Investment ClimateInvestment Climate
With a population of 9.8 million, Hungary has an open economy and GDP of approximately $120 billion. Hungary has been a member of the European Union (EU) since 2004, and fellow member states are its most important trade and investment partners. Macroeconomic indicators are generally strong: the economy grew by 2% in 2016; growth is expected to increase to at least 3% in 2017, based on increasing domestic demand and exports and the resumption of disbursements of EU development funds; the government has kept the deficit below 2.5% of GDP since 2013, thereby avoiding the intrusive EU monitoring mechanism, and has lowered public debt from more than 80% in 2010 to 74% in 2016. All three major ratings agencies upgraded Hungary’s sovereign debt to investment grade in 2016.
Hungary's central location and high-quality infrastructure have made it an attractive destination for Foreign Direct Investment (FDI). Between 1989 and 2016, Hungary received approximately $80 billion in FDI, mainly in the banking, automotive, software development, and life sciences sectors. The EU accounts for 79% of all in-bound FDI; the United States is the largest non-EU investor. The government of Hungary actively encourages investments in manufacturing and high-value added sectors, including research and development centers, and service centers. The government of Hungary industrial strategy targets biotechnology, information and communications technology, software development, the automotive and defense industries, and health tourism as priority sectors for growth. To promote investment, at the start of 2017 the government of Hungary lowered corporate tax to 9% and labor tax to 22% in these sectors, among the lowest rates in the EU.
Despite these advantages, Hungary’s regional economic competitiveness has declined in recent years. Since early 2016, multinationals have identified shortages of qualified labor, specifically technicians and engineers, as the largest obstacle to investment in Hungary. In certain industries, such as media and retail, unpredictable, sector-specific tax and regulatory policies have favored national and government-linked companies. Additionally, persistent corruption and cronyism continue to plague the public sector. Since 2010, Hungary has dropped in Transparency International’s (TI) Corruption Perceptions Index, placing 24th out of 28 EU member states in 2016. Also in 2016, the government of Hungary withdrew from the Open Government Partnership (OGP), a transparency-focused international organization, after refusing to address the organization’s concerns about transparency and good governance. The EU has criticized bankruptcy proceedings for being unfriendly to remediation, leading to a very low average recovery rate of 40 cents on the dollar, compared to the OECD average of 72 cents per dollar. Additionally, some executives in Hungarian subsidiaries of U.S. multinationals have noted that the government of Hungary’s strong anti-migrant rhetoric and actions have negatively affected board members’ views of Hungary, making it more difficult for the subsidiaries to obtain approval for new investments.
The 2015 implementation of the Advertising Tax and a similar new tax on tobacco products has raised concerns with some businesses that indirect expropriation may be possible through discriminatory taxation that disproportionately affects a given company with the intent to force a firm to accept a buy-out by a domestic firm. The EU investigation into the Advertising Tax and subsequent backtracking suggests that the EU is able to enforce marketplace non-discrimination and illegal state aid rules by implementing injunctions. In 2014 and 2015 the government of Hungary introduced taxes which targeted multinational retail chains. In both instances, the EU found the new levies to be discriminatory and obligated the government of Hungary to repeal them. In early 2017, press reported on draft government of Hungary proposals which would again implement new restrictions and taxes on foreign retail chains.
In September 2016, PM Orban told an international audience of the Krynica Economic Forum in Poland that at least half of the banking, media, energy, and retail sectors should be in Hungarian hands. Through windfall taxes, the financial transaction tax, and rescue schemes designed to ease burdens of foreign currency mortgage holders, analysts say the government of Hungary has pushed several foreign-owned banks to sell off their Hungarian business units. German-owned MKB, GE-owned Budapest Bank, and Citi’s retail banking operation have sold their operations to the government of Hungary or other Hungarian investors.
Key Link:
http://www.state.gov/e/eb/rls/othr/ics/investmentclimatestatements/index.htm?year=2017&dlid=269908 Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.
Hungary's central location and high-quality infrastructure have made it an attractive destination for Foreign Direct Investment (FDI). Between 1989 and 2016, Hungary received approximately $80 billion in FDI, mainly in the banking, automotive, software development, and life sciences sectors. The EU accounts for 79% of all in-bound FDI; the United States is the largest non-EU investor. The government of Hungary actively encourages investments in manufacturing and high-value added sectors, including research and development centers, and service centers. The government of Hungary industrial strategy targets biotechnology, information and communications technology, software development, the automotive and defense industries, and health tourism as priority sectors for growth. To promote investment, at the start of 2017 the government of Hungary lowered corporate tax to 9% and labor tax to 22% in these sectors, among the lowest rates in the EU.
Despite these advantages, Hungary’s regional economic competitiveness has declined in recent years. Since early 2016, multinationals have identified shortages of qualified labor, specifically technicians and engineers, as the largest obstacle to investment in Hungary. In certain industries, such as media and retail, unpredictable, sector-specific tax and regulatory policies have favored national and government-linked companies. Additionally, persistent corruption and cronyism continue to plague the public sector. Since 2010, Hungary has dropped in Transparency International’s (TI) Corruption Perceptions Index, placing 24th out of 28 EU member states in 2016. Also in 2016, the government of Hungary withdrew from the Open Government Partnership (OGP), a transparency-focused international organization, after refusing to address the organization’s concerns about transparency and good governance. The EU has criticized bankruptcy proceedings for being unfriendly to remediation, leading to a very low average recovery rate of 40 cents on the dollar, compared to the OECD average of 72 cents per dollar. Additionally, some executives in Hungarian subsidiaries of U.S. multinationals have noted that the government of Hungary’s strong anti-migrant rhetoric and actions have negatively affected board members’ views of Hungary, making it more difficult for the subsidiaries to obtain approval for new investments.
The 2015 implementation of the Advertising Tax and a similar new tax on tobacco products has raised concerns with some businesses that indirect expropriation may be possible through discriminatory taxation that disproportionately affects a given company with the intent to force a firm to accept a buy-out by a domestic firm. The EU investigation into the Advertising Tax and subsequent backtracking suggests that the EU is able to enforce marketplace non-discrimination and illegal state aid rules by implementing injunctions. In 2014 and 2015 the government of Hungary introduced taxes which targeted multinational retail chains. In both instances, the EU found the new levies to be discriminatory and obligated the government of Hungary to repeal them. In early 2017, press reported on draft government of Hungary proposals which would again implement new restrictions and taxes on foreign retail chains.
In September 2016, PM Orban told an international audience of the Krynica Economic Forum in Poland that at least half of the banking, media, energy, and retail sectors should be in Hungarian hands. Through windfall taxes, the financial transaction tax, and rescue schemes designed to ease burdens of foreign currency mortgage holders, analysts say the government of Hungary has pushed several foreign-owned banks to sell off their Hungarian business units. German-owned MKB, GE-owned Budapest Bank, and Citi’s retail banking operation have sold their operations to the government of Hungary or other Hungarian investors.
Key Link:
http://www.state.gov/e/eb/rls/othr/ics/investmentclimatestatements/index.htm?year=2017&dlid=269908 Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.