Category: Hungary

The Hungarian Parliament approved the autumn tax package on 26 November 2024. The amendments introduce significant changes to direct and indirect taxes alike, the most important changes are summarized below.

The so-called autumn tax package – unlike in previous years – has been made available for public consultation by the Ministry of Finance in the middle of October (open for remarks until 24 October). The first proposal has been further amended with several new items, as follows:

Income taxes

The amount of the family tax allowance will be increased in two steps: firstly by 50% as of 1 July 2025 and finally doubled as of 1 January 2026, meaning that the deductible amount from the consolidated tax base will be

• HUF 100 000 and subsequently HUF 133 340 for one child (dependent),
• HUF 200 000 and HUF 266 600 after two children, and
• HUF 330 000 then HUF 440 000 after three or more children.

As of 1 January 2025, the flat personal income tax on short-term rentals, including Airbnb, is increased significantly from HUF 38,400 to HUF 150,000 per room per year. This change practically applies only to Budapest (over 2 million guest nights/year), in other Hungarian cities the previous flat rate remains intact.

Cafeteria items are also extended: a new ‘pocket’ will be added to the SZÉP-Kártya – also starting 1 January 2025 – the “Active Hungarians” pocket can be used to buy services related to active life and sports. Employers can transfer HUF 10,000 per month to the pocket as bonus benefits, increasing the maximum amount that can be paid out annually with the SZÉP-Kártya from HUF 450,000 to HUF 570,000.

Twofold housing support is also introduced: (i) up to 50 % of the benefit on the SZÉP-Kártya account can be used for housing renovation, and (ii) employers may provide a tax-free maximum monthly allowance of HUF 150,000 to employees under 35 years of age for the rent of an apartment or the repayment of a housing loan, which are considered as bonus benefits (detailed eligibility criteria and tax implications yet to be expected).

In-kind contribution of intellectual property to a company (‘apport) by the original ‘author’ will also be tax exempt from 2025 up to the value indicated in the company’s articles of association (practically the market value).

Sport-related tax allowances are also amended: donations for professional sport organizations (spectator team sports) might be considered as a deductible expense, up to a limit of 1% of its yearly turnover and the spectator team sport-related tax allowance also applies to donations for the purpose of covering the operative cost of a national sports federation.

On permanent investment accounts (TBSZ), social contribution tax emption can only be applied further on from social contribution tax (“Szocho”) if the account is not terminated prematurely and no personal income tax is payable.

Detailed rules for global minimum tax compliance have also been released: the deadline for a domestic group member to prepare, declare and paying the top-up tax is the 20th day of the 11th month after the last day of the tax year, i.e. first by 20 November 2025. The official form – to declare the additional tax liability and provide information on the members of the group to the tax authorities – has also been made available by the Hungarian tax office.

Indirect taxes

Implementing the corresponding EU rules as of 2025, SMEs not established in Hungary but in the EU will also be able to opt for the VAT exemption, provided that their annual net turnover does not exceed HUF 12 million (the amount has not been increased).  Preferential VAT rate of 5% VAT on the sale of newly built residential homes also extended until 31 December 2026.

Valorisation of tax rates – i.e. automatic inflation-tracking tax increases – will be applied inter alia for fuel, alcoholic beverages, car tax and car transfer duty from 2025 and for others from 2026 (e.g. excise tax on fuel, tobacco; company car tax; etc.). Retail tax is extended to platform operators; i.e. online marketplaces that provide service to retail sellers will also be subject to the additional tax (“TEMU tax”). Platform operators will be subject to a notification obligation within 15 days of becoming taxable persons. The taxable amount will be the aggregate net turnover from the sale of all goods sold through the platform, and if the platform operator itself carries out retail activities its turnover will also be included in the taxable amount.

Tax procedure

Finally, a new tax procedure is also introduced: in the data reconciliation procedure, the tax authority might request the taxpayer to rectify errors and discrepancies found in the provided data (e.g. in the online invoice data) within 15 days. If the taxpayer fails to comply with that request the tax authority a default penalty can be imposed with gradually increasing amounts.

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

Lakatos, Koves & Partners has advised Ceva-Phylaxia on establishing a new vaccine production facility in Monor, Hungary.

According to LKT, “this groundbreaking project will create 120 new jobs while significantly addressing the growing global demand for vaccines.”

The LKT team included Partner Peter Berethalmi and Senior Associate Agnes Hegyi.

Following the restrictions in the Far East, all companies operating online marketplaces in Hungary can expect significant tax changes and a new tax burden from January 2025.

