Category: Hungary

DLA Piper has advised the Government Debt Management Agency (AKK), acting on behalf of the Republic of Hungary, on an international syndicated revolving credit facility agreement for a total amount of EUR 1.5 billion with 13 undisclosed Hungarian and international banks. CMS advised the coordinating banks.

The mission of AKK, according to its website, “is to finance the government debt and the central government deficit at the lowest costs, in the long run, taking account of risks, at a high professional level and by using sophisticated methods.”

The DLA Piper team included Partners Karen Young and Gabor Borbely and Senior Associate, Gyorgy Boros.

The CMS Team included Partner Eszter Torok and Senior Associate Dorottya Varga-Giesz.

The Hungarian Act on Fees and Duties will be changed significantly as of 28 January 2025, which will also affect the fees for court proceedings.

Under the previous rules, the fee for first-instance proceedings was 6% of the subject of the lawsuit, with a minimum of HUF 15,000 and a maximum of HUF 1.5 million. As a result of the changes, a banded system will be introduced, with a slight reduction for smaller-value cases and a significant increase for larger-value cases. The maximum fee amount will also be abolished, so that, for example, in a case with a value of HUF 100 million the court fee will be approximately HUF 2.8 million instead of HUF 1.5 million.  

The changes have been met with mixed reactions, with many arguing that the price of court proceedings has not followed the general increase in prices in recent years. However, opponents of the changes expect that certain social groups will find it more difficult to enforce their rights.

Another significant change is the lawyers’ fees in court proceedings. On the one hand, the rule of calculating the lawyer’s fees according to the value of the case has changed, and they cannot be less than five times the amount of the public defender’s fees (HUF 7,000 in 2024), i.e. HUF 35,000. This is almost three times the previous rate. The rule on reducing the fee for work performed under an engagement contract will also change. In the past, the court was free to decide on reducing the fee, and the courts were often very superficial in explaining their reasons for doing so. Under the new rules, a reduction of the fee must be justified in detail, with a substantive analysis of why the fee is unjustified. However, a reduction below 50% is only possible if it is manifestly excessive and contrary to market conditions or common sense.

These amendments are a long-awaited change in the legal sector. The change may have been influenced by the 2024 decision of the Curia on the poor practice of the courts in reducing fees. The new rules enter into force on 8 February 2025 and will apply to cases initiated after that date.

By Bálint Éberhardt, Attorney at Law, KCG Partners Law Firm

Highlights in Hungary are delayed real estate digitization, stricter ESG compliance, and regulatory deal flow complexities, according to Szecskay Senior Partner Judit Budai, with her projecting that sectors like IT, defense, infrastructure, and ESG compliance will dominate the agenda in the near future.

“One major expectation for 2024 was the long-overdue digitization of Hungary’s real estate and land registry system,” Budai begins. “Unfortunately, this transition has been postponed once again, leaving the E-ING system introduction for later in 2025 while the underlying regulation already became effective, introducing certain material changes affecting transactions documentation.”

She also reports that “Hungary has introduced a new ESG Act, which goes beyond the EU’s Corporate Sustainability Reporting Directive by imposing even stricter due diligence obligations and fewer exemptions.” According to her, this means businesses will “need to integrate ESG compliance across their entire supply chains, impacting lending, reporting, and corporate governance. One of the key challenges is that advisor companies cannot immediately become ESG advisors – they must obtain a qualification, which is an entirely new requirement for lawyers and consultants alike.”  One positive element Budai highlights is that the “Supervisory Authority of Regulated Activities introduced a maximum ESG DD questionnaire which can only be extended with the approval of the authority.”

Continuing with legislative updates, Budai reports that “Hungary’s foreign direct investment regime remains in place, requiring approvals for strategic company acquisitions — while this has become a standard part of major transactions, merger regulations continue to present additional complexities.” Specifically, Budai says that the “one recurring issue we face is that if the Hungarian Competition Authority has not previously defined a specific product market, parties may expect that the authority consults the relevant market and collects data via a questionnaire from competitors.” As she explains it, “this can be an unexpected and time-consuming process, and many legal professionals don’t immediately foresee it as a problem. However, it is something that we are learning to anticipate year after year. The Hungarian Competition Authority has been working hard to define product markets, but this process can still lead to prolonged approval timelines.”

Additionally, Budai reports that Hungary is “closely watching the EU AI Act, which is expected to introduce substantial compliance requirements for AI-driven companies. This legislation will require significant legal and operational adjustments in 2025, especially for businesses operating in the technology and AI sectors.”

