Category: Hungary

HUF 200,000 might be the new general gross minimum wage from 2022 in Hungary. Informal consultation between the Government and the National Association of Entrepreneurs and Employers has already begun with regard to a new, long-term agreement on minimal wages. The official negotiation process should also be started by 15 September 2021.

According to the initial comments from the parties involved, it is expected that the gross general minimum wage would be increased to HUF 200,000 (per month), while for more qualified positions (jobs requiring at least a secondary education or a secondary vocational qualification) the so-called guaranteed wage minimum would reach gross HUF 260,000 (per month). In both cases this would mean an increase of 19%.

The employees are expected to be compensated for the material increase with a similarly material decrease of tax burden on wages. The details of an eventual tax reduction are not yet communicated, however, in 2016, when the last similarly significant, long-term minimum wage programme had been concluded, the social contribution tax was cut by 5% as well.

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

During the COVID-19 pandemic, the Healthcare/Pharma/Life Sciences sector has, not surprisingly, come into focus, with the production licencing and supply of vaccines and the ability of hospitals and healthcare facilities to operate and the production of healthcare products all attracting attention.

COVID-19 Vaccines. Time will tell whether Hungary’s use of Chinese and Russian vaccines not following European Medical Agency (EMA) guidelines will turn out to be wise. On the supply side, manufacturers of medicines and equipment are adapting their capacities to the rising demand for vaccine ingredients and packaging both within international supply chains and in the context of the political interest in some level of national self-sufficiency. The Hungarian Government has communicated its interest in establishing a national vaccine manufacture capacity. On the consumer side, it remains to be seen whether people receiving non-EMA-approved vaccines will be restricted in their freedom to travel and work within the EU, while domestically greater freedoms will be given to those who can show a “vaccine certificate.”

Hungary in Global Supply Chains. Hungary has long had a role in international supply chains and has a strong position in pharmaceutical and medical equipment and supplies, with both home-grown companies (some, such as Richter Gedeon, internationally recognized), and local operations of multinationals such as Teva. Sanofi-Aventis, Egis-Servier, and GSK. As supply chains are subject to restructuring, this currently results in the development of local capacity in areas such as vaccines and in foreign – e.g., Asian and American – companies establishing or acquiring operations in Hungary.

Private Healthcare Developments. For many years frustration with the services offered by the Hungarian State health system has been a major factor contributing to the demand for private healthcare facilities.  The situation has been exacerbated during the pandemic, as non-emergency surgeries have been delayed and public healthcare capacities have been exhausted by emergency operations and COVID-19-related tasks. Unsurprisingly, this has resulted in the increased use of the private healthcare system by those who can afford it – the workload of private hospitals has reportedly increased by about 20% since Covid appeared in Hungary. For lawyers this has given rise to Real Estate and M&A work.

Pharmacies. A recent trend has been for pharmacies in Hungary, which traditionally operated as small independent businesses and are legally required to be at least 50%-owned by qualified pharmacists, to move to new operating structures, such as franchise arrangements, which are currently not restricted by any regulation or official decision of Hungarian authorities. The advantages of this form of cooperation include a sounder financial background, the centralized procurement of a wide range of products, and more sophisticated marketing. The Hungarian Competition Office has recently taken interest in the wholesale drug system by examining whether this form of cooperation between pharmacies could result in prohibited concentrations on the market. The result of this examination will be interesting, as the new style of operation in a cooperative framework will be assessed through the lenses of regulations designed for more traditional structures. These steps provide work for M&A, regulatory, and antitrust lawyers.

Data Protection and Employment Issues. Vaccination is, in Hungary, voluntary. Employers in all areas have to consider whether they can require employees to be vaccinated, keeping in mind both necessity and proportionality, as the individual’s freedom to choose and the employer’s general obligation to ensure safe and healthy working conditions, including by ensuring protection against infection, conflict. The Hungarian National Authority for Data Protection and Freedom of Information recently published guidelines stating that employers shall generally be entitled to request nothing further from employees than to present their vaccination certificates. As the costs of private healthcare are frequently borne by health insurance, it is becoming increasingly common for employment packages to include healthcare insurance as a benefit, changing long-standing practice in Hungary.

At the time of writing, Hungary had among the highest number of deaths per million in Europe. Notwithstanding the country’s disastrous performance during the pandemic – or maybe because of it –the healthcare and life science sectors will continue to be active and generate work for lawyers.

