconditions. In proportion to the breach, it is required to pay back the entire or part of the aid if it has not fulfilled his obligation to further employing the employees. The employer may be released from the obligation to pay back the aid if it proves that the employment was terminated with immediate effect during the probationary period; as a result of the employer’s immediate termination, the employer’s termination without successor, or the employee’s termination.

By Artúr Számel and Dániel Almási, Associates, Nagy és Trócsányi

Everything that used to be simple and straightforward when concluding or completing M&A transactions poses major challenges to market participants in today’s crisis circumstances. New legal and technical solutions have been designed to overcome these difficulties, some of which are expected to remain with us even after the crisis.

“Social distancing” and its effects on transactions

Almost all company employees these days are currently working from home. For this reason, it’s not possible to sign contracts in person or to conclude deals in the usual way. All the more so where one of the parties to a transaction is based abroad, as there are legal and physical restrictions on movement between countries. How can deals be done in this sort of environment?

There’s no legal impediment to the parties’ signing their contracts in separate copies and sending them to each other by post at a later date. It’s also possible to sign the documents by power of attorney: with the appropriate instructions, the same authorised person can sign on behalf of all the parties concerned. And at the same time, the use of electronic devices has become increasingly widespread: with a certified electronic signature, the parties can sign the same document from several places at the same time.

Limits on the availability of authorities and banks as a risk factor

Implementing a transaction is often dependent on the approval or on certain procedures of a bank or the authorities. However, in the new circumstances, the way both banks and the authorities are processing requests has changed. Administration times at many official offices has increased and, due to the absence of personal service, not all these offices are receiving documents. But it’s not just the authorities: banks, too, often don’t have the capacity needed to approve a transaction or to execute a payment.

When planning a transaction, therefore, it’s currently more important than ever to find out in advance how to obtain the necessary authority documents and permissions and to know how long it will take. You should certainly assume there’ll be an increase in processing times when it comes to obtaining any kind of external approval.

How can we make any company decisions like this?

Concluding a deal may call for various company decisions to be made. For example, it may be in the interests of the buyer to replace certain senior executives or to amend the company’s articles of association. How can you do this if the company’s shareholders can’t physically meet due to the current restrictions?

Even before the crisis, the regulations allowed companies to hold their meetings by phone or video conference, provided that the company’s articles contained a provision to that effect. This option has now been extended by a government decree that came into force last Friday to cover effectively all companies. Under certain conditions, shareholders will now be able to meet virtually, via telecom devices, even if the founding document does not provide for this. In other cases, the company’s management is entitled to make decisions that would otherwise fall within the competence of the general meeting.

The pandemic as force majeure

In the current, uncertain business situation, few people are prepared to take the risk of undertaking a contractual commitment to implement a sale or other transaction at a later date. But if they are, it is in the basic interests of the parties not to make a commitment that they will not be able or willing to honour in the future due to a possible escalation or protraction of the crisis.

The statutory regulations recognise any reference to an unavoidable external cause, i.e. to “force majeure”, as a reason for not honouring a contract only to a very limited extent. Therefore, the specific cases in which the parties may withdraw from a contract should be spelled out in detail in the contract. Working out the exact circumstances that will allow withdrawal, requires serious negotiation between the parties – and thorough legal work.

How long will the new methods stay with us?

While the restrictions that are currently encouraging parties to seek creative solutions will sooner or later disappear as the threat of the pandemic subsides, several of the transactional arrangements that are now being developed are expected to persist in post-crisis transaction practices. The possibility of electronic signature has been around for a long time, but so far it has not really caught on. The crisis situation is likely to have a positive effect on the take-up of this practice, and hopefully in the future we’ll no longer be faced with cart loads of contracts that need to be physically signed when closing deals. It’s expected that electronically-held general meetings will also remain with us after the crisis. Many travel and logistical issues will be solved if everyone can sit in front of their own screens to vote and otherwise participate in the running of the company.

