Investing Guide 2014

Why invest in Hungary?

A guide with useful information and inspiring success stories of investors in Hungary. Investing Guide Hungary 2014 3

PwC welcomes you with offices in and Győr Contents

I. WHAT SHOULD YOU KNOW ABOUT HUNGARY? 5 Location and climate 6 Infrastructure in Hungary 10 Office market 12 Main industries 14 Leading sector in Hungary: automotive 15 Takata to establish first plant in Hungary – Production scheduled to commence in October 2014 16 Interview with Jiro Ebihara, president of DENSO Manufacturing Hungary Ltd. – Re-invest in Hungary 18 Electronics 19 Pharmaceuticals & medical technology 20 Interview with Erik Bogsch, CEO, Richter Gedeon Nyrt. – A flagship of the Hungarian pharmaceutical industry 21 Ict sector 22 Discover ICT opportunities in Hungary 24 Food industry

II. WHY INVEST IN HUNGARY? 25 Overview about the incentives in Hungary 26 Regional aid intensity map 27 Non refundable cash subsidies 28 R&D&I in focus 29 Fast growing and best performing sector 30 Interview with Andor Faragó, General Manager – British Telecom in Hungary 35 Tax incentives

III. HOW DOES ONE INVEST IN HUNGARY? 37 Establishing your business 40 Accounting requirements 42 Hiring and employment 44 Key tax related issues

IV. ABOUTPlease THE HUNGARIANvisit our website INVESTMENT at www.pwc.com/hu. AND TRADE AGENCY (HITA) 49 Introduction of HITA 49 Investing An interview Guide with HungaryJános Berényi, 2013 Presidentwas prepared of HITA by PricewaterhouseCoopers Hungary Ltd. in cooperation with the Hungarian Investment and Trade Agency. Additional content was provided by Absolut Media Please visit our website at www.pwc.com/hu. Co. Ltd. as publisher. V. ABOUT PWC Investing Guide Hungary 2013 was prepared by PricewaterhouseCoopers Hungary Ltd. in cooperation with the Hungarian Investment and Trade Agency. Additional52 Neither PwC content in was Hungary PricewaterhouseCoopers provided by Absolut Media Hungary Ltd. nor the co-authors accept any responsibility for losses Co. Ltd. as publisher. arising from any action taken or not taken by anyone using this publication. It should not be regarded Neither PricewaterhouseCoopers Hungary Ltd. nor the co-authorsas a acceptbasis any for responsibility ascertaining for losses tax liability in speci c circumstances. Professional advice should always be arising from any action taken or not taken by anyonePublished using this by publication. PricewaterhouseCoopers It should not be regarded Hungary Ltd. in cooperation with as a basis for ascertaining tax liability in speci c circumstances.sought Professional before advice acting should always on any be information contained in this booklet. sought before acting on any information containedHungarian in this booklet. Investment and Trade Agency Publishing director: Borbála Palotai, Marketing, Communications and Business © 2013 PricewaterhouseCoopers Hungary Ltd. All rights reserved.© 2013PwC refers PricewaterhouseCoopers to PricewaterhouseCoopers Hungary Ltd. All rights reserved. PwC refers to PricewaterhouseCoopers Hungary Ltd. and may sometimes refer to the PwCDevelopment network. EachHungary member Manager,  rm Ltd. is aPwC separate and may legal entity. sometimes refer to the PwC network. Each member  rm is a separate legal entity. Please see http://www.pwc.com/structure for furtherTel.: details. +36 1 461 9100 (PwC in Budapest) • E-mail: [email protected] Art director:Please Zsolt Dupkasee http://www.pwc.com/structure • Production manager: János Madarász for further details. Photos: Máté Bach, Tamás Novinszki, MTI, Reuters Publisher: Napi Gazdaság Kiadó Kft. © 2014 PricewaterhouseCoopers Hungary Ltd. All rights reserved. PwC refers to PricewaterhouseCoopers Hungary Ltd. and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see http://www.pwc.com/structure for further details. 4 Investing Guide Hungary 2014 Investing Guide Hungary 2014 5

I. What should you know about Hungary? Partner letter

The Hungarian economy may gain new momentum this year from initial growth in Europe and expanding investment activity.

