Category: Hungary

Since the state of emergency was terminated on 18 June 2020, the special employment law provisions introduced due to the coronavirus pandemic are no longer applicable. In particular, the employer is no longer entitled to unilaterally request the employee to work from home.

If the duration of home office exceeds 44 working days or 352 working hours, the consent of the employee is required. The special provision that the employer and the employee are entitled to deviate from the provisions of the Labour Code without any restrictions are not applicable either.

However, there are a few employment law provisions which are still in effect. For instance, if the employer introduced a working time schedule covering 24 months, the termination of state of emergency does not affect the ongoing working time schedule. However, new working time schedule might only be introduced in accordance with the general provisions (i.e. as a general rule it may not exceed 6 months). Furthermore, the state aid introduced to support part-time employment is still available; the employers may apply for such aid before 31 August 2020.

By Eszter Ila-Horvath, Associate, KCG Partners Law Firm

Recently, a Hungarian court accepted the right of a taxpayer to recover VAT on a bad debt where the VAT claim has already elapsed. The court made it clear that the statute of limitations does not count from the day of the original invoice but from the date when the debt became definitively irrecoverable. This decision may give hope to taxpayers in many pending cases.

The background of the case is that last October the European Court of Justice made a statement in the Porr Építési Kft. case. According to the communication if a debt becomes definitively irrecoverable then the VAT due on it should be refunded to the seller. Publication of the Porr judgment made it possible for other taxpayers to file a special application to recover the VAT on bad debts within 180 days.

You might get it back, but with strict conditions

When assessing the applications, however, it soon transpired that the Hungarian tax authority (NAV) applies a very restrictive approach to calculating the period of limitation: from the original due date of the invoices on which the debts are based. NAV only refunds VAT if the statutory period calculated from the original due date has not elapsed, whereas in many cases it only turns out much later than this that the debt is definitively irrecoverable. That is because it typically becomes obvious after a lengthy enforcement or liquidation procedure, only. In other words, in many cases the original due dates have elapsed but the date on which the debt becomes irrecoverable has not yet come.

A new ray of hope

In a case represented by our office, the court has now accepted our invocation that the period of limitation should not be calculated from the original payment date but from the date when the debt becomes definitively irrecoverable. The regional court judgment in the specific case does not establish a precedent, but it is an important milestone. It shows that it is not impossible to recover VAT on a debt whose original payment date has lapsed but where the date on which the debt becomes irrevocable has not yet arrived.

The saga continues…

As the judgment has not served to conclude the legal dispute even in that particular case, and as an appeal is likely, the uncertainties are not yet over. In fact, the question could easily land before the EU Court again, as a great number of similar applications have been filed with the Hungarian courts. Although the regional court did not consider it necessary to turn to the European Court of Justice, other courts in other cases may decide to do so.

In any event, this decision offers an important ray of hope for taxpayers who have been unable to recover the VAT on their bad debts for years because Hungarian law, in violation of Community law, has not enabled them to do so. For our part, we are looking forward with some excitement to the continuation of these cases.

By Tamas Feher, Partner, Jalsovszky

Fixed-Rate Tax of Low Tax-Bracket Enterprises (acronym in Hungarian: KATA) has become widely popular since its introduction in 2013 due to its beneficial tax rate and simple administration. By the end of 2019, 377 thousand entrepreneurs opted for this taxation mode, however, according to the Ministry of Finance, 40% of those switched previous employment status to KATA taxation. Since KATA was introduced to support micro enterprises and not to be an alternative to employment, the Ministry of Finance is set to act against this trend.

According to the amendment already passed by Parliament, the most important change is that from 1 January 2021, the amount received from the same partner exceeding HUF 3 million (approximately EUR 8,500) will be subject to a special ‘punitive’ tax of 40% in addition to the monthly flat tax. This surplus tax would not directly affect KATA entrepreneurs, but should be borne by their business partners.

Meanwhile, the Hungarian tax authority also announced that in the second half of 2020, it will pay special attention to contracts and transactions with KATA taxpayers in order to detect and fight hidden employment. The tax authority should be more than capable to do so: as of 1 July 2020 KATA taxpayers also need to report their invoices to the tax office platform instantly.

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

After a few weeks of enjoying the easement of travel restrictions, with Europe leading the way, the Hungarian government adopted new rules applicable to travellers coming to Hungary. The new rules are applicable for travellers with private passports. Freight traffic is exempt. So, holiday bookings and business trips must be put on hold, yet again?

