Category: Hungary

After spending the last five months as a sole practitioner, former Dentons Partner Gabor Kiraly has rejoined CMS as Of Counsel in its banking, finance, and capital markets team.

Before the move, Kiraly spent more than eight years with Dentons between 2015 and 2024, the last two and a half of which as Partner. Between 2013 and 2015 he spent more time as a sole practitioner and, earlier, he was the Deputy CEO of CIB Bank between 2008 and 2013. Between 2002 and 2007, Kiraly was a Partner with CMS’ Hungary office. He started his career in 1992 with the National Bank of Hungary where he stayed for almost ten years.

“I’m really happy to be back at CMS Hungary, where I spent five pivotal years of my career,” Kiraly said. “I’m eager to help drive success for our clients and the firm.”

“We’re very pleased to welcome Gabor back,” added CMS Hungary Managing Partner and Head of the Finance practice Erika Papp. “His deep knowledge of the financial markets and broad experience will be a great asset to our practice.”

Starting from 1 January 2025, Hungary moves to a fully electronic land registry system following many delays and the potential benefits are transformative. The push for this modernization began in the 2010s, spurred by the success of electronic property registration systems across Europe. Countries like Austria and the Czech Republic have been using electronic land registries since 2001, with Slovakia, Romania, Poland, and most recently Bulgaria following suit in 2021. While these countries maintain paper-based options, the shift toward digital processes has proven advantageous.

What Will the New System Bring?

• Accelerated Processing:

Imagine cutting through the red tape with ease. The new electronic land registry will make this a reality by requiring all applications to be submitted digitally. No more delays caused by manual paperwork – this streamlined approach promises quicker resolutions and a more efficient process overall.

• Automatic Decision-Making:

Gone are the days of waiting weeks for decisions. With automatic decision-making, the system will update ownership changes in the land register within 24 hours, all without human intervention. A safeguard allows clients to request a full procedure within five days, ensuring accuracy without sacrificing speed.

• Mandatory Legal Representation:

To ensure the integrity of the process, legal representation will be mandatory for all applications. Only specially trained and certified attorneys, in-house counsel, or notaries will be authorized to navigate this digital landscape, bringing a new level of professionalism and security to property transactions.

• Three-Dimensional Land Registry:

Say goodbye to the limitations of a flat, two-dimensional registry. The new system will introduce a three-dimensional representation, allowing for accurate mapping of properties that overlap vertically such as underground structures. This innovation will make the registry more precise and adaptable to complex property arrangements.

• Electronic Signatures:

One of the most significant innovations, and perhaps challenges, is the requirement for electronic signatures from all involved parties. These signatures can be executed through various methods, including electronic ID cards, authorized electronic signatures, or visits to a government gate office. While this step adds an extra layer of trust by ensuring secure authentication, it may take some time for individuals to become accustomed to the new process.

A Leap Forward for Hungary

The transition to an electronic land registry is more than just a technological upgrade – it’s a leap into the future. By modernizing property registration, land formation, land transactions, and agricultural land protection, Hungary is not only streamlining processes but also reducing costs and boosting its economic competitiveness. The new law maintains the 170-year tradition of thoroughness, documentation, and transparency while aligning the registry with the needs of the 21st century. This digital transformation promises a faster, more secure, and more efficient way of handling property transactions, positioning Hungary as a forward-thinking leader in land management.

By Denes Glavatity, Attorney at Law, KCG Partners Law Firm

With preparations for the 2024 CEE Legal Matters Hungary General Counsel Summit in full swing, DLA Piper Partner and Head of Energy and Procurement in Budapest Gabor Simon shares his thoughts about the upcoming event and what he’s looking forward to the most.

CEELM: Why did DLA Piper Hungary find participating in this event important?

Simon: We saw it as a great opportunity for firms to meet in person with GCs. Events like this have been very successful in the past, which is why we were eager to participate, especially when it came to Budapest. I’ve spoken with a few GCs, and they were genuinely enthusiastic about the opportunity. It’s been a while since we’ve had such chances, especially since COVID-19, as many of us, including GCs, have been working remotely.