his year promises to be exciting for both has barely affected this sector. Therefore, capital the Hungarian and the world economy. inflow is still strong, especially to industries related to The economic events of the past years have automobile manufacturing. put corporations’ adaptability to the test. We are publishing the Investing Guide Hungary for 1. LOCATION AND CLIMATE TCompanies have been focusing on cost optimisation, the fourth time, in co-operation with the Hungarian realignment, and the re-interpretation of new Investment and Trade Agency (HITA). We hope that our ungary’s central location makes it a Hungary, a market of some 250 million people can be challenges and growth potential. In Hungary, last publication provides you with useful information and an favourite destination for foreign investors reached within 600 miles (about 1,000 kilometers). year already conveyed an important message: the extensive insight into Hungary’s economic developments. who intend to expand their operations EU accession in 2004 brought both commercial and Hungarian economy has found its way back to balance, in Central and Eastern Europe. The regulatory advantages. Becoming an EU Member State which is the basis for growth. The Hungarian economy Hcountry’s telecommunications, transport and logistics brought a free trade system, the free movement of may gain new momentum this year from initial growth infrastructure, and the quality of education and life goods, services and labour, as well as capital. in Europe and expanding investment activity. GDP have attracted large amounts of foreign investment to In addition to all these advantages, another of might increase by more than two percent, which offers Best regards, Hungary in recent years. The capital, Budapest, is the Hungary’s strengths is its well-qualified labour force. favourable opportunities to foreign investors. This Tamás Lőcsei center of the country’s economic activity; however, the Due to the high standards of its education system, the country is still an attractive target market for foreign Service Line Leader main cities are also gaining an increasing role. country has a highly skilled and talented workforce, working capital. This is well proved by the development Tax and Legal Services The country’s favorable geographical location places with professional foreign language skills and relatively of manufacturing investments, for example. Crisis PwC Hungary it at the crossroads of main commercial routes. From low wage requirements. 6 Investing Guide Hungary 2014 Investing Guide Hungary 2014 7

Regions of Hungary The financial crisis has led to a slowing in foreign direct investment, not only in Hungary but Northern Miskolc also in other Central and Eastern hungary Northern European countries. In spite of Great Plain Győr this, Hungary continues to occupy a leading position in this regard. Budapest Central Based on the third-quarter figures Debrecen transdanubia Central for last year, Hungary’s total FDI hungary volume was EUR 76.4 billion, Székes- western fehérvár which, as a ratio of GDP, was the transdanubia highest in the region, and, on a per capita basis, the second highest. Some 76.4 percent of all direct Southern capital investments implemented in Southern Great Plain Hungary originate from the member transdanubia states of the European Union, and Szeged 24.9 percent of this total comes Pécs from Germany. Source: PwC Based on the total number of foreign greenfield investments in Hungary, the percentage of those 2. INFRASTRUCTURE implemented in the Hungarian ECONOMIC DATA manufacturing sector was 37 per cent in 2011 and 2012, while IN HUNGARY AND OUTLOOK: last year this share jumped to 46 General information percent. Location: East-Central Europe Road transportation Time zone: GMT+ 1 hour Population: 9.909 million (2013) Motorway network in Hungary Hungary has a central location in Participation in international organizations: Europe, at the crossroads of four main United Nations, NATO, European Union, OECD, European transportation corridors, IMF, Visegrád Group, Organization for Security including: and Cooperation in Europe (OSCE), Conseil No. IV from northern Germany/ Européen pour la Recherche Nucléaire (CERN), North Sea to the Black Sea; Duna Committee, , World No. V from the Adriatic ports to Kiev- Meteorological Organization, Bank for International Moscow; No. VII – the River and Settlements, International Atomic Energy Agency, Rhine-Main canal, from the North Sea; Wassenaar Arrangement on Export Controls for and Conventional Arms and Dual-Use Goods and No. X the north-south corridor from Technologies the Baltic states to Turkey and Greece. Main industries: automotive, electronics, The largest Hungarian cities – pharmaceuticals, ICT, food Debrecen, Nyíregyháza, Miskolc, Currency: HUF (forint) Kecskemét, Szeged, Pécs, Győr and Székesfehérvár – are all connected to Economic data the capital city, Budapest, by motorways Labour force: 4.419 million (2013 Oct-Dec) (motorway total: 1,099 km). Employment: 4.015 million (2013 Oct-Dec) Hungary has one of the highest Unemployment rate: 9.1% (2013 Oct-Dec) motorway densities in all of Europe Gross domestic product (USD, PPP/capita): and the third highest road density, after 21,456 (2012) Belgium and Holland. Highways reach the Consumer Price Index: 1.7% (2013) borders of the country and the different Inward foreign direct investment: USD 13.73 regions of Hungary. Neighbouring billion (2012) Existing countries are, therefore, easy to access. Source: HITA, 2014 Future development 8 Investing Guide Hungary 2014 Investing Guide Hungary 2014 9

Railway line modernisation (MÁV)

záhony ua

sk miskolc salgó- a tarján

kimle komárom eger nyíregyháza győr

hatvan tata- bánya rákospalota- újpest

Budapest szombat- hely érd debrecen pápa vecsés celldömölk székes- fehérvár boba cegléd szajol

veszprém tiszatenyő zalalövő ro duna- kecskemét bajánsenye zala- újváros mezőtúr egerszeg slo nagykanizsa békéscsaba

dombóvár

lőkösháza kaposvár gyékényes szekszárd

szeged pécs

hr scg

TEN-T network Financed partly by Cohesion Fund, Phase I. (2005–2008) Financed partly by Cohesion Fund, Phase II. (2007–2015) Railway line modernisation Financed partly by ISPA/Cohesion Fund (2001–2007) (GySEV) – 2007-2013 Financed partly by Structural Funds (2005–2007) Financed partly by EIB Ioan, Project IV (2005–2009) V0 Railway (future development) szolnok Major railway station reconstruction International airport Source: HITA, 2014