By Richard Lock, Partner, and Csilla Bertha, Life Sciences Lawyer, Lakatos, Koves & Partners

This Article was originally published in Issue 8.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

By ratifying the European Convention on Human Rights in 1992, Hungary has committed itself to ensure the right to a fair trial within a reasonable time and to guarantee the right to an effective remedy for any violation of this right. In its judgment in Gazso v. Hungary, the European Court of Human Rights called on Hungary to establish a domestic remedy capable to handle the structural deficiencies identified in the judgment. As a result, at the end of June 2021, a new Act on the Enforcement of Material Compensation for Delay in Civil Proceedings was published in the Hungarian Official Gazette, which will enter into force on 1 January 2022. The Act establishes a new legal remedy for compensation for fundamental rights violations, called ‘material compensation’ which is different from the general compensation (in Hungarian: “kartalanitas”), indemnification or non-pecuniary compensation (in Hungarian: “serelemdij”).

The Act defines the time periods which may be regarded as reasonable and which must necessarily be sufficient to enable the court to carry out the procedural actions necessary for a reasoned decision in the case in question. Exceeding those time limits is what the legislature objectively regards as a breach of a fundamental right in relation to judicial proceedings. The Act declares a period of five years (60 months) to be sufficient for the conclusion of civil proceedings as a general rule. In specific cases requiring a rapid decision (e.g. labour disputes), a shorter objective period has been established for the entire judicial procedure.

Only the party of the court procedure is entitled to material compensation, i.e. other persons involved in the proceedings (e.g. interveners) are not entitled to claim such compensation. The Act defines the grounds of exclusion from the right to claim material compensation. Such grounds include, for example, if the party has already received a so-called ‘fair compensation’ in proceedings before the European Court of Human Rights for violation of the fundamental right to have the proceedings completed within a reasonable time.

A claim for material compensation may be brought in a civil non-contentious procedure before a court. The General Court of Debrecen and the General Court of Pécs will have jurisdiction and exclusive competence to hear the proceedings. In order to ensure the efficient and expeditious conduct of the non-contentious proceedings, the Act defines a maximum time limit of 15 days for the court’s general obligation to take action and a time limit of 30 days for the written submission of the counterclaim. The court must issue a decision on the merits of the proceedings within 3 months from the receipt of the counterclaim.

A separate government decree will determine the amount of the material compensation for delay in civil proceedings and the rules for calculating the amount to be paid.

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

Baker McKenzie has advised Swiss Post on its acquisition of a majority stake in Tresorit. DLA Piper advised Tresorit on the deal.

Tresorit offers end-to-end-encrypted cloud services for individuals and companies. The company has offices in Luxembourg, Hungary, Switzerland, and Germany. 

Baker McKenzie’s team included Budapest-based Partner Akos Fehervary, Counsels Zsofia Lendvai and Csaba Vari, and Associates Daniel Orosz and Nora Ovary-Papp with further teams in Zurich, Luxembourg, and Munich.

DLA Piper’s team included Hungary-based Partner Gabor Molnar, Counsel Levente Torma, Senior Associates Gabor Spitz and Eszter Fodor, and Associate Andor Boros and Luxembourg-based Counsel Ambroise Foerster and Associate Gertjan Dewilde.

Currently, legal persons and organizational entities are registered by various courts and authorities: companies are registered by the court of registrations, civil organizations by the courts of law, while investment funds, for example, are registered by the Hungarian National Bank. The data content and operation of these registers also differ.

In June 2021, a bill proposing the establishment of a single unified register, was accepted by the Parliament. The Act on the Registration of Legal Persons and the Registration Procedure will enter into force on 1 July 2023.

Unified register

The essence of the unified register is that, regardless of whether the registration procedure is carried out by a court or another registration authority, the registration resulting from the procedure will be recorded in the same unified register which will be kept by the Regional Courts. The bill introduces the concept of “registration procedure”, which includes all non-litigious cases and actions that the registering authority conducts in relation to a registered legal person.

Electronic archives

The concept of electronic archives is also introduced, which will henceforth cover all the documents of all registration procedures. This will allow rightholders to view documents electronically, for example in the case of documents relating to the review procedure.

Authenticity

A substantial change is, that after the entry into force, public authenticity will be linked to the registration, and the publication of the registration in the Company Gazette will in future only serve information purposes.