The change may also affect the very competitive prices that have been the main reason for the popularity of the big platforms and their competitive advantage over domestic retail. One of the most significant provisions of the autumn tax package is the one that would extend the special retail tax to so-called platform operators. The tax liability would fall on the foreign or domestic operator of the online marketplace for sales made by retailers through the platform. Platform operators are defined as web shops or applications that mediate sales between professional sellers and their customers. Examples include Temu, Wish or, for example, Amazon.

Even though these sites generate a turnover that would be subject to the higher retail tax rates, since they do not sell their goods themselves or not all of them, but act as intermediaries between smaller traders and their customers, they have not been subject to retail tax, as it is determined by the turnover of the seller. In other words, if Temu bought from a company with a turnover of less than HUF 500 million, the seller did not have to pay retail tax at all. Under the new rules, however, it is the turnover of the platform operator, such as Temu, that must be taken into account when retail tax is paid. In other words, they will also have to pay retail tax in Hungary if the goods they order are delivered to Hungary, and the calculation of retail tax will be based on the platform operator’s total annual turnover in Hungary, which could result in a substantial tax liability due to the very steeply increasing banded tax system.

Finally, the platform operators must register as taxpayer persons with the tax authorities within 15 days. According to data from July 2024, more than 100 platform operators have registered in Hungary. Iti is advised for the online marketplace operators to pay close attention to this, as from January 2025 the tax authority will have severe sanction towards those platform operators who fail to register and pay the retail tax: the tax authority can its website inaccessible.

By Rozsa Rusvai-Darazs, Attorney at law, KCG Partners Law Firm

Oppenheim has advised Generali Biztosito on its sale of its minority stake in Fundamenta Lakaskassza to MBH Bank. DLA Piper advised MBH Bank.

The transaction remains contingent on regulatory approval.

Generali Biztosito is an insurance company.

MBH Bank is a private a banking company in Hungary.

The Oppenheim team included Partner Jozsef Bulcsu Fenyvesi, Counsel Barna Fazekas, and Senior Associate Gabriella Dinnyes.

The DLA Piper team included Partner Gabor Molnar and Senior Associate Tamas Szkiba.

DLA Piper Hungary marks a major anniversary, celebrating 20 years in the market since its establishment in 2004. Country Managing Partner Andras Posztl speaks about the firm’s sustained success and its commitment to innovation and growth as it looks to the future.

CEELM: Congratulations on your anniversary! Could you tell us more about what this milestone means for DLA Piper in Hungary?

Posztl: Thank you! It’s officially our 20th anniversary in Hungary. DLA Piper started in 2004 by acquiring a regional network of an Austrian law firm of which the Budapest office originally launched in 1989. Hence, this milestone also marks a 35-year presence in Hungary. Remarkably, among the original Partners of this Austrian regional firm, only three are still with us today at DLA Piper and all are in Hungary. This consistency has been instrumental in building our culture and driving our success.

When DLA arrived in 2004, our team consisted of 20 lawyers and support staff. Today, around 130 colleagues are working under the DLA Piper brand, including not just lawyers and support personnel, but tax advisors, and business advisors as well. While we are one of the largest law firms in Hungary, it’s not just about size – it’s about quality too. Since 2022, we’ve had the highest number of Tier 1 ranked lawyers in Hungary according to leading directories. A major contributor to this achievement is our outstanding professional development system – nearly 100 educational events are organized annually for our talents, many of which offer internal credit scores for the bar. This is a massive undertaking, but it ensures that our team continues to grow and develop, maintaining the high standards our clients expect.

Our practice has evolved significantly over the years. We began solely as a law firm in 2004, expanded into tax advisory in 2011, and ventured into business advisory in 2018. This integrated advisory approach addresses our clients’ comprehensive business challenges, allowing us to provide a one-stop-shop, holistic approach rather than piecing together solutions from multiple sources. This strategy has been well-received by clients and has generated substantial market traction. For our colleagues, it’s equally rewarding to work in a multidisciplinary, fostering fascinating discussions and innovative solutions that deliver true value to our clients.

CEELM: Looking back over the past 20 years, what do you consider the key milestones for DLA Piper in Hungary?

Posztl: Several pivotal moments have defined our journey. In 2004, we commenced operations under the DLA Piper brand, and two years later in 2006, the merger with the US operation expanded DLA Piper’s footprint to four continents, enhancing our global reach. Initially, our client base was dominated by Western European and US clients, but over the years, we’ve significantly expanded into markets like East Asia, reflecting our global adaptability and the diverse needs of our clients. We now also represent clients from places such as Argentina and New Zealand, and in the last five years, we’ve seen an increase in Chinese and South Korean investors active in Hungary.