A lot of lawyers are still working from home, and there are fewer opportunities for face-to-face meetings. While we stay connected through different video-conferencing tools, nothing beats in-person interactions for building relationships and discussing both personal and professional matters. This event provides the perfect platform to not only catch up but also discover what’s currently on their minds. It’s also a chance to meet colleagues and partners, further strengthening those relationships.

The involvement of CEE Legal Matters also assured us that the conference will be valuable. This year is particularly important for us as it marks the 20th anniversary of DLA Piper Hungary and the 35th anniversary of our firm, making it a significant year where we’ve put a lot of thought into how to celebrate and promote our achievements.

CEELM: What are you most excited about for the Hungarian GC Summit?

Simon: What excites me the most, aside from the planned discussions, is the chance to understand the main focus areas for GCs. While I focus on energy law, I’m also curious about broader topics that are shaping the Hungarian legal scene, which are important for GCs as well. Gaining insights into these topics is crucial, and I look forward to hearing more about them.

Moreover, meeting our partners and clients in person is invaluable, but I’m also eager to connect with GCs we haven’t yet worked with. For DLA Piper Hungary, this event offers a real possibility to start new collaborations.

CEELM: What topics are you interested in when it comes to panel discussions?

Simon: Working in an integrated advisory firm – providing not only legal but tax and business advisory services – I always strive to find a business solution, not only a legal answer to a specific question. That is why I think it’s very important to keep the conference engaging, and to address topics that are not only legally relevant but also practical. I’d particularly like to see a focus on methodologies – how GCs can address processes and solve common challenges in managing in-house legal functions. These more methodological discussions are often more compelling and useful than presentations that solely focus on specific pieces of legislation.

CEELM: You said you’ve already been in touch with a few GCs. What would you recommend as the key reasons for them to attend this event?

Simon: When promoting this event, I’ve emphasized that it’s a fantastic platform to hear presentations on the most pressing issues in their work lives. It’s an opportunity to discuss the main challenges they face and to brainstorm solutions with their peers. Another significant aspect is the chance to meet people in person, which is becoming rarer, and to be introduced to others in a relaxed and friendly setting. This will allow for fruitful conversations about the common challenges they face.

The GCs I’ve spoken to have found these selling points very relevant. Many were excited and happy to register, knowing they’d get both valuable insights and the chance to reconnect face-to-face.

The 2024 CEE Legal Matters Hungary General Counsel Summit is sponsored by Jalsovszky, Oppenheim, Schoenherr, Addleshaw Goddard, DLA Piper, and PONTES Budapest and is organized in partnership with the Hungarian Corporate Compliance Society. Find out more about the event here or register to attend here.

With preparations for the 2024 CEE Legal Matters Hungary General Counsel Summit in full swing, Marton Eorsi, a Corporate Finance Partner at Addleshaw Goddard’s London office, shares his thoughts about the upcoming event and what he’s looking forward to the most.

CEELM: Why did Addleshaw Goddard decide to participate in the CEE Legal Matters GC Summit in Hungary?

Eorsi: CEE is a relatively new market for us, and we’ve been working on raising our profile in the region. We wanted to increase our visibility and really get on the ground to understand the local offerings better. The CEE Legal Matters GC Summit is particularly attractive because of its breadth – it is poised to draw a topical and diverse audience that aligns well with the sort of people we want to meet. We don’t want to confine our exposure to a specific sector, product, or market and the GC Summit gives us a chance to engage with a broader audience.

Furthermore, choosing Hungary is a strategic decision. We wanted an excuse to be in-country, and when this event came up, it felt like a perfect fit. We had already experienced success at a similar regional event in Warsaw, so we knew this format worked well for us. Plus, the summit itself won’t be overcrowded with competitors, which will allow us to stand out more. Of course, it goes without saying that our existing relationship with CEE Legal Matters also played a role in our decision to participate.