The answer depends on the country from the which the travellers come, more specifically the newly received colour label this country has. This is because the new rules establish a completely new classification system for countries, depending on the severity of the pandemic situation there: green, yellow and red labelled countries, where green refers to less infected, while red refers to the most infected territories. The new restrictions apply depending on which coloured country the traveller is coming from.

1. Restrictions for Hungarian citizens and non-Hungarian citizens having permanent residence in Hungary

Travellers coming from a green labelled country face no restrictions.

Travellers coming from a yellow or red labelled country must undertake a COVID test when entering Hungary. If the test results are positive, the travellers must stay under officially set or supervised home quarantine. If the test results are negative, the travellers must stay under supervised home quarantine for 14 days unless they have two consecutive negative tests (taken 48 hours apart within 5 days prior to entering Hungary).

2. Restrictions for non-Hungarian citizens

Travellers coming from a green labelled country face no restrictions. However, if COVID symptoms are experienced within 14 days after entering Hungary, they must stay at their accommodation and inform the pandemic authorities.

Travellers coming from a yellow labelled country must undertake a COVID test when entering Hungary. If the test results are positive, they may not enter Hungary. If negative, they may enter Hungary but must stay under officially set or supervised home quarantine unless they have two consecutive negative tests (taken 48 hours apart within 5 days prior to entering Hungary).

Travellers coming from a red labelled country may not enter Hungary.

3. Transits

For the purpose of transit, travellers may enter Hungary if they undertake a COVID test and the test results are negative. Transit travellers must leave the country within 24 hours.

4. Leniency application and business trips

From the general rules, the police may accept leniency applications if certain circumstances allow for such special appreciation – e.g. participations at a court procedure, due to family reasons, etc.

The new rules also left some room for business travels among joint ventures. The restrictions do not apply to green labelled countries anyways. However, the restrictions are also waived in the case of yellow labelled countries if the traveller adequately substantiates the business reason of the trip e.g. by showing the invitation or the employment contract.

5. Green, yellow and red countries

Currently, Albania, Bosnia, Belarus, Kosovo, North-Macedonia, Moldova, Montenegro and Ukraine from Europe, all Asian countries except for China and Japan, all African countries, all American countries except for the USA and all countries in the Oceanian territory are labelled red. Bulgaria, UK, Norway, Russia, Portugal, Romania, Serbia and Sweden from Europe, China, Japan and the USA are labelled yellow.

All other countries are labelled green for now. The classification of countries will be revised on a weekly basis.

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As seen from the above, lawmakers are trying to slow down international travels (again) in order to prevent the potential new wave of the pandemic.

Thinking back of the pandemic-triggered law making during the spring, we see that interim laws resulted in the lifting of certain procedures requiring personal contacts. Most of these rules are still in force despite that the state of emergency was already revoked in order to still mitigate personal contacts and eliminate unnecessary travels where not essential.

For example, rules allowing companies to hold shareholders’ meetings or render decisions via electronic means remain applicable until 31 December. These rules allow the management, supervisory or audit boards to continue functioning without affecting the company’s day-to-day activity. Also, a number of administrative and procedural rules allow people to communicate electronically with official bodies or to participate in legal process from home (e.g. written testimony). These rules all contribute to limiting the number of personal contacts, and potentially unnecessary travels.

By Alexandra Bognar, Attorney at Law, Schoenherr

Cerha Hempel’s Budapest office has helped set-up a new company – Cetin Hungary – by way of a de-merger from Telenor Hungary.

The newly formed network infrastructure service company purchased the assets of Telenor Common Operation and started operating on July 1, 2020. According to a Telenor press release, “this is part of the regional project of the Czech PPF Group, the owner of Telenor companies in the CEE region and the majority owner of Telenor Hungary, aiming to further strengthen its strategic telecommunications investment in Bulgaria and Serbia, as well as in Hungary.”

According to that press release, “separating active and passive infrastructure from mobile consumer retail will enable Cetin Hungary to maximize commercial opportunities, exploit the improved potential for wholesale partnerships and create technological infrastructure synergies within the Cetin Group, while extensive, 24/7 supervised networks, including active and passive elements, IT infrastructure and cybersecurity services will enable provisioning of superior voice, data, and other telecommunications services by Telenor Hungary and also to other wholesale customers.”

In 2015, Telenor Hungary’s majority shareholder, the PPF Telecom Group, successfully completed a similar transaction in the Czech Republic. Together with their Czech counterpart, the newly founded three CETIN companies will become the telecommunication infrastructure backbone of the PPF Group in CEE.