By Ágnes Bejó, Senior Attorney, Jalsovszky

At the end of March 2020, the Hungarian Government has submitted to the Parliament a bill on the arrangement of the ownership of properties affected by land use right of a producing co-operative (in Hungarian: termelőszövetkezet) and on the amendment of other acts of land-related subject.

On the basis of the bill, the part of a land on which the producing co-operative’s land use right is registered in the land registry, would be transferred in the ownership of the Hungarian State (the National Land Fund) by the operation of law on 1 January 2021. In addition, the agreements on the assignment of land use right concluded by and between the producing co-operative and its successor, will be terminated on 31 December 2022 at latest.

Under the bill, the persons having ownership share (in Hungarian: részaránytulajdon) not yet submitted can claim compensation from the land registry authority registering the ownership share. The authority decides on the applications for compensation and arranges for payment of the amount of the compensation.

By acceptance of the bill, several land-related acts would also be amended e.g. the Forest Act, Land Registry Act, National Land Fund Act, Act on Protection of Land and Land Transactions Act. Thus, the rules of the professional managing and safekeeping of the forest works would be renewed conceptually and the instruments of the forest authorities would also be modernised. Several provisions of the Land Transactions Act would also be amended by the bill, e.g. the definition of the local neighbour would be clarified, and the Act would be completed in a way that the ownership of land could be transferred on title of maintenance and life-annuity only to close relatives, listed churches, municipalities or the state. Furthermore, the bill would exclude the acquisition of the ownership of a land by a fiduciary asset management contract.

By Lidia Suveges, Attorney at law, KCG Partners Law Firm

Balazs Toth has joined Telenor Common Operation as its new Legal Director in Hungary.

TnCO is a technology service provider delivering network and IT services to Telenor business units. The company was established on October 1, 2013, to share the technical expertise and resources of the four CEE Telenor subsidiaries. Its headquarters are located in Torokbalint (Hungary), with branch offices in Belgrade, Sofia, and Podgorica.

Toth started his post-bar legal career in 1999 at the Radvanyi & Varga Law Firm in Budapest. In 2000 he left the firm to join the Oracle Corporation as its Legal Director and Compliance Officer for Hungary, Serbia, Bulgaria, and Montenegro. He spent almost sixteen years at Oracle before moving to Semmelweis University’s Innovation Centre, where he dealt with the legal aspects of medical and biotechnological inventions, various R&D&I projects and managed the technology transfer agenda from a legal perspective. In 2017 he was hired by the DHL Group as the Head of Legal, where he was responsible for the four DHL companies in Hungary, and was also a member of DHL’s Global e-Commerce Practice Group. His last role prior to joining TnCO on April 1, 2020, was a brief period in the FMCG sector as the Chief Legal Counsel for Dreher Breweries, a member of the Asahi Group.

“The dynamics of the telco business and the role of legal departments have changed significantly over the years and I’m thrilled to have the opportunity to re-build the legal department and the legal processes at TnCO. Exciting times are ahead of us and I’m looking forward to using my expertise and experience to contribute to the success of such a state-of-the-art and innovative company as TnCO.”

The independent administrative and labour courts ceased to exist in Hungary as of 31 March 2020, and in the future, administrative and employment legal actions will be brought before regional courts. All cases that were in the sole jurisdiction of the Budapest-Capital Administrative and Labour Courts have been transferred to the sole jurisdiction of the Budapest-Capital Regional Court.

As a result of the change, administrative cases of second instance (appealing and review proceedings) will be decided by the Curia. Single judge cases shall be proceeded exclusively by the Curia. Employment cases of first instance are now in the jurisdiction of the regional courts, while at second instance the appealing procedures will be dealt by the jurisdiction of the courts of appeal, and the review proceedings shall be proceeded by the Curia.

All statement of claims submitted to the administrative and labour courts before 1 April 2020 are being transferred to the competent courts and the parties will receive specific information about the relevant changes.

By Rita Parkanyi, Partner, KCG Partners Law Firm

The Hungarian Government introduced changes in procedural related regulations on 31 March 2020 by adopting Government Decree No. 74/2020 (III.31.). These newly introduced amendments affect civil law court procedures.

