General screening mechanism

Temporary screening mechanism

Scope

Foreign investor is defined as (i) a non-EU/EFTA national or; (ii) a non-EU/EFTA legal entity; or (iii) a legal entity registered in an EU/EFTA member State, if the person with a controlling interest is a non-EU/EFTA national or legal entity who acquires ownership or interest in a Hungarian company.

Screening is mandatory where a foreign investor seeks to establish an enterprise important to national security or acquire a stake in such an enterprise which: (i) exceeds 25% (10% in case of a public company); or (ii) leads to a controlling interest; or (iii) would result in the combined shares of foreign investors in such an enterprise (with the exception of public limited companies) exceeding a total of 25%. Sectors which are important to national security include firearms and military equipment, dual-use products, financial services credit institutions, the supply of electricity, gas and water, electronic communication and information systems of government agencies.

The definition of foreign investor is extended to also include any legal person or other organisation registered in the EU (including Hungary) that acquires a share of ownership or control in a Hungarian strategic company as defined by government Decree 289/2020, provided that the person with majority control is a non-EU/EFTA national or legal entity.

The notification requirement is triggered by the (i) transfer of shares; (ii) increase of capital; (iii) transformation, merger or division; (iv) issuing of bonds; and (v) establishing a right of usufruct over a share provided that (i) the total value of investment reaches or exceeds HUF 350 million (approximately EUR 1 million) and the foreign investor acquires, directly or indirectly, majority control or at least 10% ownership; or (ii) the foreign investor acquires 15%, 20% or 50% ownership; or (iii) the acquisition would result in a combined total share of foreign investors exceeding 25%. 21 sectors are defined as strategic.

Review criteria

The Minister of the Interior examines whether the notified acquisition or new activity threatens Hungarian security interests. The Minister of the Interior has a broad discretionary power with regard to this notion.

The Minister for Innovation and Technology assesses whether the investment (possibly) violates or compromises Hungarian state interests (public interest related to the security and operability of networks and equipment, and the continuity of supply), public security or public policy, with particular regard to the security of meeting fundamental social needs.

Application procedure

Acquisitions within the scope of the mechanism require a written notification. The notification must provide detailed information on the foreign investor, including its business activity, its ownership structure and on the planned transaction. All information must be submitted in Hungarian language or supplemented by a certified Hungarian translation. Under the temporary screening mechanism, legal representation is mandatory, and the notification must be submitted electronically.

Filling fees

The FDI screening legislation does not provide for filing fees under either screening mechanism.

Implementation and government practice

The competent Minister can (i) acknowledge the notification or (ii) issue a prohibition decision. FDI screening being a novelty in Hungary, no relevant case law or guidelines are available yet.

Due process

The foreign investor may appeal a prohibition decision adopted by the Hungarian Minister under both mechanisms to the Budapest Capital Regional Court (Fővárosi Törvényszék) for violation of essential procedural rules or in relation to the substantive assessment.

Time limits

The notification deadline is ten days from the relevant legal transaction. The competent Minister has to confirm receipt of the notification within eight days. The Minister has to decide within 60 days, the review period can be extended by another 60 days under certain circumstances.

The notification deadline is ten days from the relevant legal transaction. The competent Minister has to confirm receipt of the notification within eight days. The Minister has to decide within 30 working days, the review period can be extended by up to 15 days in particular cases.

Confidentiality

The screening procedure is not public and the competent Minister must protect business secrets. The statement of reasons of a prohibition decision may not include any classified data. The competent Minister keeps records of the acknowledgements of the notifications as well as of the prohibition decisions for a set period.

Sanctions

Non-compliance with statutory obligations is subject to a fine of up to HUF 1,000,000 (approximately EUR 2,800) if the foreign investor is a natural person or up to HUF 10,000,000 (approximately EUR 28,000) if the foreign investor is a legal entity. If additionally, a threat to Hungarian security interests is deemed to exist, the Ministry will order the unwinding of the acquisition. A transaction which was not notified as required or was implemented despite a prohibition decision is null and void.

Non-compliance with statutory obligations is subject to a fine of up to two times the value of the transaction, but at least exceeding HUF 100,000 (approximately EUR 280) in case the foreign investor is a natural person, or 1% of the net turnover in the last business year of the strategic company targeted in case the foreign investor is a legal person. A transaction which was not notified as required or was implemented despite a prohibition decision is null and void.