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Hungary: Restrictions on foreign acquisitions

In In Hungary, the acquisition of strategically important companies by foreign investors is subject to notification until 31 December 2020.

The regulation introduced by Government Decree (“Decree”) 227/2020 (V. 25.) ("RegVO") due to the state of emergency applies beyond the duration of thereof and concerns companies limited by shares (Kft.) and stocks (Zrt.).
The strategic sectors are very broadly defined in the annex to the Decree. For example, strategic sectors include retail and wholesale in general, tourism, transport, logistics, human health services, and construction. More justifiably, critical infrastructure and technologies have been included in the list too.

Primarily, a legal entity not established in a Member State of the European Union or other Member State of the European Economic Area or the Swiss Confederation (and citizens of those states) will be considered foreign. At the same time, companies within the EU, EEA or the Swiss Confederation are also considered to be foreign entities if the majority shareholder is a foreign natural or legal person.

Notification must be filed with the Ministry of Innovation and Technology (ITM) if a foreign person directly or indirectly
• acquires majority ownership, or
• acquires at least 10% ownership and the total value of the investment exceeds HUF 350 million, or
• the extent of ownership due to the acquisition reaches 15%, 20% or 50% in a Hungarian company operating in a strategic sector.

Although companies resident in the EU and EEA countries are not foreign investors, they must also be notified in the case of direct or indirect acquisition of majority ownership.

The ITM may acknowledge the notification, or - if the transaction would result, for example, in harming or endangering Hungary’s state interest, public security or public order - the acquisition can be prohibited. The period for filing notice is 10 days from conclusion of the contract involving ownership, while the Ministry has 45 days from the date of notification to decide.

The Hungarian government states that the aim of the Decree is to have an appropriate tool to prevent the acquisition of affected companies by foreign investors taking advantage of the economic downturn caused by COVID-19 and the immediate drop in turnover in certain sectors.

In our view, the practical application of the Decree raises several questions, to which practical answers will emerge in the coming months. We also find it likely that the Decree will be scrutinized by the European Commission on its compliance with EU law. It seems clear, though, that there will be a particular additional administrative burden on foreign investors by the end of the year.