CEELM: What are you most looking forward to at the GC Summit?

Eorsi: For us, it’s all about networking. These events offer a fantastic opportunity to reconnect with old contacts and meet new ones. There’s always an interesting mix of people attending, and I’m consistently impressed by the variety of professionals I meet. This time it appears it will be no different and I’m firmly looking forward to reconnecting with people I’ve met a few times before while also expanding my network.

CEELM: And what about the panels and the content of the summit themselves – what are your expectations?

Eorsi: Overall, I particularly enjoy the kinds of sessions that touch on controversial topics, especially those that spark genuine debate among the participants. To that end, I’m very much looking forward to these kinds of discussions. For example, I expect the exchanges concerning AI topics to be particularly engaging; it’s one of those subjects where people often have strong, divergent opinions, and that always makes for lively and thought-provoking conversations.

CEELM: Why should General Counsels make sure to attend this summit?

Eorsi: This summit is tailored towards GCs, which makes it unique because it addresses the real issue of networking among peers. GCs often attend sector-specific conferences, but they rarely get the chance to connect with others facing similar challenges across different industries. 

This event allows them to share common issues, irrespective of their sectors, and discuss their career paths in a candid environment. It’s a fantastic space for them to engage and find common ground, and for us, it’s an invaluable opportunity to understand their needs better.

The 2024 CEE Legal Matters Hungary General Counsel Summit is sponsored by Jalsovszky, Oppenheim, Schoenherr, Addleshaw Goddard, DLA Piper, and PONTES Budapest and is organized in partnership with the Hungarian Corporate Compliance Society. Find out more about the event here or register to attend here.

Manufacturers have less than a month left – until June 30, 2024 – before they must comply with the rules for products subject to the mandatory Deposit Refund System (DRS) when placing them on the market. Compliance with the new regulations will result in a price increase of HUF 50 per product, which consumers will have to bear – unless they return the relevant beverage cans and bottles.

The DRS, or mandatory deposit refund system, has been gradually rolled out since last fall. Products under the DRS (excluding dairy products and covering beverage packaging with a capacity of 100 ml to 3 liters in glass, metal, or plastic bottles or cans) are now classified as mandatory deposit products. The new system introduces regulations that include various reporting and fee obligations when placing these products on the market.

From Next Month, Only Registered Products Can Be Sold

Since November 15 last year, manufacturers have been required to register (effectively obtain approval) for the affected products. Market participants were given a grace period until July 2024. However, those who have not yet started preparing for the transition are already late, as registration must be completed at least 45 days before the product is placed on the market with the concession partner (MOHU Zrt.).

Without proper registration, products under the DRS cannot be placed on the market. Moreover, improperly marketed products will be recalled by the national waste management authority, along with the application of other sanctions. It’s important to note that the grace period, which lasts for less than a month, also allows for certain exceptions. Products placed on the market until June 30, 2024, may continue to be sold under pre-November 15, 2023, rules due to the nature of the regulation. The saleability of these products will largely depend on their expiration dates, and their collection will not occur under the DRS; the waste should be placed in selective recycling bins as before.

No Exemptions from the Deposit Fee

Starting in July, manufacturers will also face various payment obligations. Depending on their production volume, they must pay a membership and service fee to MOHU Zrt., as well as advance the deposit fee (HUF 50 per item) for non-reusable products under the DRS. (The deposit fee for reusable products, set by the manufacturers, must be refunded to the retailer or consumer at the time of return). For each unreturned product, however, the deposit fee becomes the ’profit’ of MOHU Zrt.

Although it might seem that MOHU Zrt. would benefit from fewer product returns, this is not the case. Under European Union regulations, MOHU Zrt. is required to achieve a 90 percent PET bottle return rate by 2029. To support this goal, the “extra income” must be used for campaigns to promote consumer awareness of returning products and to operate and develop the deposit system.