Taking a step back to focus on the broader geopolitical picture, Budai says that it is evident the Hungarian market is not operating in a vacuum. “We are closely monitoring global geopolitical developments, including the U.S. elections, the ongoing war in Ukraine, as well as tensions in the Middle East – all of these factors contribute to uncertainty in the investment landscape,” she says. “However, one sector where we do expect to see significant activity in Hungary in 2025 is defense and security. Given the heightened focus on security across Europe, Hungary is likely to experience growth in IT and defense-related industries, particularly in technology-driven defense solutions,” Budai reports. “These areas will likely attract both private and government-backed investments in the near future,” she says.

Finally, looking ahead, Budai feels that the Hungarian legal market will remain active, but will also need to “continuously adapt to emerging regulations and global uncertainties. Sectors like IT, defense, infrastructure, and ESG compliance will dominate the agenda, requiring firms to stay ahead of regulatory changes.” In conclusion, she stresses that we expect a steady deal flow – and as always, we will continue learning by doing.”

The legislator recently introduced a number of implementing regulations for the Architecture Act and more are expected in the near future. In this article, DLA Piper Hungary’s lawyers outline the key details of the new, generally mandatory contractor’s professional liability insurance, taking into account that contractors must have such insurance from 15 January 2025.

Background

Act C of 2023 on Hungarian Architecture (“Architecture Act”) stipulates that a government decree shall provide the professional liability insurance required to carry out building contractor’s activities. This government decree, namely Government Decree No. 286/2024 (IX. 30.) on the amendment of certain government decrees related to construction in connection with the entry into force of Act C of 2023 on Hungarian Architecture (“Government Decree“), entered into force on 1 October, amending the Construction Code, i.e., Government Decree No. 191/2009 (IX. 15.) on building contractor activities.

Under the new mandatory provisions, building contractors are required to have professional liability insurance starting from 15 January 2025.

Previous legislation

The Architecture Act replaced, among others, Act LXXVIII of 1997 on the Formation and Protection of the Built Environment (“Former Architecture Act“). The previous rules of the Former Architecture Act did not require liability insurance for contractors, and the provisions of the Construction Code only required it in a limited scope: the rules on the contents of the construction contract, the handover of the construction site, the opening of the construction log, and the commencement of construction activities referred to the contractor’s obligation to have the mandatory professional liability insurance specified in the government decree on the simple notification of the construction of residential buildings. Professional liability insurance was only mandatory for the main contractor for the construction of new residential buildings with a net floor space not exceeding 300 square meters or the expansion of existing residential buildings to a net floor space not exceeding 300 square meters.

New general rules for the mandatory professional liability insurance

As mentioned above, the Government Decree amends the Construction Code (primarily the new provisions of Sections 21/B to 21/G and Art. (5) of Section 46 of the Construction Code are relevant).

As per the new legislation, building contractors are required to take out professional liability insurance to cover damages resulting from their construction activities. The Construction Code does not define the term of “building contractor”, but frequently uses it. Therefore, in our opinion, the definition provided in the Architecture Act is applicable (since this Act is the superior law compared to the Construction Code). According to this definition, the main contractor, the client contractor and the subcontractor are all considered to be building contractors.

The Government Decree specifies the cases to which mandatory professional liability insurance must extend. These include personal injury and property damages, as well as grievance awards in connection with non-material harms related to personal injury. The contractor is liable for damages and is obliged to pay grievance awards as provided by law.

In addition, the liability insurance shall cover damages resulting from the activities of persons employed by the insured building contractor, persons having other employment-related relationships with the insured contractor and subcontractors engaged to carry out the building contractor activities and services for which the insured contractor is liable.

The Government Decree also sets out a tiered system for the amount of coverage that liability insurance must provide per insured event and per year.

Administration and audit

The administration and sanctioning activities related to professional liability insurance are mainly carried out by the Hungarian Chamber of Commerce and Industry (“HCCI“). Notification of the conclusion of a professional liability insurance contract and of the termination of the liability insurance relationship must be made to the HCCI. The existence of the insurances is also verified by the HCCI: if the building contractor does not have professional liability insurance, it first prohibits the building contractor from continuing its professional activity, then, if the grace period has expired without result, it deletes the contractor from the register. Additionally, the construction authority can also sanction the building contractor by prohibiting building contractor activities if it finds that the contractor is not listed in the HCCI’s register as having the required insurance.

In line with the previous rules regarding simple notification, the liability insurance’s policy number or the building contractor’s declaration must be included in construction contracts.

Who exactly needs to obtain insurance and when?

The Government Decree provides that the building contractor must have liability insurance from 15 January 2025.

Specifically, according to the Government Decree, the provisions on professional liability insurance must be applied to construction plans handed over, construction contracts concluded, and building contractor activities carried out after its entry into force (i.e. 1 October). Therefore, contracts and activities that were concluded or started before 1 October do not require mandatory professional liability insurance. However, if the building contractor concludes a new contract or starts new construction activities from now on, they are obliged to conclude a professional liability insurance contract.