Automatic decisions

The possibility of automatic decision-making in the vast majority of registration cases is another important novelty. With such registrations, data from another court or authority will be transferred to the register of legal entities, whereby the registration mechanism of the registering court is automated. In the case of automatic registration, the content of the registration is not subject to prior verification of legality by the court of registration, which only checks the conformity of the information contained in the notification and the register. One of the pillars guaranteeing automatic decision-making is that the examination of the legality of the application is shared between the court and the legal representative acting on the application. It is for the legal representative to assess whether the application can be lawfully submitted to the court on the basis of the available documents. These documents will thus include those which are not directly examined by the court but are kept by the legal representative and declared on the application as being adequate.

Change in deadlines

After 1 July 2023, the court must take action within five working days of the day following (i) the receipt of the petition in the court’s IT system, (ii) the expiry of the time limit for filing the petition or (iii) the occurrence of other circumstances giving rise to the action (general procedural time limit). In addition, the time limit for filing an application for registration of a change is reduced to 15 days for companies, except for public companies limited by shares and religious communities with legal personality. The act provides 15 days for the resubmission of a complete application for registration, instead of the current 8 days.

Examples of a single register for companies and NGOs can currently be found in several EU countries (e.g. Austria, Belgium, Denmark, Poland), by creating the unified register Hungary can take a step towards the European norm, as the single register will bring a number of benefits, including uniform procedural rules, speedy procedures, standardization of enforcement practices and increased accuracy of the data in the register, as well as further administrative burden reduction for customers.

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

Latest tax reliefs aim to support tourism and travel industry in Hungary, as tourism was one of the most affected sectors by COVID pandemic. In order to boost the restart of domestic tourism, the latest governmental decree of 381/2021 introduced several new tax measures, mainly for this sector. As a result, tourism development contribution of 4% is still not payable by the end of 2021.

Furthermore, amounts received on (and spent from) the so called SZÉP-card enjoy a beneficial tax treatment. SZÉP-card has been introduced back in 2012 as a cafeteria option that can be spent on accommodation, hospitality and recreational services. Payment by the employers to SZÉP-card has preferential tax treatment compared to the general tax rate applicable to salary within the given thresholds (previously HUF 450,000, equivalent to EUR 1,250). In order to facilitate domestic tourism, the preferential threshold is increased, up to the aggregate of HUF 800,000 (EUR 2,200) for the entire 2021 year. Also, these amounts are exempted from social contribution tax of 15.5%, practically decreasing the effective tax rate to half.

Social contribution tax exemption is also applicable for business gifts and ‘representation’ services, covering hospitality (food and beverages) provided during a business, official, trade, diplomatic or religious event in connection with the activities of the provider. Additionally, COVID-specific tax payment reliefs have also been upheld: SMEs may apply for payment in instalments, deferred payment and even partial tax reduction for tax debts under HUF 5 million (approximately EUR 14,000) by the end of 2021.

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

Szecsenyi & Partners has advised M7 CEREF II on its acquisition of the Terrapark Office complex near Budapest. CMS advised the seller.

The acquisition was carried out by pan-European investor and asset manager M7 Real Estate on behalf of the M7 CEREF II fund.

According to M7, M7 CEREF II has so far acquired eight assets totaling approximately 110,000 square meters across Hungary, Croatia, and Poland, with the fund now being almost fully invested. The target size of the fund is approximately EUR 100 million, with leverage.

“As COVID-19 restrictions begin to ease, we believe Terrapark will appeal to a broad range of occupiers looking for high-quality offices, with green space, near Budapest,” commented M7 Real Estate Transactions & Asset Manager Tibor Raduly. “Our active asset management program provides great potential to generate additional income from Terrapark, as we continue to target attractive returns for our investors over the coming years.”

The Szecsenyi & Partners team consisted of Partners Laszlo Szecsenyi and Balazs Vagvolgyi.

The CMS team included Senior Counsel Andras Klupacs.

A common stereotype prevails that banking contracts are non-negotiable, and borrowers hardly have a say in the terms of their contracts. However, this is not the case: like any economic operator, banks are also willing to compromise. Banks’ flexibility varies depending on who and when is seeking preferential treatment and on the contractual terms subject to negotiations.

What is negotiable?

In a banking contract, besides the basic legal framework for lending, almost all terms and conditions are negotiable. How flexible a bank is, of course, largely depends on the borrower’s business position and on how much the bank is interested in the lending.