Small Producers Are Exempt from DRS Requirements

It’s worth noting that a year-end amendment excluded ‘small-scale producers’ from the scope of the DRS. This likely benefits smaller wineries, allowing producers who placed no more than 5,000 deposit-bearing products on the market in the previous year to be exempt from the DRS. Bottles sold after July 1 will not be subject to DRS obligations, and they will not be burdened with the accompanying requirements.

Retro Experience: In-Store Returns Are Back

The other major component of the DRS is the return system itself. The regulation places more responsibility on retailers, as they must handle the physical return process. All retailers are required to offer product returns during their full opening hours, but grocery stores with a sales area larger than 400 square meters must also install return machines for non-reusable products provided by MOHU Zrt.

No EPR or Product Fee with DRS

Although some DRS products are also covered by the EPR system, the relevant regulation states that EPR fees and the DRS membership and service fees cannot be charged simultaneously. If the DRS membership and service fee have been paid, no EPR fee is required for the product.

Additionally, there is no product fee obligation for DRS-covered products if they are part of the deposit refund system.

By Henrik Bereznai, Attorney, Jalsovszky

In the Hungarian Gazette of 8 August 2024, four long-awaited decrees were published, which supplement and detail the provisions of the Hungarian ESG Act.

The decrees contain provisions in particular on the accreditation procedure and registration of ESG consultants, accreditation requirements and education of ESG consultants and criteria for institutions providing education for ESG consultants. Three of the four decrees entered into force on 9 August and one entered into force on 12 August.

Detailed procedural rules for the accreditation of institutions providing education for ESG consultants have been laid down. Accreditation under the Government decree is carried out by the Enterprise Development Agency (Magyar Gazdaságfejlesztési Ügynökség) and applications for accreditation may be submitted by recognised upper education institutions. The second (NGM) decree sets out provisions on the requirements for the accreditation of institutions providing education, the register of accredited institutions, the education of ESG consultants and fees for education and examination. Requirements for accreditation include, inter alia, that the applicant institution is not subject to bankruptcy or liquidation proceedings, is a taxpayer without public debt, and has at least two instructors who are registered as accredited ESG consultants under the ESG Act. The applicant shall also declare that it keeps the ESG course material up to date and will take on the task of providing further education for ESG consultants, by providing at least fifty hours of training and organising a professional conference. The register of accredited institutions is kept by the Enterprise Development Agency. The specific conditions for ESG consultant education and the minimum requirements for the course material are set out in Annex 1 of the NGM decree.

The requirements for accreditation as an ESG consultant are set out in an NGM regulation, under which both natural and legal persons can be accredited. According to this NGM regulation, in procedures initiated by 30 June 2025, the accreditation of ESG consultants is not conditional on the acquisition of a qualification, but only on the proof of a specific period of professional practice. In addition to other conditions for accreditation, legal entities must employ at least two natural persons who are registered as ESG consultants and who are employed or otherwise engaged in an employment relationship with the legal entity for at least 30 hours per week.

The fourth (SZTFH) decree sets out the rules of procedure for accreditation as an ESG consultant and the registration of ESG consultants, which is carried out by the Supervisory Authority for Regulated Activities (SZTFH).

We are still waiting for the publication of regulations which set out important detailed rules for the application of the provisions of the ESG Act, thus monitoring the legislation is highly recommended.

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

As in every year, the Hungarian tax administration has published its yearly summary with the most important trends and numbers regarding taxation in Hungary during 2023. In the last year it seemed that, while the tax authority was still increasing its efforts to entice the taxpayers’ voluntary compliance, fines have also soared to unprecedented heights. The statistics also show that it remains worthwhile to take the case to the courts if one finds the National Tax and Customs Administration’s decisions unlawful.