Railway transportation is 2,628 km (34%). Záhony and its for commercial and seasonal public offer alternative shipping routes from region is the junction and reloading flights in Győr and Pécs. Asia. Lead times from these ports are The country is already a strategic location for Due to its central location, Hungary center for European standard-gauge within 16-36 hours. many international distribution centers, and offers has an extensive railway network. Rail railways and the wide-gauge system Water transportation many advantages for companies that wish to develop transport carries more than 20% of of the CIS states. There is a direct Industrial their logistics centers here in the future. total freight, which is well above the railway connection between China Hungary has excellent waterway & logistics market EU average. Several main train lines and Záhony; the transfer takes connections, as the Danube crosses connect Hungary with the main ports approximately 19 to 22 days. through the whole country from north Hungary’s geographical advantages of Western Europe (e.g. Hamburg (D), to south. The Danube-Rhine-Main make it a popular logistics location. The development activity and transactions M0 ring road. More than 200 Bremerhaven (D), Rotterdam (NL)) Air transportation canal in Europe links the North Sea and country is already a strategic location are concentrated in the vicinity of industrial parks exist for greenfield or and the Adriatic (Koper (Sl), Trieste the Black Sea: several scheduled block for many international distribution Budapest. To date, more than 30 brownfield investment opportunities (I)) with regular services. Hungary has a number of train lines connect Hungary with the centers, and offers many advantages for modern logistics and warehouse countrywide. The total length of the Hungarian international airports: Budapest seaports of Hamburg, Bremerhaven, companies that wish to develop their parks of approximately 1.6 million Logistics activities are the most railway system is 7,729 km, of which Liszt Ferenc International Airport, Rotterdam, and Antwerp on the North logistics centers here in the future. square meters have been developed often outsourced services in Hungary double-track is 1,335 km (17.3%) Debrecen, and Balaton – Sármellék. Sea, and with Koper and Trieste on the Due to its infrastructure and in a 30 kilometer radius around and the sector accounts for up to and the electrified railway network There are also airports that cater Adriatic. The Adriatic seaports also central position, large-volume the capital, primarily along the 5-6% of Hungary’s GDP. 10 Investing Guide Hungary 2014 Investing Guide Hungary 2014 11

3. OFFICE MARKET Vacancy level decreased in 2013 years, only a few office buildings and services of the building. Rents in every submarket of Budapest. The Hungarian office were handed over to tenants in 2012 generally reflect a 15-30% decrease By the end of third quarter of 2013 and 2013. compared to the 2007-2008 levels, There are currently around 3.2 built as speculative investments in overall vacancy rate on the market market is focused The high vacancy rate and, of when rental fees on this market million square metres of office space on Budapest comes to about 2.6 million of leased offices was slightly below predominantly in the course, current market conditions were the highest. Rents have the Budapest office market, including square metres. The majority of this 23%. (In the third quarter of 2012 capital city, although have resulted in decreasing rental probably reached their lowest level owner-occupied buildings. The volume (~70%) is Class A quality. the vacancy rate for offices built on some modern office levels in the Budapest office market. and are not expected to decrease of modern owner-occupied buildings The Hungarian office market a speculative basis came to 26%. At space has also been The rental fee for a typical class further in the new developments, – properties built or renovated after is focused predominantly in the the end of 2007 the all-Budapest built in the biggest ’A’ office building in Budapest is but landlords in older projects and 1989, excluding government-owned capital city, although some modern vacancy rate was around 12%.) regional cities. currently 10-14 €/sqm/month, of secondary locations may be forced buildings – is estimated at 600,000 office space has also been built in Development activity and therefore course mainly depending on the to offer even more attractive rental square metres. Modern office space the biggest regional cities. new supply was limited in recent location, but also on the standard packages. 12 Investing Guide Hungary 2014 Investing Guide Hungary 2014 13

established an R&D center as well 4. MAIN INDUSTRIES as a full-fledged car production plant in 2013 in addition to the Automotive people are active in the sector. car assembly. GM and Suzuki are Serial production of Mercedes- expanding their manufacturing The automotive sector is one Benz cars began in March 2012 in process, too. Due to the fact that of Hungary’s core industries and Kecskemét. Audi has systematically some large multinational companies generates almost 18% of total been expanding since 2008 to have chosen Hungary to locate exports. More than 700 companies establish the world’s second their capital investments, they employing a total of 115,000 biggest engine plant in Győr, and have attracted a lot of equipment Small and medium- sized local automotive companies have also

