Category: Hungary

Negotiations on next year’s wages started at the beginning of October 2023, with stakeholders – employers and trade unions representing workers – and the government as an observer taking part in the wage negotiations, which can last several weeks.

At this so-called Permanent Consultation Forum of the Private Sector and the Government (hereinafter: “VKF”), both employers and employees agreed to give the employees a one-off wage compensation of HUF 100,000 at the end of this year due to the fall in real wages. The significance of this compensation plays an important role in reducing the purchasing power of wages, as the minimum wage has increased by 16% and the guaranteed minimum wage by 14% this year, while inflation is expected to rise to 18%. In addition to the tax-free wage compensation, the planned increase in the minimum wage and the guaranteed minimum wage was also discussed, with the minimum wage set to rise by 15% and the guaranteed minimum wage by 10% next year. The consultation also brought forward a strategy to 2027 that would focus on the EU’s minimum wage plans, with the long-term goal of merging the minimum wage and the guaranteed minimum wage, after which skilled workers could earn more with the wage floors set by sectoral collective agreements. These proposals have been submitted to the government by the stakeholders.

However, at the end of October, the one-off wage compensation initiative was dropped, as one-off wage compensation proposal was seen as flawed by its optional nature, which would have meant that it could not have been guaranteed that both minimum wage earners and guaranteed minimum wage earners would receive this benefit. Finally, the employees’ and employers’ group suggested a new alternative by bringing forward the minimum wage increase to 2024, it was a welcomed solution by the government.

On 16 November, at the VKF meeting, after lengthy discussions the parties concerned finally reached an agreement. Accordingly, the minimum wage in 2024 will increase by 15% to HUF 266,800, while the guaranteed minimum wage will rise by 10% to HUF 326,040. In addition, minimum earnings could rise sooner, as early as December 2023. Furthermore, following the announcement by the Ministry of Economic Development, the participants agreed to make a recommendation to maintain the real value of wages in the competitive sector for 2024, taking into account the possibilities, and therefore all companies are encouraged to further increase wages according to their own business, financial and wage market situation. The parties also initiated further discussions on the concept of a renewal of the wage system in such a way that wages can maintain their purchasing power in the long term.

By Levente Csengery, Partner, KCG Partners

A legislative proposal has been submitted in November 2023 on the system of utilization of national data assets. The primary objective of the proposal is to ensure the applicability of the data governance regulation in Hungary and to make the existing laws on secondary usage of the national data assets coherent in a regulatory environment. The scope of the proposal covers services related to the use of data processed by public authorities, the performance of other related public tasks and data collection and analysis in support of government decision-making.

In order to ensure the lawfulness and security of secondary usage of data assets, the proposal lays down a number of principles which the authorities regulated by the act are obliged to follow. According to the principle of transparency, in order to provide adequate information and transparency, the authority is obliged to use the National Public Data Portal to publish the public data listed in Annex 1 of the Privacy Act. The principle of exclusivity prohibits the authority to conclude agreements that grant exclusive rights regarding the secondary usage of national data assets. Non-discrimination must also apply to the processing of data and fulfilment of requests.

The proposal indicates institutions supporting the utilization of national data assets. The Minister responsible for the implementation of national data asset management is expected to coordinate the performance and completion of obligations regarding the utilization of the national data assets. The National Data Council is to be set up as a decision-preparatory and proposal-making body of the Minister. Its tasks include proposing to the Minister the general principles of national data asset management, the Government’s data policy and its enforcement, and the applicable professional rules. The National Data Agency is a body designated by the Government to perform and coordinate public tasks related to the promotion of the use of national data assets. One of its most important tasks is to coordinate and supervise the utilization of the national data assets from a professional point of view.

The proposal also contains a list of centralised and registration-based data utilization support services. The request for data utilization support services may be submitted electronically to the central or registered service provider. Once requests have been received, the public authority has a cooperation-obligation towards the claimant. This means that the public authority is obliged to make the data available to the service provider and to provide the descriptive information necessary for the processing and further use of the data.

The proposal currently awaits detailed discussion by the Hungarian Parliament.