Less Tax Audits, Yet Higher Tax Revenue

In 2023, the tax authority conducted approximately 150,000 tax audits, slightly less than in 2022. Over 90% of these audits were some form of compliance check, while only 8,700 tax audits were full-scale tax inspections that closed the respective taxpayers’ right to amend their declarations regarding the affected tax period (down from previous year’s 11,000 such audits). This minor shift reflects a change in the tax authority’s audit strategy. The focus is no longer primarily on penalizing taxpayers for errors they made, but rather on persuading them to comply with the relevant laws through preventive checks. As part of this, the tax authority essentially asks taxpayers to pay any forgotten or incorrectly reported taxes and to correct their returns.

This change in approach seems to be effective. Although the amount of tax discrepancies identified during audits dropped from 2022’s HUF 225 billion to HUF 152 billion, the state’s total tax revenue in 2023 was significantly higher than the previous year’s. Tax revenues in 2023 exceeded the previous year’s by HUF 3,200 billion, a 15.5% increase.

No Mercy for Rule-Breakers

One striking figure from the yearbook is that in 2023, the tax authority imposed a record amount of HUF 143.9 billion in late payment interests for overdue or unpaid taxes. In 2022, this figure was just HUF 55 billion, meaning the amount of late payment interests more than doubled in one year. While this increase can partly be explained by the sharp rise in the central bank’s base interest rate from mid-2022, which naturally raised late payment interests during this period, tax policy reasons are also likely behind the more than 2.5-fold increase in these penalties.

Similarly, the NAV imposed a total of HUF 13 billion in fines in 2023 solely for failures to submit tax returns. While this number may not seem exceptionally high, it should be noted that it comprises fines of up to HUF 500,000 each. Moreover, this figure is expected to increase further, as a decree effective from August 1 2024, has doubled the previously unchanged non-compliance fines.

If One Disagrees, Its Best to Take the Case to the Court

If one gets caught by the tax administration, it can be quite daunting to know that the success rate for appeals remains very low: in the past year, the Appeals Directorate ruled in favor of taxpayers in only 11.8% of the cases. However, the chances appear to improve if the taxpayer continues the dispute in court. In 2023, district courts ruled in favor of taxpayers in 16.7% of cases, and the Hungarian High Court subsequently changed or annulled the tax authority’s decisions in 25.5% of the cases.

This means that – although taxpayers’ success rate in court cases has slightly declined compared to previous years – taxpayers still receive a favorable ruling in almost 50% of the disputed cases. Moreover, involving an experienced tax litigation attorney can further increase the likelihood of a successful outcome.

Surprisingly, however, after loosing to the second instance tax authority, less than a fifth of the taxpayers takes their case to the court. This strategy is least advantageous, for one, because it results in a missed opportunity for the so-called conditional tax fine reduction. According to this incentive, if the taxpayer waives its right to appeal (and pays the tax discrepancy assessed by the first instance), they are only required to pay half of the imposed tax fine. This provision encourages taxpayers not to continue fighting the tax authority, but it can only be used before filing an appeal.

This clearly shows that taxpayers should make their critical decision before appealing—not afterward. However, if they do decide to continue challenging the tax administration’s decision, one must prepare to continue its case before the court.

Tax Registration Remains a Major Challenge

Another interesting figure from the yearbook is that more than one-third of new companies faced some form of tax registration obstacle. This high rate is quite alarming.

It’s important to be aware that the closure of a previous company, the cancellation of its tax number, or other similar issues can easily lead to the tax authority denying a tax number for one’s new company – whether one is involved as an owner or as an executive officer. Moreover, the existence of such obstacles often only becomes known much later, when no legal remedy is available anymore. Therefore, caution is advised if any such event arises.

By Dániel Veres, Advisor, Jalsovszsky

Default penalty amounts generally has been doubled in Hungary as of 1 August 2024. According to the Governmental Decree published in the Hungarian Gazette on 8 July 2024, overwriting the Act on the Rules of Taxation, the increase is due to the Ukrainian war and is theoretically effective by the end of the emergency period.