In 2022, we expanded our competition practice by making a strategic lateral hire, which was our only lateral hire to date. All our 15 Partners aside from that hire are homegrown talent, underscoring our commitment to nurturing internal expertise and maintaining the firm’s culture and values.

On a personal note, I became the Country Managing Partner in 2009, marking my 15th year of service and 30th year with the firm, which I joined as a trainee in early 1994. Hence, this anniversary holds special meaning for me personally as well, reflecting a long and fulfilling journey with DLA Piper.

CEELM: What achievements stand out to you from this period?

Posztl: I’m proud of several achievements. We’ve been shortlisted for the Chambers Europe Law Firm of the Year award for the last eleven consecutive years, winning three times – a testament to the consistent quality of our work. This recognition underscores that we’re on the right track and that our efforts to maintain high standards are paying off.

A standout moment was being ranked as the first M&A law firm in Hungary by MergerMarket in 2022 by deal volume. Additionally, DLA Piper Business Advisory secured the top spot as financial advisors, surpassing even the Big 4 in this category. Achieving this dual recognition in such a complex market underscores our ability to deliver exceptional value across the board. Our integrated advisory approach clearly can be noticed through another MergerMarket statistic, as we acted the most often as an integrated (legal and financial) M&A advisor for reported deals in Hungary. It’s worth noting that we achieved this success in Hungary – a market known for its intricacies and challenges, which makes our accomplishments even more significant.

Finally, I am probably most proud of our strong corporate culture which is based on our core values like thriving for excellence, being bold, and being supportive. I have mentioned already our development programs but we’ve also implemented initiatives like Project Bond, which began as a post-COVID return-to-office program and has since evolved into a comprehensive employee satisfaction initiative. This program includes lectures, sports programs, welfare activities, and more, reflecting our commitment to fostering a supportive and people-oriented work environment. Additionally, we dedicate significant resources to mental health support for our colleagues. Creating such an environment is at the heart of everything we do and is a key factor in our sustained success.

CEELM: What’s next for DLA Piper in Hungary?

Posztl: Looking ahead, our focus remains on staying adaptable and innovative. A key area is leveraging AI in meaningful ways. We’ve established an interdisciplinary working group involving lawyers, developers, and international advisors, supported by DLA Piper International, to navigate the AI journey. AI is a fast-evolving space with many potential pitfalls, but the pressure from clients and competitors compels us to stay ahead of the curve. It’s early, and we expect the landscape of legal services to be very different down the line. Clearly, AI will redefine the industry, and it’s crucial to harness its benefits while mitigating risks. If we can’t improve and adapt, we risk losing market share and talented people.

We’re also committed to maintaining our culture and values as we grow. Staying down-to-earth, people-focused, and client-centric is non-negotiable. Having our 20th anniversary in Hungary, I’m immensely grateful to my colleagues – none of our achievements would have been possible without their dedication. Their commitment ensures that we continue to deliver exceptional service to our clients while fostering a positive and innovative work environment.

Our strategy is centered around continuous improvement and adaptability. While specific strategies can become outdated, maintaining a mindset of ongoing development ensures that we remain at the forefront of innovation. This approach not only keeps us competitive but also ensures that we can effectively meet the evolving needs of our clients in a dynamic market.

So finally, as we look toward our future, we aim to build on our strong foundation by embracing new technologies, expanding our service offerings, and continuing to invest in our people. These elements will be crucial as we strive to achieve our next milestone!

Hogan Lovells has advised Hungarian oil and gas company MOL on the sale of its 49% stake in Eneos MOL Synthetic Rubber to Japan-based Eneos Materials Corporation. Oppenheim, working with Freshfields Bruckhaus Deringer, advised Eneos Materials Corporation.

EMSR specializes in the production of synthetic rubber, a key component in tire manufacturing and other industrial applications. 

According to Hogan Lovells, upon completion of the transaction, ENEOS will own 100% of EMSR. Under the terms of the agreement, EMSR will continue its production activities at the Tiszaujvaros plant in Hungary. MOL will remain a feedstock supplier as well as a provider of utilities and services to EMSR.

The Hogan Lovells team included Partner Sandor Bekesi and Senior Associate Zoltan Molnar.

The Oppenheim team included Partners Mihaly Barcza, Tamas Eless, and Istvan Szatmary, Senior Counsel Peter Virag, Counsel Barna Fazekas, Senior Associate Sarolta Szabo, and Junior Associates Patrik Pazmandi and Lilla Toth.