By Borbala Maglai, Attorney at Law, KCG Partners Law Firm

Under the EU’s Foreign Subsidies Regulation (FSR), companies must notify the European Commission in advance of certain acquisitions, mergers or large public procurement transactions if the groups of companies involved have received financial contributions from outside the EU. Compiling the notification and gathering the necessary information can be a heavy administrative burden for companies, and failure to do so can result in fines of up to 10% of the group’s worldwide turnover.

In essence, the FSR extends the existing EU rules on state aid to countries outside the EU. It aims to ensure a level playing field and to eliminate the impact of subsidies granted directly or indirectly by third countries.

The Regulation applies to any financial contribution that confers an economic advantage limited to one or more undertakings or industries. In addition to direct subsidies, this very broad definition includes, for example, loan guarantees or tax relief, or even when a company provides services or sells products to, or uses services or purchases products from, foreign governments or state-owned enterprises, regardless of whether the remuneration paid is market-based.

The Regulation gives the Commission considerable discretion and powers to intervene and impose sanctions. Fines can be as high as 10% of a group’s worldwide turnover in the event of a breach. Transactions falling under the Regulation require thorough preparation by companies, and it is recommended to prepare an FSR register and risk profile to avoid fines and disruption to their business.

The Commission will intervene if the subsidies have a distortive effect, i.e. they are is likely to improve the beneficiary’s competitive position and have a negative impact on competition in the EU’s internal market. Examples of distortive effects include aid to firms in financial difficulties without which the firm would go bankrupt, unlimited guarantees to cover debts or subsidies that allow a firm to bid unduly advantageously in a public procurement procedure.

What has to be notified and what does the Commission check?

Under the FSR, foreign subsidies can be checked in three ways by the Commission. Mergers with a certain turnover or large public procurements have to be notified to the Commission in advance and can only proceed if approved. In addition, in all other cases, foreign subsidies can be investigated ex officio – even if it falls below the thresholds. The Commission has been able to do this since the Regulation entered into force in July. The rules on mandatory notifications entered into force on 12 October and also apply to transactions that started earlier but were not closed by the October deadline.

A merger is notifiable if at least one of the parties is established in the EU (even with a subsidiary), has a turnover of at least EUR 500 million or has received a financial contribution of at least EUR 50 million from a non-EU country in the previous three years.

Participation in a public procurement procedure requires prior notification if the value of the tender is at least EUR 250 million and the tenderer (or its affiliated companies or even main subcontractors) received a financial contribution of at least EUR 4 million from a non-EU country in the previous three years. A detailed declaration must also be provided for foreign financial contributions below EUR 4 million.

The Commission may also ex officio examine any financial contribution retroactively for a period of ten years (or until 2018 for the period before the Regulation entered into force). It can look back three years in the case of public procurement, but this cannot lead to the annulment of the award decision or the termination of the contract.

By Marton Horanyi, Partner, Baker McKenzie

On 14 November 2023, the Hungarian Government presented a new bill on the entry and residence of third-country nationals in Hungary.

According to the Government’s explanatory memorandum, the new regulation would tighten and clarify the legal titles and conditions of residence and employment of foreign nationals in Hungary. The new regulation would introduce various new residence permits and visa categories. A public consultation on the bill is currently ongoing. According to the proposal, the new rules would enter into force on 1 September 2024.

In particular, new visas and residence permits for visiting investors will also be established. These may be granted to third-country nationals whose entry and stay in Hungary is of national economic interest. Such visitor investor visas will be available to third-country nationals who hold or plan to hold one of the following investments: (a) acquisition of investment units issued by a real estate fund registered by the National Bank of Hungary in the amount of at least EUR 250,000, (b) acquiring ownership of a residential property of a value of at least EUR 500,000 situated in Hungary (c) making a financial donation of at least EUR 1,000,000 to a higher education institution maintained by a public trust with a public-service mission for the purpose of supporting educational, scientific research or artistic creation. The maximum period of validity of a visitor investor visa is 2 years. The visitor investor visa entitles the holder to stay for more than 90 days and to multiple entries within a period of 180 days. The holder of the visitor investor visa (subject to other conditions), may apply for a visitor investor residence permit which is valid for 10 years.