According to the amendments published in the Hungarian Gazette, as of 1 August 2024, the amounts of the default penalty that can be imposed by the Hungarian tax authority (NAV) as a general default penalty is capped:

• for natural persons at HUF 400,000 (instead of HUF 200,000);
• for legal entities (non-natural persons) at HUF 1 million (instead of HUF 500,000).

The specific default penalty cap is also increased from HUF 1 million to HUF 2 million for employing undeclared workers, failing to issue a proper invoice or receipt or in compliance with archiving rules.

The current changes do not introduce any new penalty scenarios in the Act on the Rules of Taxation, ‘only’ the amounts of the penalties are increased. The new penalty amounts will apply to taxpayers who fail to fulfil their tax obligations due after 1 August 2024 and can be already applied during the targeted tax inspections by the tax authority at the popular holiday sites in the remainder of the summer season.

As mentioned, the increase has been introduced via a governmental decree for the state of emergency, period, the Act on the Rules of Taxation has not been formally changed. Based on recent experience and also taking into consideration the inflation in past few years in Hungary as well, it is expected that the increased amounts will stay with us permanently.

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

Hungary’s growing economic performance and competitive tax system offer a good business environment for companies from Switzerland, while the presence of Hungarian companies in Switzerland is also growing.

Switzerland is the 9th largest investor in Hungary, and Swiss companies employ around 30,000 people in Hungary. Last year, trade between the two countries exceeded €2 billion. The Hungarian-Swiss double taxation is governed by a bilateral tax treaty signed originally in 1981, and later updated in 2013. With its newest amendment, it will reflect international reforms and economic relations between the two countries will be further strengthened, which is a priority for both sides.

The convention covers taxes on income and wealth and regulates the scope of the taxing rights of each contracting party with respect to each type of income (dividends, interest, royalties, income from self-employment and non-self-employment, etc.) and wealth, thus excluding double taxation of the income and wealth of individuals and companies.

In addition to eliminating double taxation of the income and assets of both individuals and companies, double tax conventions create the possibility for mutual conciliation between the contracting parties and the exchange of information between authorities and contribute significantly to economic whitening. In 2024, Hungary will maintain double tax treaties with around 75 countries, ensuring efficient tax treatment of international business and personal income. However, particular attention should be paid to changes and exceptions that may affect the application of the conventions.

By Denes Glavatity, Attorney at Law, KCG Partners Law Firm

On 8 August 2024, a new Government decree was published on the designation and operating conditions of the building authorities.

The decree stipulates that the Government may designate the Government Office of the Capital and the Government Offices of the Counties as the general building authority for carrying out the tasks related to the building authority, such as the buildings and their construction activities. Exceptions to this are the specific types of structures, and also certain buildings listed in Annex 1 of the Government decree on the rules for the establishment, development and closure of airports and for the establishment and closure of landing sites. These include the terminal, the passenger or cargo building, the hangar building for the storage or maintenance of aircraft (except for mobile hangars), and the control tower building. In addition, this regulation also excludes the building authority matters that do not pertain to railway station buildings on underground railways. Furthermore, the Government appointed the heritage protection authority as the building authority responsible for overseeing tasks related to monumental buildings, their plots of land, and the monumental property of national monument status. However, in cases where either the Government Office of the Capital or the Government Offices of the Counties is the owner, trustee or user of the land, building or part of a building affected by the construction activities, the functions of the building authority will be performed by a substitute Government Office.

The decree also stipulates that, except for buildings intended for the use of nuclear energy, the building authority of the principal use for which the building is intended shall act as the authorising authority if a new building is constructed for multiple use, and several building authorities, other than the principal building authority, are competent to authorise the separate use units to be built in this building.

The functions of the building authority of the Government Office of the Capital and the Government Offices of the Counties are exercised by the Minister responsible for building regulation and building authority matters. The decree will enter into force on 1 October 2024, by repealing the former Government decree on the designation and operating conditions of the building and building supervision authorities.

By Gabriella Galik, Founding Partner, KCG Partners Law Firm