BORSOD- become stable and ABAÚJ- ZEMPLÉN strategic partners of Hungarian Automotive Players miskolc both locally based and nyíregyháza Western European car salgótarján SZABOLCS- Mosonszolnok NÓGRÁD manufacturers. HEVES SZATMÁR- KOMÁROM- eger BEREG ESZTERGOM Gyöngyös Győr- tatabánya Gödöllő Téglás Moson- győr Hatvan manufacturers and other suppliers. The Hungarian automotive centers in Hungary, including Sopronkövesd Sopron budapest Környe Small and medium-sized local sector’s cooperation with the local Audi, Bosch, Knorr-Bremse, Oroszlány PEST debrecen JÁSZ- automotive companies have also education system is strong and Thyssen-Krupp, Arvin Meritor, szombathe- Dunavarsány Újszász NAGYKUN- HAJDÚ-BIHAR ly FEJÉR SZOLNOK become stable and strategic partners focuses on R&D and on the dual Denso, Continental, Visteon, VAS veszprém szolnok of both locally based and Western vocational training. Numerous WET, Draxlmaier, Edag, Temic székes- fehérvár VESZPRÉM European car manufacturers. multinationals have set up R&D Telefunken, and ZF. Szentgotthárd BÁCS-KISKUN Siófok kecskemét békéscsaba zala- Based on published egerszeg SOMOGY Kiskunfélegyháza ZALA TOLNA Orosháza 2012 financial statements CSONGRÁD kaposvár szek- Kiskőrös BÉKÉS szárd szeged Kalocsa OEMs Net sales revenue Number of pécs (MHUF) employees BARANYA Audi Motor Hungária Kft. 1 612 480 8 177 Magyar Suzuki Zrt. 409 150 2 795 Budapest: SOMOGY CSONGRÁD Armafilt, Autokut, Avvc, Bíró Kft., Bosch, Siófok: Kongsbers Szeged: Autofer Mercedes Benz Manufacturing Hungary Kft. 267 919 2 542 Eltec, Fémalk, Kmgy, Michelin-Taurus, Mikropakk, Opel Szentgotthárd Kft. 25 579 656 Porsche , Siemens Vdo, Tauril, Temic Tele- BÉKÉS FEJÉR Békéscsaba: Csaba Metál funken, TÜV-Nord, Webasto Székesfehérvár: Alcoa, Denso, General Plastics, Orosháza: Linamar Karsai Holding, Loranger, Videoton, Visteon Győr-Moson-Sopron JÁSZ-NAGYKUN-SZOLNOK Győr: Audi, Rába, Lear, Nemak, Dana TOLNA Szolnok: Eagle Ottawa, Euroszol, Isringhausen, Le TIER suppliers Mosonszolnok: BOS, SMR Motherson Szekszárd: BHG, MMG, Pfannenschwarz Bélier Sopronkövesd: Autoliv Újszász: Nabi Bosch Group 580 681 8 609 PEST HEVES VAS Esztergom: Albert Weber, Diamond Electric, Szombathely: LuK (Schaeffler Group), BPW, Eger: Bosch-Rexroth, Firth Rixson, ZF Continental Automotive Hungary Kft. 202 494 2 798 Kirchoff, Suzuki Delphi Packard Gyöngyös: Stanley Electric Szentendre: Hatvan: Michelin Hungária Abroncsgyártó Kft. 185 670 1 645 Szentgotthárd: Opel Szentgotthárd, Arcelor Ford Bosch, Saia-Burgess Dunavarsány: Ibiden Hankook Tire Magyarország Kft. 162 449 2 169 Dunaharaszti: Schwarzmüller BORSOD-ABAÚJ-ZEMPLÉN KOMÁROM-ESZTERGOM Miskolc: Shinwa, Bosch Tatabánya: Asahi Glass, Bridgestone, Gödöllő: Emt, Lear, Nief Plastic Lear Corporation Hungary Kft. 156 260 3 494 Euro-Exedy, Otto Fuchs, Wescast SZABOLCS-SZATMÁR-BEREG LuK Savaria Kuplunggyártó Kft 141 370 1 757 Oroszlány: Borg Warner BÁCS-KISKUN Nyíregyháza: Michelin Környe: AGC Kecskemét: Thyssenkrupp, Knorr-Bremse, Daimler Delphi Hungary Autóalkatrészgyártó Kft. 125 484 1 403 Kiskunfélegyháza: Kunplast-Karsai HAJDÚ-BIHAR VESZPRÉM Kiskőrös: Eckerle Debrecen: FAG (Schaeffler Group) Denso Gyártó Magyarország Kft. 118 428 3 220 Veszprém: Bakony, Continental Teves, Valeo Kalocsa: Emika, Kaloplasztik Téglás: Hajdú Source: Figyelő TOP 200 (2013) Source: HITA, 2014 14 Investing Guide Hungary 2014 Investing Guide Hungary 2014 15 Leading sector in Hungary: automotive Takata to establish first plant in Hungary he automotive industry is the fastest position, highly developed logistics, utilities growing sector of the Hungarian infrastructure makes it important as a regional economy. It has undergone a distribution centre and a service hub for the quantitative and qualitative change CEE region. As a member of the European Tin recent years. The Hungarian automotive Union, Hungary has fully harmonised its Production scheduled industry may be described as clustered legal system, adopting European safety and industry, resulting in companies being able to quality regulations related to automotive to commence in October 2014 take advantage of the benefits of geographical manufacturing. The success of the Hungarian proximity and the existence of critical mass. The automotive industry can be illustrated by the automotive industry has significant role in the number of cars projected to be manufacture by Hungarian economy illustrated by their added 2019 comes to 697,000, out of which 561,000 value, which is 10% of the Hungarian GDP and will be in the premium category. Compared to the number of employees, which