The rules on residence and work of third-country employees would also be changed/tightened. Guest workers will only be allowed to stay in Hungary for a limited period, after which they will have to leave the country. New types of residence permits will be available for guest workers (e.g. seasonal permit, permit issued for the purpose of carrying out an investment project etc.) A new type of residence permit is introduced for highly qualified employees (the Hungarian Card), which entitles its holder with a higher professional qualification to reside in Hungary and to work in Hungary requiring a higher professional qualification.

By Eszter Ila-Horvath, Attorney at Law, KCG Partners Law Firm

The Hungarian Ministry of Finance published its draft legislation for the implementation of the global minimum tax rules in Hungary for public consultation in October 2023. The package also contained some limited reasoning and impact assessment and stakeholders had one week to comment on the proposal.

Global minimum tax is the second of two pillars of the international tax deal that was agreed upon in October 2021 by more than 130 countries to address the tax challenges arising from the digitalisation of the economy and regulate tax competition between tax jurisdictions. Hungary initially was strongly opposing global minimum tax and the implementation was also postponed earlier. Now it seems that the introduction is within sight.

As it was already expected, the 15% minimum tax will apply to any multinational or domestic groups with annual revenues above €750 million, if the revenue threshold is reached or exceeded in at least two of the last four tax years. Parent companies will have to pay supplementary tax on under-taxed group members with a low tax burden.

During the negotiations, most of the debate among EU finance ministers has been about (1) which taxes should and can be included in the minimum tax, i.e. which taxes are covered by the minimum tax and thus can be credited; and (2) the specific practical considerations on how exactly the minimum tax base for groups of companies should be calculated and which tax deductions can be taken into account and in what form.

Different countries apply different types of taxes, and it is not clear in all cases which are considered taxes on profits. For Hungary, the draft contains not just the general criteria for covered taxes (tax charged on the income, revenue or profits of a group member in its accounts; tax charged on distributed profits, deemed distributed profits, etc.) but explicitly states that in particular the following shall be deemed to be a covered tax: corporate income tax, tax, local business tax, income tax on energy suppliers, and innovation levy. The draft also addresses the collection mechanisms – income inclusion rule (IIR), under-taxed payments rule (UTPR) and qualified domestic deduction of additional tax (QDMTT) in details as well as a new, compatible tax incentive regime for R&D.

Global minimum tax is set to come into force as of 2024 – with a transitional period and gradual implementation – but based on the estimation of the impact assessment, the Ministry of Finance expects that the introduction of the minimum tax will generate an extra HUF 96 billion in revenue for the state budget already over the period 2024-2026.

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

In order to boost corporate lending and thus increase economic competitiveness, the legislator recently implemented changes to the Hungarian Companies Act. From 1 January 2024, companies will have to provide additional information about the finances of the company in the registration or modification procedures. In this article, we summarize the new rules and the related deadlines.

The background of the amendment

The share of a member of a limited liability company (LLC) is represented by the business share, which is a marketable asset with a pecuniary value and can therefore serve as collateral for a lien. This is achieved by the mortgage on the business share. In order to ensure that the share thus pledged remains intact, a restraint on alienation and encumbrance of the business share is usually imposed in favour of the banks.

Until now, however, the extent of the right of pledge has not been known to third parties from the register of companies, but only the fact of the right of pledge.

The preamble of the Companies Act states that the purpose of the register of companies is to ensure the publicity of the data contained in the authentic register of companies in the interests of the constitutional rights of entrepreneurs, the security of economic transactions and the protection of creditors’ interests.

However, the existing legislation has left a gap that has not allowed full transparency, making it difficult for the lending practices that fuel the economy.

The need for the above has long been recognised, as the public and authentic land register, which also operates in respect of real estate used as collateral, has long been operating according to the same principles and contains detailed information on liens and restraint on alienation and encumbrance.

What will change?

The lien on the business share had to be declared, but until now only the details of the contracting parties and the subject of the lien had to be indicated.

From 1^st January 2024, the following information has been added to the registration requirements for LCC:

• in the case of a lien on a business share, the amount of the claim secured by the lien or the amount up to which the lienholder may seek satisfaction,
• restraint on alienation and encumbrance or on separate alienation,
• the sub-lien (a sub-lien may be created by pledging a claim secured by a lien)

Deadline

Therefore, from 1^st January 2024, a lien on a business share, restraint on alienation and encumbrance or on separate alienation of a business share and a sub-lien created by pledging a lien on a business share must be notified as above.

