Hungary: Investing

FDI in Figures

Hungary maintains a high per capita stock of foreign direct investment FDI for Central and Eastern Europe standards. However, the 2009-2010 crisis has strongly affected FDI flows to the country and since then the volume of inward flows has been lower. According to UNCTAD's World Investment Report 2024, FDI inflows decreased to USD 6 billion in 2023 compared to USD 9.3 billion one year earlier; whereas the FDI stock stood at USD 118.9 billion. Data from the Hungarian Investment Promotion Agency shows that 209 FDI deals were finalized in 2023, creating around 19,700 new jobs and retaining tens of thousands. Asian investors accounted for nearly 82% of the total investment volume and two-thirds of new jobs. The automotive and electronics sectors continued to dominate the FDI landscape. In terms of stock, the main investors at the end of 2022 were Germany (18.1%), Austria (9.3%), South Korea (8.9%), the United States (8.6%), and France (4.9%), with Europe as a whole accounting for 63.1% of the total. In terms of net liabilities, the main sectors receiving FDI are manufacturing (47%, especially transport equipment, at 10.7%), wholesale and retail trade; repair of motor vehicles and motorcycles (10.3%), financial and insurance activities (9.7%), professional, scientific and technical activities (8.4%), real estate activities (8.1% - data Hungarian Central Statistical Office). According to the latest figures from the OECD, in the first semester of 2024, Hungary registered an investment inflow worth only USD 400 million. China, South Korea, and Japan dominated Hungary's FDI landscape in 2024, accounting for nearly 80% of the total 4,000 billion forints (9.97 billion USD) in new investments (official governmental data).

Hungary has benefited in recent years from a change in the direction of FDI from low-value textile and food-processing sectors to wholesale, retail trade and repair of vehicles. The country’s central location and high-quality infrastructure have made it an attractive destination for FDI. Furthermore, it has one of the lowest corporate tax rates in Europe. However, the demographic decline of the country and the slow progress of the education system impede crucial structural transformation, with several foreign companies identifying shortages of qualified labour as the main obstacle to investment in Hungary. The national foreign investment screening mechanism requires foreign investors seeking to acquire more than a 25% stake in a Hungarian company in sensitive sectors - such as defence, intelligence services, certain financial services, electric energy, gas, water utility, and electronic information systems for governments - to seek approval from the Interior Ministry. Furthermore, approval from the Ministry of Innovation and Technology (MIT) has to be sought for greenfield or expansion of existing investments. Recently, analysts and Western investors have been increasingly concerned about the Hungarian government's preferential promotion of domestic ownership at the expense of foreign investors in sectors such as banking, media, energy, retail, utilities, telecommunications, and insurance. Overall, Hungary ranks 76th among the 180 economies on the Corruption Perception Index and 72nd out of 184 countries on the latest Index of Economic Freedom.

Foreign Direct Investment	2020	2021	2022
FDI Inward Flow (million USD)	7,047	7,559	8,571
FDI Stock (million USD)	102,128	104,788	104,254
Number of Greenfield Investments*	100	121	96
Value of Greenfield Investments (million USD)	3,760	6,372	12,420

Source: UNCTAD, Latest data available.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

FDI STOCKS BY COUNTRY AND INDUSTRY

Main Investing Countries	2022, in %
Luxembourg	26.6
Switzerland	19.4
Canada	12.3
United Arab Emirates	7.0
Netherlands	5.8
Germany	5.2
Austria	3.6
United Kingdom	3.6

Main Invested Sectors	2022, in %
Manufacture of coke, and refined petroleum products, chemicals and chemical products, pharmaceuticals, medicinal chemical and botanical products	10.3
Wholesale and retail trade; repair of motor vehicles and motorcycles	9.5
Manufacture of transport equipment	9.3
Real estate activities	8.6
Professional, scientific and technical activities	8.1
Financial and insurance activities	7.8

Source: Hungarian Central Statistical Office, Latest data available.