In most cases, contractual negotiations concern the financial commitments required by the lender. Standard banking texts are often not applicable to the particular circumstances of a specific company or may differ from the organisation’s own system of internal controls. On other occasions, the company’s calculations may significantly differ from the formulas used by the bank in calculating compliance with the requirements. In such cases, the company’s established calculation methods may be incorporated into the contract, provided that they are properly disclosed and explained to the bank.

Corporate transactions, payments (dividends, salary increases, etc.) requiring the bank’s approval are often points to be negotiated, too. It is not uncommon, either, to incorporate certain thresholds into contracts to narrow the scope of transactions requiring the bank’s approval.

Is it possible to diverge from the General Terms?

Although the General Terms and Conditions (GTC) are a set of standard terms and conditions pre-approved by the supervisory authority, this does not mean that no divergence is possible. Most banks indicate in the loan contract itself if it includes a divergence from the GTC.

It is not unprecedented for the GTC to stipulate the bank’s right to regular termination (e.g. with a 90-day notice period), which represents a risk for the borrower. It may be worthwhile to endeavour to exclude the bank’s regular right to terminate the contract. Other provisions of the GTC may restrict certain of the borrower’s future business transactions (e.g. the establishment of a subsidiary or the sale of main assets) –the borrower may try to get these restrictions loosened.. Therefore, besides the terms and conditions of the individual contract, it is worth reading the GTC and boldly discussing the terms that are not in line with the company’s operating logic.

What about collaterals?

Financing in Hungary is characterised by over-collaterisation. Banks often secure their loans by means of collateral that is far more valuable than justified or overlap each other. While some of this collateral (e.g. security deposit) has a direct financial impact on the borrower, others (e.g. a mortgage or suretyship) indirectly affect its financial situation.

Although the scope of assets that a bank wishes to collaterise often cannot be changed, depending on their bargaining position, the borrower may persuade the lender to accept less collateral. It is also possible to limit the amount of collateral to be pledged using special legal solutions. For example, if a company takes out a loan to finance a project, it is worth to establish a separate project company. In this case, the borrower may reach an agreement with the bank that only the assets of that particular project company will be encumbered, thus the assets of the parent company can remain unencumbered.

When to negotiate?

Starting negotiations with the lender on the terms and conditions of a loan and the contractual provisions is advisable as soon as possible. Already at the stage when the bank provides its offer, it is worthwhile for the company’s managers to look out for squalls and to negotiate any questionable conditions in detail with the bank. An impulsively accepted offer may put the debtor at a disadvantage in subsequent negotiations and provide a worse basis for negotiations when trying to change the terms and conditions. Later, it may not be possible to make an otherwise seemingly rational amendment to the contract simply because there is not enough time to conduct the bank’s lengthy approval process by the planned target date. Therefore, the earlier the borrower communicates its requests, the more likely they are to be heard.

Enemy or comrade?

Many see commercial banks as enemies, fearing that the bank will take control of the company. However, it is important to understand that after a contract is concluded, the bank and the borrower are in the same boat. Banks do not aim to exploit the companies they finance, but rather to promote business growth and facilitate a long-term collaboration that ensures a regular and stable return. Therefore, during the establishment of the lending framework and negotiations of the loan contract, the bank’s and the borrower’s interest coincide. It is contrary to the business logic to impose such terms and conditions that are commercially detrimental to the company or limit its business opportunities.

By Boglarka Zsibrita, Attorney at Law, Jalsovszky

Jalsovszky has advised Luma Automation S.A. on the acquisition of a 100% shareholding in IronTech Zrt. from Tibor Bochkor. Jalsovszky has also advised Raiffeisen Bank and CIB Bank, as lenders granting financing for the acquisition. 

Jalsovszky’s team included Partner Gabor Pazsitka, Senior Associate Agnes Bejo, Associates Boglarka Zsibrita and Gabor Kerekes, and Junior Associates Dorottya Bito and Timea Moldovan.

Lakatos, Koves & Partners has advised GLP on the lease of a 43,000 square meters warehouse and office space within the Sziget Logistics Center to Germany-based Fiege Group.

GLP is an investment manager in the logistics real estate sector and the Fiege Group is a provider of logistics services. 

According to LKT, “the rented logistics center is located in Szigetszentmiklos, South of Buda, with direct access to the M0 ring road and brings new technical parameters to the market with its best in class features, also introducing the GLP Design Standard.” 

The LKT team included Partner Attila Ungar and Associate Kata Molnar.

The firm did not reply to our inquiry about the deal.