Cetin Hungary’s management is led by CEO Tamas Otvos, with Balazs Toth, who joined Telenor Common Operation in April as Legal Director in Hungary — as reported by CEE Legal Matters on April 28, 2020 — serving as Legal & Compliance Director.

Cerha Hempel’s team consisted of Partners Zita Albert and Andrea Presser and Associate Roland Szebenyi.

According to Albert, “the challenge from a legal perspective on this transaction was the novelty of Cetin representing the first telecommunication service provider company in Hungary.”

The healthcare emergency situation has accelerated the digitisation of tasks and processes in a wide range of areas. Enforcement proceedings based on notarial deeds are no exception, where an electronic procedure became mandatory a few months ago. The only question is how long the signature itself will still need to be in writing.

What is a notarial deed good for?

The most important feature of a notarial deed is that it is directly enforceable. That is, if the obligor fails to perform its obligation under a notarial deed, the obligee may immediately request the enforcement of the obligation based on such document. In most cases, doing so helps to avoid a lengthy court procedure. Notarial deeds can be most commonly found in bank financing, where the bank requires the debtor to sign the loan agreement and the collateral agreements in a notarial deed as a condition of the loan. In addition, this format is also often preferred in commercial relations today. Thus for example, in the case of an appropriately worded statement included in a notarial deed, a landlord can expel a non-paying tenant from his or her property without litigation. But the legal position of a market participant is equally improved if its debtor acknowledges its debt in a statement made before a notary.

Notarial deed: from paper to electronic form

Like all documents, notarial deeds are traditionally drafted on paper. This is then signed by the parties before the notary, who keeps the document and provides certified copies thereof to the clients.

The first stage in the development of notarial deeds was when the notary could issue an electronic copy of the paper-based document. What this means is that the notary scanned the original document, affixed its electronic signature and time stamp to it and handed it over to the parties in the form of an e-file. More recently, however, it has also been possible for a notary to create the notarial deed in electronic form in the first place. This is subject to the condition that each of the signatories have an electronic signature and affix that to the statement instead of a handwritten signature. It should be noted, however, that this does not replace either the obligation to appear before the notary or the reading of the document, which often takes hours. So there is still room for improvement.

When enforcement also becomes electronic

The notarial deed fulfils its real function when the parties intend to enforce the claim based on it. In the past, this was only possible on paper: the interested party personally initiated the enforcement of the notarial deed before the notary by presenting it (together with the necessary annexes).

However, from 1 April this year, the situation has changed. Entities subject to electronic communication (i.e. companies, public bodies and their legal representatives) can now only initiate enforcement proceedings by submitting an online application. In addition, they must also submit the documents on which enforcement is based (such as the notarial deed in question) in authentic electronic form. That is, if someone does not possess an electronic copy of the document (or did not sign the notarial deed electronically), then he or she must first request that the authentic instrument be digitised and only then can initiate enforcement. This provision will encourage business entities to get their notarial deed issued electronically in the first place or to request an electronic copy immediately.

What is there to come?

The quarantine has given a big boost to the spread of digital and online solutions in all aspects of life. Linking enforcement procedures to electronic form further strengthens this process. Therefore, market operators (such as banks, financial companies, but sooner or later also individuals) should consider if the actual physical signature of their documents is still viable in the long run. At the end of this process actual hand-signed documents will be a real relic.

By Boglarka Zsibrita, Attorney at Law, Jalsovszky

Hungary’s Jalsovszky law firm has announced that, going forward, its Capital Markets & Regulatory Group will operate as an independent practice.

According to the firm, “Jalsovszky has a long history of servicing investment funds and investment fund managers. This will continue to be one of the strongest area of the separate practice. Otherwise, the [range of] activities covered by the practice is wide, ranging from the regulatory affairs of financial institutions to bond issuance and stock market transactions. Apart from Hungarian domestic advice, the lawyers of the practice are also have an understanding of the complex EU regulation of this area.”

The new Capital Markets & Regulatory practice will work, the firm reports, “in strong co-operation with the Tax advisory focus of the firm.” It will be led by Managing Partner Pal Jalsovszky and include Attorney Akos Barati (whom the firm describes as ” the key operative figure of the new practice”) and Junior Associate Eszter Berki.

Hungarian lawyers Boglarka Borbely, Adam Gyorgy, and Krisztian Osztopani have been promoted to Partner at SBGK.