Form of Company Preferred By Foreign Investors: The most common for foreign investors are the company limited by shares (Rt.), which may be public (Nyrt.) or private (Zrt.), and the limited liability company (Kft.)
Form of Establishment Preferred By Foreign Investors: The most common for foreign investors are the company limited by shares (Rt.), which may be public (Nyrt.) or private (Zrt.), and the limited liability company (Kft.)
Main Foreign Companies: General Electrics, Audi, Nokia, Sanofi, Strabag AG, E-ON, Philips, Tesco, T-Com, Suzuki.
Sources of Statistics: KSH
Eurosat

What to consider if you invest in Hungary

Strong Points

Strong points for FDI in Hungary:

Hungary is widely considered to be the gateway to Central and Southeast Europe, which makes it an attractive market for foreign investment.
Hungary's labour force is highly educated and skilled with a particular emphasis on engineering, medicine and economics.
The labour force is also cheap which allows the country to optimally integrate itself within the European production chain and to be considered as an efficient production workshop.
Hungary continues to be one of the fastest growing EU economies. Its financial system is one of the most developed in the region.
Well-established infrastructure and a clear legal and regulatory framework give Hungary a favourable environment for sustainable growth.
Integration in the EU reinforces its political and economic stability, while the support of large international organisations has reduced the effects of the crisis.

Weak Points

Weaknesses for FDI in Hungary include:

Banks suffered heavy losses as a result of debt buyback and speculative investments
The currency (HUF) is prone to depreciation
Low investments in innovation and R&D, a high level of energy dependence and a sometimes fragile banking sector (public and private) put Hungary at risk of a glass ceiling and allow some observers to be alarmed by the capacity of the country to reinvent itself and thus to be able to leave its current economic role.
Cronyism and corruption
Possibility of economic problems because of political conflict with the European Union
Dependency on Russian energy exports

Government Measures to Motivate or Restrict FDI

Attracting foreign investment is a priority for the Hungarian Government. The Government established the Hungarian Investment Promotion Agency (HIPA) with the aim of providing professional help to foreign companies intending to invest in Hungary.

The recovery from the Covid-19 crisis has been facilitated by support measures. To reform the economy and increase competitiveness, incentive measures include:
•    The improvement of the administrative situation and the reduction of formalities
•    The facilitated acquisition of building permits;
•    As part of the EU budget cycle (2021-2027), EUR 52.8 billion will be allocated to productivity, research, development, innovation, infrastructure and renewable energy;
•    To promote investment, the corporate tax rate was lowered to 9%, and the social security contributions to 13%;
•    The government provides special incentive package for investments over a certain value (generally above EUR 10 million), for investors who establish manufacturing facilities, logistics facilities, regional service centers, R&D facilities, bioenergy facilities, or those active in the tourism sector.

Protection of Foreign Investment

Bilateral Investment Conventions Signed By Hungary: To see the list of investment treaties signed by Hungary, consult UNCTAD's International Investment Agreements Navigator.
International Controversies Registered By UNCTAD: Refer to UNCTAD's Investment Dispute Settlement Navigator.
Organizations Offering Their Assistance in Case of Disagreement: ICCWBO , International Court of Arbitration, International Chamber of Commerce
ICSID , International Center for Settlement of Investment Disputes
Member of the Multilateral Investment Guarantee Agency: Hungary is signatory of the MIGA convention.

Country Comparison For the Protection of Investors	Hungary	Eastern Europe & Central Asia	United States	Germany
Index of Transaction Transparency*	2.0	7.5	7.0	5.0
Index of Manager’s Responsibility**	4.0	5.0	9.0	5.0
Index of Shareholders’ Power***	7.0	6.8	9.0	5.0

Source: The World Bank - Doing Business, Latest data available.