is more than 115 other CE countries, this number of premium thousand. category cars is the highest in the region. The basic pillars of the Hungarian As Armin Krug, leader of the Hungarian PwC automotive industry are the OEMs, which Automotive Group expressed: have been settled here as greenfield “In a global comparison, the predicted growth investments, like Audi Hungaria Motor Ltd. of the European automotive industry for the in Győr, Mercedes Benz Manufacturing Ltd. upcoming six years cannot be considered in Kecskemét, Opel Szentgotthárd Automotive significant growth. Regarding the EU countries, Ltd. in Szentgotthárd and Magyar Suzuki the car assembling industry by 2019 is Corporation in Esztergom. These OEMs estimated to take 11% of worldwide growth. In created more than 17 thousand new jobs, they comparison to this, Hungary is in a much more cooperate with several Hungarian universities comfortable situation.“ It is the largest and vocational schools. “In order to fulfill the increasing demand, investment of a Through the presence of OEMs, a significant leading OEMs place their production onto a Japanese company in number of suppliers has established production global level. We estimate that by 2019, seventy- the region. The new capacity in the country, in the entire automotive one percent of German OEMs’ global production industry there are 712 companies. Trends in the will come from foreign factories. Hungary could plant is expected to Hungarian suppliers network typically follow gain a large role in the process because of its contribute towards global trends, namely a multi-level (TIER 1-4 cost effective and labour-intensive high-level invigorating the levels) network. On the TIER 1 level there are production capability.” local economy and mainly foreign companies, while Hungarian- “In addition, besides the factories, the major employment market. owned companies are predominantly on the car manufacturers have realized the benefits TIER 3-4 levels. of creating local R&D centres, which they have Many of the world’s top TIER 1 suppliers are established many of worldwide. This trend offers Tokyo, November 15, 2013 several representatives from the company in the region. The new present in Hungary, like Bosch, Bridgestone, opportunities for Hungary, as is shown by recent – Takata Corporation, a leading Hungarian Government. plant is expected to contribute Continental, Delphi, Denso, Hankook Tires, investments. Furthermore, these investments global supplier of automotive The new plant will be located towards invigorating the local Lear, LuK, Michelin. targeted the fastest rising segment: premium safety systems, announced that in the city of Miskolc in Northern economy and employment market. Some of the TIER 1 suppliers have already car production. So Hungary’s production is they have established a Hungarian Hungary, some 180 km northeast The new plant marks Takata´s established Hungarian R&D centers, of extremely well positioned. The investments in subsidiary named Takata Safety from Budapest. The high-tech entry into Hungary. This step is part which Bosch Group deserves special mention. the last couple of years demonstrate there are Systems Hungary Ltd. to build manufacturing plant will produce of Takata´s initiatives to strengthen Bosch will employ around 1,000 engineers good initiatives in the field of R&D activities a new production facility in airbags and airbag components for its supply structure within Europe at its full capacity, and takes a leading role in Hungary, but I think there is still room for Hungary. car manufacturers in Europe. It is amid growing demand for airbags in the innovation capacity of the Hungarian improvement in order to be more attractive The investment has been scheduled to begin operations in and is addition to the existing plants automotive industry. to high-value-added activities. To create this announced by the Hungarian October 2014 and will employ up to operating in Central and Eastern As Hungary lies along the Eastern part attractive atmosphere, high-level cooperation Government on November 15. The 1,000 people. Total investment in Europe. These include the recent of the EU and is within the Schengen is required between the companies, universities announcement was attended by the the plant will be €68.3 million. It is 2013 inauguration of a new plant in zone, the country’s strategic geographical and research institutes.” Prime Minister Viktor Orbán and the largest investment of a Japanese Ulyanovsk, Russia in August. 16 Investing Guide Hungary 2014 Investing Guide Hungary 2014 17