By Viktor Romsics, Senior Associate, and Kalman Kelemen, Junior Associate, DLA Piper

Based on the contents of the government decree on construction works in effect since 1 October 2024, all domestic construction or design firms and self-employed persons must have compulsory contractors’ liability insurance starting from 15 January 2025.

Contractors are obliged to take out liability insurance to cover damages, including personal injury and damage to property, and the associated costs, caused in the course of the construction work they undertake. The liability insurance shall cover, inter alia, persons employed by the insured contractor and persons having other employment or service relationships with the insured contractor, as well as subcontractors.

The government decree sets the coverage of the insurance, i.e. the upper limit of the amount to be paid by the insurer in the event of damage, based on the net turnover of the company or self-employed person in the last closed financial year. The lowest tier of the insurance is below HUF 100 million yearly net turnover (ca. EUR 240,000), with further tiers between HUF 100 and 500 million, HUF 500 million and 2 billion, HUF 2 billion and 10 billion HUF and the final tier above HUF 10 billion. Most contractors in the domestic construction industry are in the lowest tier, meaning that the decree obliges them to take out insurance with a maximum coverage of HUF 20 million (ca. EUR 48,000 euros) per claim and HUF 40 million (ca. EUR 96,000) as total for one year.

Contractors must notify the Hungarian Chamber of Commerce and Industry (MKIK) by submitting a copy of the policy within 8 days of concluding a liability insurance contract. MKIK is responsible for verifying compliance at least once annually. Failure to secure insurance will prevent contractors from receiving construction site handovers, opening electronic construction logbooks, or commencing construction activities.

In cases of non-compliance, MKIK may initially suspend the contractor’s professional activities. If the issue is not resolved within the grace period, the contractor will be removed from the official registry. Liability insurance requirements do not apply retroactively to contracts or construction activities initiated before 1 October 2024. However, for contracts signed or projects commenced after this date, contractors must obtain liability insurance. Additionally, the policy number or a declaration of compliance must be included in the construction contract.

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

On 1 January 2025, inter alia, an amendment to the Personal Income Tax Act relating to intellectual property (IP) contribution entered into force.

According to the amendment, if an individual who creates an intellectual property (the original IP right-holder) transfers its IP to a business company as an in-kind contribution, he/she will not have to pay income tax on the share he/she acquires in the company up to the contribution’s value indicated in the company’s articles of association (practically the market value).

Under the previous legislation, income tax had to be paid in such a case, the tax base of which equalled the value of the transferred IP. This was an obstacle for inventors who wanted to raise venture capital for the development of the product they wanted to create from their IP.

The tax was an obstacle, since IP right-holders most common way to raise venture capital is that they establish a startup, transfer their IP to it and afterward the venture capital investors provide cash contribution to that same startup. Since it was the inventor (i.e. the provider of IP contribution) who had to pay the tax on the IP transfer, many inventors could not afford to raise venture capital in this way. This was compounded by the fact that an inventor does not receive any cash income after the IP transfer, therefore, the tax payment had to be covered by the inventor’s other resources. This change now will predictably foster venture capital investments and innovation.

By Gabriella Galik, Founding Partner, KCG Partners Law Firm

The AI Act introduces a comprehensive legal framework for companies dealing with AI systems in the EU. From 2 February 2025, companies subject to the regulation must take steps to ensure AI literacy and ensure that no prohibited AI practices are used. Non-compliance could lead to substantial fines.

The applicability of Chapter I and Chapter II of the AI Act

EU Regulation 2024/1689 (“AI Act”) establishes a uniform legal framework for the development, the placing on the market, the putting into service, and the use of artificial intelligence systems (“AI systems”) within the Union. The AI Act entered into force on 1 August, 2024, with its rules becoming applicable at a later date. In particular, the first two chapters of the AI Act will come become applicable on 2 February 2025, for which companies must make the necessary preparations. Below is a brief summary of the provisions contained within these chapters:

I. Chapter I – AI Literacy

Chapter I includes general provisions, outlining the scope of the AI Act and providing definitions. Article 4 of the AI Act imposes a practical obligation on companies that provide or deploy AI systems, to ensure mandatory AI literacy within the companies.

AI literacy means skills, knowledge and understanding that allow providers, deployers and affected persons to make an informed deployment of AI systems, as well as to gain awareness about the opportunities and risks of AI and possible harm it can cause.

To meet the AI literacy requirements, companies that provide and deploy AI systems must take measures to ensure a sufficient level of AI literacy of their staff and also other persons dealing with the operation and use of AI systems on their behalf. This in practice, means promptly organizing training and education for everyone involved in the AI provision, use and deployment chain within the company.