On 16 October 2024, the Hungarian Government decided on a new economic policy action plan consisting of 21 measures, which also addresses the situation of short-term housing in the capital. The Government intends to tighten conditions for providing private accommodation services, i.e. Airbnb, to solve the worsening housing crisis in Budapest.

Short-term rentals (“Airbnb”) have become increasingly common in the Hungarian capital in recent years, creating a critical housing situation. This is alarming to the extent that, according to the Ministry of National Economy, given the current situation, the share of monthly incomes devoted to rent in Budapest can reach 50-60%. Nearly 18% of the 800,000 households living in the capital, i.e. 140,000 households, live in long-term rented accommodation, which is a high figure by international standards. By contrast, private accommodations host guests in nearly 26,000 rooms, which has also contributed to rising property prices in Budapest, pushing residents out of the rental and property markets in the inner districts. In addition, another prominent reason for tightening the conditions was that Airbnb’s constant stream of guests also restricts the privacy rights of residents in condominiums. The groups most affected by the Airbnb housing crisis are in fact workers, students and young families who wish to move to the inner districts.

According to the proposed law, from 2025, the annual flat tax on Airbnbs in Budapest will increase fourfold, from HUF 38,400 to HUF 150,000. Furthermore, a two-year moratorium will be placed on Airbnb-type rentals, thus no new registrations will be allowed in 2025 or 2026. This latter decision aims to restrict the entry of new market players in the specified years. However, these restrictions only apply to accommodations in Budapest. Airbnbs outside the capital will not be affected, and the new regulation under development will not impact their activities in any way.

The need to regulate the housing crisis is underscored by the fact that house prices and rents in Budapest have risen by more than 40% since the Covid-19 pandemic. The Government expects the new economic policy action plan to deliver economic growth of between 3-6% by next year.

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

Factoring has emerged as an essential financial solution for businesses in Hungary, offering a fast and flexible way to maintain cash flow and bridge liquidity gaps, especially for those with extended payment terms in sectors like agriculture, manufacturing and logistics. However, navigating Hungary’s complex regulatory landscape can pose challenges for companies seeking to use factoring to its fullest potential. With options like silent factoring available to help preserve client relationships and a need for thorough understanding of local laws, businesses can benefit significantly from a strategic approach. This article explores the advantages of factoring in Hungary, along with key regulatory considerations to ensure compliance and stability in companies’ financial operations.

As a financial solution, factoring and other receivables financing options are gaining strong momentum in Hungary – and it’s easy to see why. As a flexible and fast solution, factoring enables businesses to manage liquidity effectively, particularly those with extended payment terms of 30, 60 or even 90 days, which is common in the aforementioned sectors of agriculture, manufacturing and logistics. Factoring allows companies to secure revenue in advance while still offering favourable payment terms to clients, providing a crucial competitive advantage. Furthermore, many factoring firms take on debt management and legal proceedings for clients, thus reducing administrative burdens and helping businesses run smoothly.

Factoring can be utilised as a one-time solution, but its true benefit lies in long-term partnership. Regular, ongoing factoring agreements ensure a business’s liquidity remains stable. As a result, companies often engage in long-term contracts with factoring firms to safeguard their financial stability over time.

How factoring works in Hungary: Open and silent options

In factoring, the core transaction involves the assignment of receivables, usually with related securities and rights, to the factoring company. Typically, clients are notified of this arrangement and directed to pay the factoring firm directly. However, when maintaining confidentiality is crucial, “silent” or “undisclosed” factoring is available. In such instances, clients continue to pay the original business, which then forwards a portion of these funds to the factor based on the agreed upon terms. This structure helps businesses maintain strong client relationships by keeping the factoring arrangement discreet.

Navigating Hungary’s complex legal landscape for factoring

Hungarian law provides various definitions of factoring, though slight differences exist. The Civil Code defines factoring as an assignment of receivables with recourse, meaning the factor can demand payment from the seller if the client defaults. Conversely, regulations governing credit institutions define factoring as a form of receivables purchase, whether it’s a true sale or not.

This lack of uniformity can lead to regulatory confusion, creating challenges for both factoring firms and businesses trying to comply with Hungary’s financial and regulatory framework. It is important for companies engaging in factoring to be aware of the regulatory requirements associated with receivables purchase. Failure to comply with regulatory requirements may expose the company to potential penalties and fines.