significant export activity to America and Asia. Throughout advantages does the country have, from an this development, the main challenge for us was to keep investment point of view? the customers’ needs satisfied, which increased year by year. Interview with Jiro Ebihara, president of DENSO Manufacturing Hungary Ltd. We had to pay a great deal of attention to the development Hungary has a centralized location on the continent which of our production capacity, and to human resources. It was is a huge advantage for the country. immense help for us that, in cooperation with the well educated Besides the fact that Hungarian people are well qualified, Re-invest Hungarian workforce, we could easily adapt the Japanese they are honest, clever and hard-working, which human production systems into this factory, which contributed to the features are the cornerstone of a well-functioning and establishment of a strong and cooperative manufacturing plant. continuously developing company. During the past 17 Of course, the economic crisis also affected us, propting us years we have experienced that Hungarian people are in Hungary to restructure our product range. Thanks to these efforts, really motivated, and they are always ready to develop we got through the crisis. themselves. DENSO Corporation, Cost competitiveness, compared to other countries in headquartered in Kariya, Japan, How does DENSO Group evaluate its presence in Eastern Europe, is also a deciding factor when considering is a leading supplier of advanced Hungary? investing in Hungary. automotive technology, systems Hungary has long-standing traditions in the machine and components for the world’s As I already mentioned, DENSO Hungary is the biggest industry. Because of this, there are well-equipped and major car makers. DENSO manufacturing plant outside of Japan, so it has a prepared machine making companies in the country with DENSO operates through more strategic significance in the DENSO Group. Because of this, whom we can cooperate well as suppliers. than 200 subsidiaries and the group headquarter always pays attention to activities in affiliates in 35 countries. It Hungary. Based on the past years’ experience, we feel that Have you experienced any cultural differences employs approximately 130,000 it was a good decision to invest in Hungary, and we plan to between Hungarian and Japanese business life? employees across all aspects of the increase our presence in Hungary in the coming years. automotive business: from sales It’s a great experience of the past years that Hungary is easy and product development to design What does Székesfehérvár mean to DENSO and to adapt to for Japanese people, who are also honest and and manufacturing. DENSO mean to the city? hard-working. I think that Hungarian and Japanese people DENSO Manufacturing Hungary live their life on the same values, which makes cooperation Ltd. was established as a Since our establishment in 1997, we have been given a and common development easy. Of course, there are also Greenfield project in 1997 and is warm response and support in Székesfehérvár that we different cultural customs between the two countries, but it located in Székesfehérvár. Mass appreciate greatly. We can return it by retaining the doesn’t present any problem in business life. production began in 1999. The current workplaces. Besides this we are striving to create company started with diesel new ones and to have an active role in the development injection pumps, but has since DENSO won the European Environmental Award. of the local community. As the biggest company in the experienced rapid growth and How did you earn this prize? region we feel we have social responsibility not only to our now manufactures a wide range of employees, but to the city and the region as well. Our aim powertrain management products. DENSO Manufacturing Hungary’s core products, such as is to live in harmony with the local community, to breathe In Hungary DENSO primarily the advanced fuel systems for diesel engines, known as together with this region and to contribute to a better manufactures diesel common rail the “common rail system” have established themselves in world by developing our environment. It doesn’t mean only system products (supply pump, a growing market within Europe because of their class- theoretical policies; we are committed to realizing concrete injector, rail) and other engine leading performance and their positive environmental control component parts. efforts. For example, currently, in the frame of a CSR contribution. This positive contribution is reflected As the biggest employer in the project (called ‘KÉPES’) we are working together with the in the way the employees carry out their work, and region, DENSO Manufacturing local government and other local companies to renovate these environmental efforts resulted in us winning the Hungary Ltd. employs more than the washrooms in the local kindergartens. 2013 was the ‘European Environmental Award’ in the Management 5 000 people. pilot year for this project, when we were able to carry out category in 2004. This is a great success because we won renewal works at the biggest and oldest kindergarten in the award from among 17 countries and 100 candidates, DENSO Manufacturing Hungary Ltd. Our success is proved by the fact that, during Székesfehérvár. This year our aim is to renovate, altogether, and it was the first time that an automotive company won is one of the biggest employers in the the past 17 years our company in Székesfehérvár 27 washrooms in five kindergartens, which will contribute that prize. DENSO Hungary was able to show that there is region, and has developed continuously has developed into the biggest manufacturing to more pleasant days for more than 780 children. a country and a company where the harmony between the in this country since 1997. What plant within the DENSO Group outside of Japan. environment and business is really important. Of course have been the biggest successes and In contrast to our original activity, which was How do you see the situation of a potential this award was the result of the hard work of the past difficulties in the past 17 years? servicing European customers, currently we have Japanese investor in Hungary, what kind of years of operating in Hungary. 18 Investing Guide Hungary 2014 Investing Guide Hungary 2014 19