Procedures Relative to Foreign Investment

Freedom of Establishment: Guaranteed
Acquisition of Holdings: There are no general limits on foreign ownership or control: up to 100% foreign ownership is permitted, with the exception of designated "strategic" holdings in some defence-related industries.
However, in recent years the national government announced that at least half of the banking, media, energy, and retail sectors should be in Hungarian hands. This resulted in an increased Hungarian ownership in the banking sector.
Obligation to Declare: In May 2020 a decree has been adopted, according to which investments by foreign investors acquiring an interest exceeding (i) 10 % and a value of HUF 350 million; (ii) 15 %, 20 % or 50 % irrespective of its value, or (iii) 25 % if acquired by more than one foreign investor, require the approval of the Minister of the National Economy. The scope of the decree is wide, involving investments in the following sectors: manufacturing of medicines, medical devices or other chemicals, fuel production, telecommunications, retail and wholesale (including motors and cars), manufacturing of electronical devices, machinery, steel and vehicles, defence industry (e.g. manufacturing and trade of arms and ammunition as well as technologies used for military purposes), power generation and distribution, services connected to the state of emergency, financial services (including insurance, brokering and other services), processing of food (including meat, milk, grains, tobacco, fruits and vegetables), agriculture, transport and storage, construction (including the production of building materials), healthcare, tourism (hospitality and cafeteria services), etc. Such screening mechanism was adopted in response to the COVID-19 epidemic and should be in vigour only until 31 December 2020.
Competent Organisation For the Declaration: Ministry of Interior
Ministry of National Economy
Requests For Specific Authorisations: Since 2018, a law on investment screening is in vigour, requiring foreign investors seeking to acquire more than a 25% stake in a Hungarian company in certain “sensitive sectors” (to seek approval from the Interior Ministry of Interior. Such sectors include defence, intelligence services, electric energy, certain financial services, gas, water utility, and electronic information systems for the public administration.

Office Real Estate and Land Ownership

Possible Temporary Solutions: Consult InstantOffices, Office Finder, CoWorker.
The Possibility of Buying Land and Industrial and Commercial Buildings: Only private Hungarian citizens and EU citizens resident in Hungary and engaged in agricultural activity can purchase farmland, while others may lease it (for up to 20 years). Furthermore, the government has preemptive rights to purchase real estate in World Heritage areas.
Risk of Expropriation: Hungary’s Constitution protects against expropriation, as it may only happen in exceptional cases where there is a public interest, with the obligation for the government to provide immediate and full compensation.

Investment Aid

Forms of Aid: Incentive packages may consist of cash subsidies, development tax allowances, training subsidies, and job creation subsidies.
Privileged Domains: The government provides non-refundable subsidies based on case-by-case government decisions to foreign investments in less developed areas and certain sectors, including R&D, innovation, and high-tech manufacturing.
Privileged Geographical Zones: Incentives are designed to benefit investors who establish manufacturing facilities, logistics facilities, regional service centers, R&D facilities, bioenergy facilities, or those who invest in the tourism industry investments, environmental protection, and the production of films and videos.
Free-trade zones: Hungary does not operate any free zone. Incentives may be available for investments in less developed areas of the country (like the Eastern part of the country).
Development tax incentive may be claimed if certain conditions are met. Aid intensity is 25% in the Western Transdanubia region and 35% in the Central Transdanubia region. The rate goes up to 50% in the Northern Hungary, Northern Great Plain, Southern Great Plain, and Southern Transdanubia regions.
Public aid and funding organisations: Hungarian Development Bank (Magyar Fejlesztési Bank).

Investment Opportunities

The Key Sectors of the National Economy: Agribusiness, pharmaceuticals, energy optimization, renewable energies, transport equipment and related equipment, the health and well-being industry, information and communication technologies. For further details, consult the dedicated page on the website of the Hungarian Investment Promotion Agency.
High Potential Sectors: Environment, Housing, Information and Communication Technologies. For further details, consult the dedicated page on the website of the Hungarian Investment Promotion Agency.
Privatization Programmes: The Hungarian State Ownership Company is the legal successor of the State Ownership and Privatisation Corporation. It is in charge of managing and privatizing state property. Since most state-owned enterprises are now privatised, the process has slowed significantly in recent years. Instead, the local government seemed to reverse the trend, since it has recently taken more ownership or de facto control in certain sectors, including energy and public utilities.
Tenders, Projects and Public Procurement: Ted - Tenders Electronic Daily , Business opportunities in EU
Tenders Info , Tenders in Hungary

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors: Post, public transport. In recent years, the government has increased its ownership share or de facto control over certain sectors, including energy and public utilities.

Finding Assistance For Further Information

Investment Aid Agency: Hungarian Investment Promotion Agency
Other Useful Resources: Official News Portal About Hungary
Budapest Chamber of Commerce and Industry
Doing Business Guides: Hungary Doing Business Guide - The U.S. Embassy in Hungary
Doing Business - Hungary (World Bank)
Hungary 2022 Doing Business Guide (Crowe)

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