The most important message of the Decree is that the court procedures cannot be suspended or otherwise interrupted, therefore the court procedures will continue, deadlines will expire and courts begin to operate without personal attention, where possible, during the state of emergency. In light of the above, the Government has not extended the term of the previously ordered extraordinary judicial vacation.

According to the Decree, as a general rule, legal disputes should be resolved outside a hearing. If the contribution of a party (or others, including witness, expert) is essential, this should be adjusted in writing or via telecommunication device.

Civil procedures and labour disputes will be governed by a single judge.  The first phase of the court procedure, namely the case initiation stage, will be completely conducted outside a hearing. As this phase defines the framework of the dispute, it should be handled with the greatest possible care. 

The second phase, namely the hearing as to merits, should also be conducted without personal attention. The hearings should be carried out through an electronic communications network. If the conditions of an electronic hearing are not met, written statement is also possible as well as obtaining a statement by way of transmission of the technical means that allows proper identification.

The parties or their legal representatives may mutually request for the stay of the proceeding unlimited times. Where the action has reached a stage for passing a decision, the court decides on the merit of the case outside a hearing. It is also possible for the parties to reach a settlement, however by means of an electronic device. Regarding remedy, contrary to the general rules of civil procedure, both appellate proceedings and review procedures should be decided without a hearing.

As during the state of emergency, the Government is entitled to issue decrees – to suspend the application of certain laws or derogating from the provisions of laws, and to take other extraordinary measures – monitoring the changes is very important to be up-to-date.

By Adrienn Megyesi, Attorney at law, KCG Partners Law Firm

Panicking amid the health crisis, company managers can easily feel pressured to take some “seemingly obvious” legal or business measures to resolve their situation. However, these measures often involve serious legal risks and should be approached with caution.

1. Force majeure and frustration of contract – it’s not that simple!

One of the most frequently cited contractual clauses these days is the good old “force majeure” – in other words, an unavoidable external event or factor that the lawmaker seems to regard as an excuse for refusing to pay up, or as a reason for terminating the contract. The other legal term we’re hearing a lot is “frustration of contract”, as if it were something that can relieve us of our obligations if we suddenly find ourselves unable to fulfil the contract.

However, the Civil Code does not recognise “force majeure” at all as a basis for refusing to fulfil the terms of an agreement, and frustration of contract is only a special case of termination of a contract. In fact, the statutory regulations only allow us an extremely limited scope for lawfully failing to fulfil a contractual obligation or to legitimately demand a change in the terms of a long-term agreement.

For this reason, and in the hope that the current state of emergency is only temporary, it’s worth thinking about how we can temporarily amend a long-term contract in consultation with the counterparty, rather than considering unilateral steps that may be challenged on legal grounds.

2. Treat your employment contracts with care

Many businesses may feel that now’s the right time to lay off all or some of their employees. However, it’s worth bearing in mind that the rules on dismissal and group layoffs have not changed because of the crisis. Therefore, any such measure, if not suitably substantiated, carries the very real risk of a legal dispute.

Instead of dismissal, it may be worth trying to reduce your personnel costs through alternative means. Firstly, the government decrees that have been published recently provide very broad legal avenues for doing just this. Secondly, in the present situation it’s easier to agree with employees on solutions that may have seemed somewhat odd in the past. In addition, solutions such as these can boost the loyalty of your employees and reduce recruitment costs when you come to restarting production later on.

3. Be careful before withdrawing assets or selling the business

In an insolvency situation, many business owners are likely to be thinking about how the valuable assets of their business might be rescued from the “sinking ship”. There are a number of solutions circulating in practice for documenting this sort of thing that push the boundaries of legality.

It’s worth bearing in mind that if your business is already under threat of insolvency, any such withdrawal of assets can be classed as illegal. If the company does go into liquidation, the liquidator has broad powers to challenge these transactions. Not to mention the fact that an illegal withdrawal of assets can easily be classed as a criminal offence. Therefore, even in this situation, it may be worth entering into talks with your business partner rather than taking unilateral action.