ELECTRONICS PHARMACEUTICALS & MEDICAL TECHNOLOGY

he electronics industry is ith the most developed one of the largest industrial pharmaceutical sectors in Hungary, sector in Central accounting for 22% of and Eastern Europe, Ttotal Hungarian manufacturing WHungary provides an ideal base for production. The country is the life science companies planning largest electronics producer in the further expansion in this region, or CEE region, providing 25% of total towards the Balkan states, and the regional production. Around 112,000 more distant markets in Eastern people are employed in the sector. Europe and Asia. In Hungary In addition to several prestigious investors will find renowned OEMs, six out of the top 10 R&D, a strong presence of large Electronic Manufacturing Services pharmaceutical companies, a growing (“EMS”) providers in Europe number of small and medium-sized are present in Hungary (Jabil, biotechnology companies, several Flextronics, Foxconn, Sanmina, fast-growing research institutions Zollner and Videoton). Some of and skilled labour pool with relatively the companies, such as National low wage requirements. Instruments and Jabil, also conduct One of Hungary’s most traditional R&D activities. economic sectors is medical technology, a sector that has seen almost 100 years of widely Major electronics manufacturing acknowledged innovation, highly companies in Hungary specialised technical development and notable exports to the global market. Several Hungarian companies have achieved international recognition with cutting edge products and technologies. A growing number of innovative domestic SMEs as well as several international medtech producers take advantage of the favourable environment and productive workforce in Hungary.

MAJOR PHARMACEUTICAL COMPANIES WITH MANUFACTURING BASE IN HUNGARY

Richter Gedeon, EGIS (Servier), TEVA, Sanofi, GlaxoSmithKline

COMPANIES WITH REGIONAL DISTRIBUTION CENTERS

Pfizer, AstraZeneca, Mylan, Sanofi, Janssen-Cilag

MEDICAL TECHNOLOGY COMPANIES WITH PRODUCTION Budapest ACTIVITY IN HUNGARY Coloplast, GE Healthcare, B.Braun, BD, Hoya, Sauflon, Merck Source: HITA, 2014 20 Investing Guide Hungary 2014 Investing Guide Hungary 2014 21

Interview with Erik Bogsch, CEO, Richter Gedeon Nyrt. A flagship of the Hungarian pharmaceutical industry Richter Gedeon Nyrt. is an innovative, an acceptable level of industrialisation, good logistical specialised pharmaceutical company based in connections, and R&D or export incentives are important. Hungary. It is one of the largest pharmaceutical Based on these considerations Hungary is not attractive companies in Central and Eastern Europe, enough for companies intending to provide services in the and also has a direct market presence in local market today, but for companies seeking a good site Western Europe. In 2013 the company had for certain manufacturing or service-provision activities a stock market value of EUR 2.8 billion and conducted on a global or European scale, Hungary is generated consolidated revenues of EUR definitively attractive. 1.18 billion. Richter’s product range spans What is the secret of successful operation in most of the key therapeutic areas, including Hungary? Where do Richter’s opportunities for gynaecology, the central nervous system, the further development lie? cardiovascular system, the digestive system, and muscle relaxants. The company, which has Committed employees, a stable ownership structure, a the largest R&D centre in Central and Eastern focus on innovation, and a marketing-oriented approach. Europe, focuses its original research activities Richter works consistently to implement its strategy, with on disorders of the central nervous system. the result that in several therapeutic areas (gynaecology, Richter’s widely acknowledged expertise in central nervous system and oncology), it is building a steroid chemistry and its extensive product specialised and globally competitive product portfolio. range for women’s health protection have Richter engages in significant R&D activity in made it a world class pharmaceutical company Hungary. How do you envision the trend in R&D specialised in gynaecology. The company also investments in Hungary in the period ahead? devotes significant resources to the development of biosimilar products. If the regulatory environment remains as supportive of R&D activity as it is now, then there’s a good In your opinion, what factors play the most impor- chance that Hungarian companies will spend even tant role in a foreign company’s decision to invest more on research and development, and that more R&D-intensive investments will be attracted to this economic downturn. Nowadays Hungary has become a regional in Hungary? Based on your experience of invest- country. To achieve this, it is essential to improve the ICT SECTOR around 150,000 employees work incubator for software development, ments abroad, compared to the rest of the region, attractiveness and quality of secondary and higher directly in the sector. including process control software, what is Hungary like as an investment location? education in the natural sciences. overing tele­com­ The major global software game programs and geographical Broadly speaking, we can differentiate between two types of munications, IT developers and hardware producers information technology, focusing on As a Hungarian large corporation, how do you see foreign companies – one type that aim to provide business outsourcing, IT services, are present in the country. car positioning (“sat-nav”) systems. the chances of a Hungarian company embarking or infrastructure services geared to the local market, and and software and Hardware production is centered Hungarian software developers on foreign expansion? the other, global manufacturing companies that are looking Chardware production, the Hungarian in , including have achieved international to relocate certain of their production or service units. For The shortage of domestic capital represents an obstacle ICT market has grown fast in IBM in Vác. The majority of large success in several fields, such as both types of company the transparency of the regulatory for Hungarian companies. The challenge for Hungarian the last couple of years and leads software companies are located in virus protection, bioinformatics, and licencing environment and the competitive nature firms wanting to expand is to raise sufficient capital for the region in computer assembly Budapest. Several IT companies and IT security. The presence and of taxation (corporate, local and personal) are important international expansion, but without losing control of the and communications equipment operate technology service centers successful operation of companies factors. For service companies, besides this, the size and company in the process. The way that Richter achieved this manufacturing. and many of them have relocated such as Ericsson, Oracle and growth rate of the local market and the limitations on was that the Hungarian state retained its 25% stake in the ICT sector was one of the their R&D activities here. ICT Gameloft show further evidence competition are also of key importance. For global product- company while we primarily secured the amount necessary economic sectors which has shown related R&D drives more than a of the high quality of workforce in manufacturing companies, competitive labour costs, for international expansion through capital increases. a constant growth even during the quarter of total R&D expenditure. Hungary. 22 Investing Guide Hungary 2014 Investing Guide Hungary 2014 23