The Hungarian regulator’s unique approach to factoring

The Hungarian regulator has developed particular practices to manage factoring activities, especially silent factoring. Businesses that engage in silent factoring may be required to:

• handle client payments separately and remit these funds to the factoring firm at specific intervals;
• issue written reminders to clients if payment is delayed; and
• legally pursue unpaid receivables if clients fail to meet their obligations despite written reminders.

In these cases, the regulator interprets the company’s role as that of an intermediary. Since debt collection is indirectly carried out by the factoring firm and instead handled by the business, the latter must comply with intermediary regulations, which many businesses are unable to do. Many companies, however, are unaware of these requirements, which can result in inadvertent non-compliance.

Structuring factoring agreements for success in Hungary.

Careful planning and a well-defined factoring agreement can significantly mitigate regulatory risks. By adhering to the guidelines and regulations set by the regulator, businesses can confidently leverage cashflow without risking regulatory violations.

By Gergely Szaloki, Senior Associate, and Noemi Csiki, Associate, Wolf Theiss, Wolf Theiss

On 29 October 2024, the Hungarian Ministry of National Economy announced that new laws are submitted to the Parliament to increase the period available for requesting paternity leave.

As of 2023, the number of paternity leave days was increased from 5 to 10 and the current proposal would go further and give fathers more flexibility in taking paternity leave, with options to split their leave days across different periods.

Current legislation states that in the case of the birth of a child, the father is entitled to 10 days of paternity leave until the end of the second month following the birth of the child. This 2-month period would be increased to 4 as in many cases, this period is not enough to make proper use of the leave. Among other things, in the case of newborns requiring several months of hospitalization due to premature birth or for other reasons, or due to delays in court recognition of paternity.

This change is aimed at better-supporting fathers in balancing family and work responsibilities by providing more adaptable leave options during the early stages of parenthood.

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

Hungary’s economy and legal market have faced a tough year, shaped by political tensions, economic challenges, and global uncertainty, according to Pontes Budapest Partner Csaba Polgar, and from delayed investments to unpredictable regulations, the market has been navigating a challenging and uncertain landscape.

The market in Hungary “is undoubtedly experiencing a general slowdown, driven by a range of economic and political factors,” Polgar notes. “This turbulence is felt across industries, with Hungary’s macroeconomic situation reflecting these challenges. While Hungary has technically avoided a recession, the economy appears to be stumbling.” Key factors according to him, “include delays in the release of EU funds due to political issues and geopolitical tensions, such as the war in Ukraine and uncertainty surrounding the US elections. Many projects are currently on hold, awaiting clarity on these developments.”

Polgar adds that Hungary’s unique position in Europe adds another layer of complexity. “Hungary is the only EU country that has openly supported Trump, placing significant hope on the US elections as a potential turning point for FDI and broader economic prospects. The upcoming state budget submission is tied closely to this expectation, with many believing next year could bring a better economic outlook. However, whether these hopes are well-placed remains to be seen.”

As a result, Polgar says that for the legal market, the year has been challenging. “Law firms that do not traditionally engage in public sector work are experiencing less activity. Large firms with state-linked clients or a focus on M&A transactions saw better activity in the first half of the year, but this has since been dampened by state budget cuts,” he says, adding that “as a result, many firms are focusing on maintaining their know-how and client relationships, waiting for better times.”

Specific sectors are facing additional hurdles, according to Polgar. “Hungary’s FDI screening mechanism, introduced in 2022 during the pandemic, continues to create significant uncertainty for foreign investors,” he points out. “This unpredictability is particularly evident in sectors like renewables, where state pre-emption rights and lengthy approval processes discourage investment. Combined with high financing costs and challenging market conditions, only highly profitable projects are moving forward.”

Additionally, “private equity and venture capital activity have also seen certain declines in Hungary and across Europe, with 2024 figures lagging behind previous years,” Polgar notes. “A significant improvement is needed to restore pre-crisis levels of activity.”

One potentially positive development, according to Polgar, is “Hungary’s new proposed scheme for outbound investments, focusing on regional projects, particularly in the Balkans. Historically, Hungary has been a recipient of investments from CEE countries like the Czech Republic and Poland. This new government initiative, which involves capital injections and subsidized loans, aims to encourage Hungarian companies to expand abroad. However, only a small number of firms are currently capable of taking advantage of this program, and it remains to be seen whether it will deliver tangible results or merely reflect wishful thinking.”

Lastly, “the unpredictable nature of Hungary’s legislative process and broader rule-of-law concerns continue to weigh heavily on investor confidence,” Polgar points out. “The political risks associated with these issues add to the uncertainty, further complicating an already challenging environment.”