In an insolvency situation, selling your business quickly may not solve your problems either. The seller and majority owner may later, in the event of liquidation, be liable to the extent of all of his or her assets for any debts that are not covered by the company’s assets.

4. Debt repayment moratorium: all that glitters is not gold

The government decree of 18 March provided a credit repayment moratorium: principal, interest or fee payment obligations arising from credit and loan agreements and financial lease agreements will not become due until 31 December 2020. But are you sure you’d be better off with the moratorium?

A bit of caution wouldn’t hurt here either. The unpaid amounts of principal, interest and fees are to be repaid after the expiry of the moratorium, so this is not a waiver but just a temporary grace period. Since we currently don’t know how the overdue amounts will be managed, the non-payment of outstanding loan instalments may be decidedly disadvantageous for some debtors due to a longer repayment period or a different repayment profile. In such cases it may, therefore, be worth requesting a reinstatement of the loan repayments in accordance with the original contract by sending a statement to the financing bank.

5. Don’t fail to pay tax!

There have been a lot of ambiguous explanations in recent days about whether taxes should be paid. This was due to the fact that, according to one of the “crisis decrees”, tax enforcement procedures in progress on the day that the decree came into force were suspended. However, this is nothing more than what it seems: the tax enforcements that were in progress on 24 March have simply been put on hold. Therefore, those who do not pay any one or more of their taxes after this period is up will again be subject to tax enforcement procedures, as they had been before. Think about it: a budget that will soon lose a significant portion of its revenues anyway cannot afford not to collect taxes!

If you’re still unable to pay your taxes under the current circumstances, it’s worth requesting payment by instalments or a deferral. These requests are being treated more tolerantly than usual by the tax authorities.

By Levente Bihari, Senior Attorney, Jalsovszky

 

Protecting workplaces and businesses is of foremost importance amidst fighting COVID-19. In order to so, Hungary – like most of other developed countries – also introduced numerous emergency tax measures in the past few weeks, as follows:

1. Exemption from social contributions. Employers and employees in sectors most effected by COVID 2019 (hospitality, tourism, taxi, sport, etc.) are exempted from payment of social contributions. This means that qualifying employers are relieved of contributions of 19% on the gross salary of their employers, while their employees, as a general rule, should see a rise of their net salary with at least 15%. Given the emergency, however, in practice the distribution of the gains from the exemption might be up to the agreement between the parties to retain the workplace, at all.
2. KATA relief. Hungary implemented a specific exemption from the so-called KATA (‘Fixed-rate tax of low tax-bracket enterprises’) in the concerned sectors. The scope of the exemption also includes hospitality, tourism, taxi, sport and construction industry services.

Both social contribution and KATA exemptions apply to businesses with at least 30% of their income from the specified sectors and temporarily, for periods between March – June 2020.

1. Tourism development contribution. Taxpayers – restaurants and accommodation providers – are exempted from tourism development contribution of 4% for the period for periods between March – June 2020.
2. Procedural rules. Enforcement of outstanding tax debts has been suspended indefinitely, until the end of the emergency plus 15 days.

Additionally, in accordance with the general rules taxpayers with liquidity problems can apply for payment facilitation (deferral or installments). The Hungarian tax authority declared their intention of taking greater account of those suffering the effects of COVID-19 most.

There have been already indications of additional sector specific taxes, for instance contribution required from banks and financial institutions. The details of those measure, however, are yet to be published. 

This is a busy period for tax developments with rapidly emerging tax and fiscal policy to be expected. Those measures will be crucial to many businesses directly impacting their day-to-day operations.

By Balint Zsoldos, Head of Tax, KCG Partners Law Firm

With regard to the state of emergency the Hungarian Government has passed several employment related laws. According to Government Decree no. 47/2020, the provisions of the Labour Code shall be applied with several modifications during the term of state of emergency caused by the coronavirus pandemic. The purpose of the modifications is to make the employment regulations more flexible and to enable the employers and employees to adapt to the challenges caused by the pandemic.