According to SBGK, the three “have been working at SBGK as attorneys at law for many years and earned a professional reputation with their outstanding expertise, dedication to the legal community, professional and academic performance, and niche contribution to the business development activity.”

Boglarka Borbely, who specializes in public procurement, joined SBGK in 2014. She has a Masters’ degree from the Eotvos Lorand University Faculty of Law. Prior to joining SBGK she spent almost a year with the Hungarian Ministry of the Interior.

Adam Gyorgy “has recently been involved in complex IP contentious cases and he represented a client before the Court of Justice of the European Union,” according to SBGK. He has a JD, an LL.M., and a Ph.D. from the Eotvos Lorand University as well as an LL.M. degree in Intellectual Property and Competition Law from Munich Intellectual Property Law Center. Prior to joining SBGK in 2012, he spent almost half a year with Hogan Lovells.

Krisztian Osztopani has “established a unique data protection and data privacy practice group,” reports SBGK, adding that he “provides a full scope of legal advice on data protection and data privacy and he serves as a data protection officer at some of his clients.” He has a JD from the University of Pecs. Prior to joining SBGK in 2018, he spent over six years with the National Authority for Data Protection and Freedom of Information of Hungary.

“The appointment of three excellent young colleagues to partner is not only a recognition of their efforts and work but also a milestone in the life of the firm,” said SBGK President Katalin Szamosi. “This is the first time that three colleagues have been promoted as partners at the same time, moreover from three different legal areas. This is proof and confirmation of work of many years which have led SBGK Attorneys at Law to become an innovative and trustworthy professional partner in other areas of business law, beyond intellectual property law.”

The three new partner appointments increases the number of SBGK partners to 11.

To this day, the domestic legal system has remained silent on how contracts concluded by email should be treated. However, legislation recently adopted in relation to the COVID-19 pandemic explicitly allows communication via email between a company and its private-individual members. Could this be the first step towards a more comprehensive legal acceptance of emails?

We send and receive hundreds of emails every day and electronic messaging has become an integral part of our lives. And it’s become perfectly normal for us to document our agreements in an email exchange. So it may come as a surprise that our legal system is still not clear on how such an agreement should be treated.

The limits of email

The Civil Code devotes several paragraphs to electronic contracting, such as when we order something through a website. However, it does not consider contracts concluded by electronic mail as electronic contracting.

In certain cases, it is a legal requirement for a contract to be established in writing. According to the Civil Code, a declaration (and a contract concluded in this way) is also deemed to be in writing if it is communicated in a form that allows for the contents of the statement to be retrieved in unaltered form, and for the person who made the declaration and the date on which the declaration was made to be identified.

Can a declaration made by email be regarded as such? According to the advisory board set up to interpret the new Civil Code: “it depends”. The courts must decide on a case-by-case basis, taking into account all the circumstances, whether an agreement concluded by email constitutes a written contract. Thus, there is no clear rule as to whether, for example, a quota purchase agreement concluded by email (for which the Civil Code requires it to be in writing) is valid or not.

What could then be the weight of an agreement made by email?

In the absence of a common position, agreements concluded by email can be classified, for want of anything better, as implied contracts. That is, the email is just one piece of evidence of an agreement between the parties. The actual subject-matter of the agreement between the parties therefore also depends on other circumstances, such as the conduct of the parties before or after the email correspondence. So if we conclude a contract, say, for the delivery of 10 tonnes of goods by email and the supplier only delivers 8 tonnes, which I accept, I may not be able to assert a claim later for the remaining two tonnes. This situation is anything but reassuring considering the fact that we conclude contracts by email on a daily basis.

But there’s something new…

The legislature threw a stone into this somewhat murky stagnant water a few months ago. Albeit only with regard to in-company communication, but also in response to the expectations created by social distancing, a government decree recently stated that communication between a company and its private-individual members can now be conducted by email, and thus such an exchange of communication is equivalent to being in writing. In other words private-individual members in a company can now cast their votes by email at their general meetings, and this will still be considered a valid vote. It is comforting to see that practical needs can override the theoretical polemics of contractual law. And, indeed, this rule is certain to remain with us until 31 December 2020, even after the end of the state of emergency. What will happen to it afterwards is anyone’s guess.

But does one swallow make a summer?