II. Chapter II – Prohibited AI practices

The chapter on prohibited AI practices also becomes applicable on 2 February. Practices listed in this chapter are prohibited from 2 February 2025. Examples of such practices include:

• AI systems that deploy subliminal techniques beyond a person’s consciousness or purposefully manipulative or deceptive techniques, with the objective, or the effect of materially distorting behavior.
• AI system that exploits any of the vulnerabilities of a natural person or a specific group of persons with the objective, or the effect, of materially distorting the behaviour of that person(s);
• AI systems that infer emotions in workplaces or educational settings; and
• AI systems that create or expand facial recognition databases from internet images or CCTV footage.

Non-compliance with rules on prohibited AI practices could lead to administrative fines up to EUR 35,000,000 or 7% of the company’s global annual turnover. Other sanctions, including sanctions for noncompliance with AI literacy can be established by the member states.

By Csaba Vari, Counsel, and Anna Howe, Junior Associate, Baker McKenzie

Cytowski & Partners has advised Hungary-based Axoflow on its USD 7 million seed series with the participation of the EBRD, Credo Ventures, and E2.VC. Dentons reportedly advised the EBRD.

In 2023, Cytowski & Partners advised Axoflow on its USD 2.5 million seed round (as reported by CEE Legal Matters on July 31, 2023).

The Cytowski & Partners team included Partner Tytus Cytowski and Associates Eresi Uche, Heidi Fang, and Fabiana Morales Centurion. 

Former Indotek Group Senior M&A Legal Counsel Laszlo Palocz has returned to Kinstellar, joining the firm’s Budapest office as Counsel.

Before the move, Palocz spent two years with Indotek, between 2023 and 2025. Earlier, he was with Kinstellar for more than six years, joining the firm initially as a Junior Associate in 2016, becoming an Associate in 2017, and a Senior Associate in 2022. Earlier still, he was a Junior Associate with EY between 2015 and 2016 and with Gal and Partners between 2014 and 2015.

“I am thrilled to rejoin Kinstellar and reunite with my former colleagues,” Palocz said. “This is an incredible opportunity to leverage the knowledge and experience I have gained working on transactions all over Europe as an in-house M&A legal counsel since my departure two years ago while continuing to work on exceptional projects alongside this outstanding team. I look forward to contributing to the firm’s ongoing achievements.”

“We are delighted to welcome Laszlo back to our team,” commented Managing Partner Balazs Sepsey. “His experience, solution-driven approach, and collegial attitude have always been highly valued by both clients and colleagues.”

“Laszlo’s return is great news for our team,” added Partner Gabor Gelencser. “His professional expertise in M&A, combined with his approachable nature and work attitude, aligns perfectly with our values. He will be a key contributor to the strength of our team and the quality of service we provide to our clients.”

Originally reported by CEE In-House Matters.

As part of the fall tax package, the Hungarian Government proposed an automatic, inflation-tracking increase of tax on, inter alia, energy products as of 2025. The actual increase from 1 January 2025, however, significantly exceeds the current (and expected) inflation levels. This might concurrently lead to increased inflation again.

Under the automatic tax increase system, after 2024, the rate of the taxes and duties in question would be the amount of the tax rate (or amount) for the year before the tax year in question, valorised (i.e. increased) by the change in the consumer price index for July of the year before the tax year in question compared to the same period of the previous year, as published by the Central Statistical Office (KSH). For 2025, this means an increase of 4.1%, which is equal to the official inflation rate in July 2024.

There are three main areas where the new inflation tracking taxation (or duty obligation) was introduced as of 2025:

(1) motor vehicle-related taxes and duty, including registration tax (payable on cars and motorcycles), car tax, company car tax (from 2026) and transfer duty on the transfer of motor vehicles and trailers;

(2) energy products, including tax on petrol, diesel and LPG; and

(3) the specific excise duty on alcohol products – beer, wine, spirits – and tobacco products

Although the official inflation rate is 4.1% – and the 2025 draft budget law only foresees an inflation rate of 3.2% (at least for pension payments) – the increase of excise duty on some energy products is more than threefold that and goes into two-digit territory, as follows:

• 12.5% for natural gas (when offered, sold or used as fuel by road vehicles – +4 HUF per standard m³);
• 11.2% for coal (+325 HUF/1000 kg); and
• 11% for electricity (+39.5 HUF/MWh).

This increase applies to non-residential consumers (practically for B2B relations). However, it is also likely to be reflected in the pricing of corporate power purchase contracts, as the increased costs are likely to be passed on in prices. It also follows that if energy prices go up, it would trigger an indirect increase in the inflation level as well, further triggering automatic excise duty increases in the following years.

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