The most significant modification is that during the term of state of emergency, the employee and employer may deviate from the provisions of the Labour Code with mutual consent, even for the detriment of the employee. Other employment law provisions of the Government Decree shall be applied until 30 days after the termination of the state of emergency. According to the new provisions, the employers may unilaterally require the employees to perform work within the framework of ‘home office’ or ‘teleworking’. Another amendment relates to the working time schedule. Under the original provisions of the Labour Code, the employers had to notify the employees about the working time schedule one week in advance, and it was possible to modify it at least 96 hours before the commencement of the working day. According to the new provisions, the employer may modify the working time schedule without any restrictions. Furthermore, the Government Decree enables the employers to check the health conditions of the employees.

On 10 April 2020, in the framework of Economy Protection Action Plan, the Government published new decrees which also contain relevant employment provisions. According to Government Decree no. 104/2020, the employer may require the employee to perform work within the framework of a work time cycle (‘munkaidőkeret’ in Hungarian), the duration of which may be maximum 2 years. According to the original provisions of the Labour Code, the maximum length of the work time cycle could be 4 months (or 6 months in specific jobs) or 3 years under the provision of collective agreement. The main advantage of the work time cycle is that it allows the employer to schedule the working time irregularly within a longer period. Government Decree no. 105/2020 introduced the state-aided part-time employment scheme, under which if the employer undertakes not to terminate the employees’ employment relationship, but decides to employ them on a part time basis, the state will provide compensation for the employees for the loss of their salaries resulting from the reduced working hours.

By Levente Csengery, Partner, KCG Partners Law Firm

In the third week of March 2020, the prime minister of Hungary has announced that certain measures will be issued by the Government to ease the economic effects of the COVID-19 pandemic.

These measures included tax exemption from the fixed-rate tax of low tax-bracket enterprises (KATA) for more than 80 thousand small businesses until 30 June 2020. In addition to the above tax exemption, arrears incurred before 1 March 2020 are deferred, while the media and the hospitality sector will be exempt from contributions. Evictions and seizures are suspended, and tax enforcement is also suspended until the end of the emergency. The entitlement to health insurance and family support benefits provided with regard to the care and upbringing of children is also extended until the end of the emergency. Furthermore, the repayment of bank loans is also suspended.

The actions listed above became the first phase of the economic action plan, which is said to have three phases. The second phase was announced 6 April 2020, which contains 5 programs, amounting to 18-20% of the Hungarian GDP. The following programs are included in the second phase:

1. Preservation of Workplaces. In case a company can only employ certain staff within shortened work hours, the Government is ready to take over part of the wage costs. This aid is provided for three months after the mutual application of the employer and the employee. The amount of the aid is 70% of the monthly absence fee determined on the date of the declaration of the emergency, minus the personal income tax advance and contributions determined in accordance with the general rules, either for 30, 40 or 50% of the lost working time. For this program, the Government expects to spend HUF 60 billion per month.
2. Creation of Workplaces. The Government supports investments worth HUF 450 billion. The main goal of this program is to create the same amount of new jobs as the amount of jobs that the COVID-19 pandemic destroys in Hungary.
3. Restarting Certain Sectors. This program affects sectors of the national economy that need to be restarted due to the present difficult circumstances caused by COVID-19. These include tourism, healthcare, food, agriculture, construction, logistics, transportation and the creative industries.
4. Financing Companies. In this program the Hungarian State provides interest-rate and guarantee-subsidized loans to Hungarian companies. This aid is calculated to be worth more than HUF 2,000 billion.
5. Helping Families and Pensioners. The prime minister announced the reinstitution of the earlier 13-month pension. In February 2021, in addition to the January pension, retirees will receive a 1-week pension and this will happen in 2022, 2023 and 2024 as well.

Due to the above programs, the deficit-to-GDP ratio of Hungary is raised to 2.7%, instead of the originally planned 1%. Until now the Hungarian Government has spent HUF 380 billion on defense equipment, preparation and the construction of epidemic hospitals. According to the current calculations, HUF 3,000 billion would be needed to protect and restart the economy, which makes this three-phase action plan the greatest governmental intervention in the history of Hungary.

By Eszter Kamocsay-Berta, Managing partner, KCG Partners Law Firm