Those who have registered the details of a pledge on a share under the previous rules will be required to do so in the next amendment to other details of the register of companies, in a company modification procedure submitted by 31^st December 2024 at the latest, without paying any fee or publication costs.

By Agnes Bartus, Junior Associate, SmartLegal Schmidt & Partners

AegisLegal and Kalman & Partners have advised Biggeorge REIT Nyrt on the successful listing of its shares on the Budapest Stock Exchange. Duda & Csako reportedly also advised on the listing.

Biggeorge REIT, operating as a regulated real estate investment trust, made its debut on the standard section of the Budapest Stock Exchange and currently focuses on industrial park developments.

According to AegisLegal, Biggeorge REIT’s majority shareholder – Biggeorge Property – “is a key player in the real estate market, primarily involved in residential and logistics real estate development, property investment, and fund management.”

The AegisLegal team was led by Partners Stella Simon and Gabor Perger and included Junior Lawyer Nikolett Hevesi.

The Kalman & Partners team included Partner Bence Magyari and Of Counsel Aniko Vadasz.

Deloitte Legal has advised Shopper Park Plus on its euro-denominated share issuance on the Budapest Stock Exchange. Huempfner & Associates and Allen & Overy reportedly advised on the matter as well.

Shopper Park Plus owns a portfolio of 18 retail properties in Central and Eastern Europe.

According to the Budapest Stock Exchange, this was the first ever Euro-based share issuance it has hosted.

“Through an initial public offering, Shopper Park Plus raised a total of EUR 37.2 million in capital, placing its shares into the BSE Premium Category […] It aims to become the owner and operator of the biggest shopping park in the region in the medium term, and going public could do a lot to help it achieve this goal,” the BSE announced.

The Deloitte Legal team included Partners Linda Al Sallami, Peter Gondocz, and Gabor Koka and Senior Associate Sara Rideg.

Editor’s Note: After this article was published, Allen & Overy confirmed it had advised the IPO arrangers, OTP Bank and Concorde Securities. The firm’s team included Counsel Norbert Hete and Associate Zsuzsanna Gordos.

Wolf Theiss has advised the Vienna Insurance Group on the increase of its stake in Hungarian holding company VIG Magyarorszag from 55% to 90%, by acquiring the extra stake from Hungarian state holding company Corvinus. PK & Partners reportedly advised Corvinus.

The transaction remains contingent on regulatory approval.

According to Wolf Theiss, the “Vienna Insurance Group acquired the Hungarian companies owned by the Dutch group Aegon. The holding company VIG Magyarorszag Befektetesi was then established to manage the Hungarian VIG companies, in which Corvinus International Investments, an investment management company of the Hungarian state, holds a 45% stake. Once the transaction is completed, VIG’s stake in the Holding will increase from 55 to 90%. Corvinus will continue to keep a 10% stake in the Hungarian holding company.”

The Wolf Theiss team included Partners Horst Ebhardt and Janos Toth, Counsel Melinda Pelikan, Senior Associate Lukas Ploesch, and Associates Kinga Kajcsos and Laszlo Lovas.

Deloitte Legal Hungary Head of Banking, Finance, and Capital Markets Linda Al Sallami has recently been appointed a Partner at the firm, effective September 1, 2023.

Al Sallami has been with Deloitte Legal since 2017, starting as a Senior Associate, and making Managing Associate in 2018 and Senior Managing Associate in 2020. In 2022, she was appointed as the firm’s Head of Banking, Finance, and Capital Markets (as reported by CEE Legal Matters on May 9, 2022). Before joining Deloitte Legal, she spent over four years with CMS as a Lawyer, starting in 2013.

“I am extremely grateful for the support I was given and for this new role,” Al Sallami commented. “I would like to thank my colleagues (especially my team) for their excellent work and support, and the Deloitte leadership for their guidance and mentorship along the way. I sincerely appreciate the trust my clients have placed in me, and I am eager to continue to provide them with the highest quality of service.”