The jury’s still out as to whether legitimating emails between the company and its private-individual members will lead to further change in contract law. Will it, for instance, eventually be possible to conclude a loan contract by email? Or enter into a maintenance contract while sitting in front of the computer, or stipulate a penalty – all these are required to be in writing. One thing is clear: legislators will have a hard time trying to squeeze the genie back into the bottle and will need to line up forceful arguments if they are to reverse this process, which for the time being only affects email exchanges between companies and their members.

By Ágnes Bejó, Senior Attorney, Jalsovszky

The Act on the termination of the state of emergency declared by Government Decree No. 40/2020 and on the transitional provisions in connection with the termination of the state of emergency were was adopted on 16 June 2020, meaning that the special provisions introduced during the state of emergency will not be applicable or may be of limited application subsequently. Dr. Nóra Óváry-Papp, lead attorney and dr. Helga Lieszkovszky, associate of Baker McKenzie Budapest summarize the expected changes in the legislative environment regarding the termination of the state of emergency. 

The proposal on the transitional provisions contains numerous rules on the specific application of the provisions of Act I of 2012 on the Labour Code (hereinafter referred to as: Labour Code) during the period following the termination of the state of emergency. Pursuant to Government Decree No. 47/2020, the employer could depart from the provisions of the Labour Code regarding the communication of work schedules until 1 July 2020. Subsequently, work schedules will need to be communicated in compliance with the provisions applicable before the state of emergency was declared, meaning that the employer must modify the already communicated work schedule at least 96 hours before the start of the daily working hours according to the work schedule in order for the modified work schedule not to qualify as overtime work. The transitional provisions do not affect the rules of the Labour Code allowing employers to modify a work schedule within 96 hours in justified cases without the modified work schedule qualifying as overtime work, upon the occurrence of unforeseen circumstances in the employer’s business or financial affairs.

The employer is entitled to unilaterally order home-office or remote work for the employee until 1 July 2020., following which, the employer must adhere to the provisions applicable before the state of emergency, meaning that where remote work exceeds 44 working days or 352 scheduled hours, the agreement of the parties will be necessary. Thus, if the employer wishes to employ its employees in home-office or through remote work after 1 July, it is necessary to consider the amendment of the employment contract, the review of the applicable regulations and the preparation of the risk evaluations with regard to the long term and regular home office or remote work.

The employer may take necessary and justified measures to ensure the health of its employees until 1 July 2020. The opportunity of the employer and the employee to depart from the provisions of the Labour Code by mutual agreement also available until 1 July 2020. 

Employers are allowed to unilaterally use a reference period scheduling system for a period of 24 months* during the state of emergency; which is significantly longer than the maximum four and six month long reference periods allowed by the Labour Code.The termination of the state of emergency will not affect reference period scheduling established during the state of emergency. Subsequently, the use of reference period scheduling for longer than six months will only be allowed with the permission from the minister responsible employment in case of an investment for the purpose of creating jobs by the employer. The employer in this case would be allowed to establish reference period scheduling or a payroll period – with regard to the applicable provisions of the Labour Code – for a base period of maximum 24 months, if the implementation of the investment is in the interest of national economy.

Certain inspections for work safety purposes may be delayed for 60 days following the termination of the state of emergency (such as the inspection of dangerous work equipment). This does not affect the obligation of the employer to prepare risk evaluations in compliance with the provisions of labour protection law, and to review the risk evaluations with regard to the pandemic and employees’ return to work.

The proposal contains transitional provisions on the social security contribution tax and the social security contribution payment subsidies, which will be available until the end of June 2020.

The job-retention subsidies introduced during the state of emergency (the reduced-hours subsidy and the subsidy related to research and development employees) may be requested until 31 August 2020 according to the transitional provisions of the proposal. The requests must therefore be submitted by 31 August regardless of the fact that the payment of the subsidy may take place after that date.

In contrast, the final date to apply for the subsidy aimed at the creation of jobs, available from 18 May 2020, is not set by the proposal. Therefore this subsidy will be available until the revocation of the publication that established it.

*In Hungary, the employer can organize the employee’s working time in a flexible way, through applying a so-called reference period scheduling system rather than applying a fix 8 hours per day / 40 hours per week system. If an employer adopts such a reference period system, the normal working time of the employee may be scheduled in a way that it may exceed the general 8/40 hours limit, but still must be within the 12/48 hours limitation and in the average of the reference period must correspond to the general 8/40 hours limit. This is referred to as “reference period” herein.

By Nora Ovary-Papp, Lead Attorney, and Helga Lieszkovszky, Associate, Baker McKenzie