Discover ict opportunities in Hungary

he Hungarian ICT (Information and fever. The demand for the implementation of communications technology) market enterprise applications on mobile platforms and – comprising telecommunications, the growing space for "bring your own device" IT services, IT outsourcing, software have helped to improve corporate efficiency. Tand hardware production – has grown rapidly The increasing usage of mobile devices imposes in the last few years. The ICT sector accounts for a higher burden on telecommunications around 10% of total Hungarian gross domestic infrastructure, leading to system upgrades (i.e. product. fiber-to-the-premises, LTE enhancement). Global key market players in different ICT segments are present in Hungary. Among the big international vendors such as HP, Oracle, Increasing Broadband Internet SAP, Ericsson (IT service providers); Samsung, penetration is a priority goal Flextronics, GE, Nokia (producers); Vodafone, of the Hungarian government. Deutsche Telekom, Telenor, Invitel (Telco), several influential local ICT providers and a new generation of world class startups have Increasing Broadband Internet penetration also emerged, such as Prezi.com, NNG or is a priority goal of the Hungarian government. Log-me-in. Several global ICT companies have Almost half (49.04%) of all households internet selected Hungary to establish their Shared connections are high speed (10Mbps) access, Service Centers and have relocated their R&D reaching the EU average, and very high speed activities, such as IBM, Vodafone, BT, Deutsche (30Mbps) connections even significantly Telekom and Tata, due to the highly qualified exceeding it. The mobile internet market is a but affordable workforce. high performing sector of telecommunications ICT networks, assets and services form a industry, covering 2.66 million active mobile vital part of improving life quality, corporate internet subscriptions in mid-2013. competitiveness and government efficiency. The Following the global trend of more digital literacy of the Hungarian population is sophisticated and growing customer needs ICT continuously growing; people tend to become services have become more diversified in the more open to new technologies, and they are country. Due to the increasing development and e-government. The Hungarian government intends technology, natural sciences and engineering. The fact that willing to invest in accessing them. opportunities of IT services, Telco companies are to maximize the absorption rate of funding available from 2012, 31,000 students - as opposed to the previous The country has reached a level at which looking for borderline areas, where IT and Telco (ca. 1 bn EUR for the cycle), considering it a number one 21,000 - have the opportunity to study these majors is a almost everyone is a mobile customer. There services work hand in hand. A good example is goal. A clear sign of this is the creation of the National great achievement to ensure stable, long-term provision of are around 12 million subscriptions for a cloud computing, which has great perspectives of Infocommunication Strategy 2014-2020, aiming to talent. population of 10 million. The rising penetration 40-50% annual development, making one of the further increase citizens’ access to the „digital ecosystem”. Altogether several factors, such as the talented and of smartphones and tablets is expected to most dynamic sectors of Hungarian ICT market. Hungary has a highly qualified, flexible, but still qualified labour pool with competitive costs, the market continue in Hungary, as they become more The new European Union 2014-2020 affordable workforce in the ICT industry, creating a growth opportunities, the central location infrastructure affordable; the desire of consumers for funding cycle offers great perspectives for ICT- great competitive advantage regionally and globally. in terms of telecoms, power supply and office space, anytime Internet connectivity does not seem related development programs, namely the The government has significantly increased the number and the attractive EU and government incentives, make to be weakening, mostly due to social media development of broadband access, e-business of state-subsidized students majoring in information Hungary the ideal location for ICT sector investments. 24 Investing Guide Hungary 2014 Investing Guide Hungary 2014 25 II. Why invest in Hungary?

Overview about the incentives in Hungary

ne of the competitive advantages Hungary has compared to other countries in the regionO is the Government’s strong commitment to streamlining business processes and to increase the competitiveness of both SMEs and large enterprises through a wide range of available incentives. Both refundable and non- refundable incentives are available for investors coming to or expanding in Hungary. The main types of incentives related to investments are cash subsidies (either from the Hungarian Government or from EU Funds), tax incentives, low-interest loans, or land available for free or at reduced prices. FOOD INDUSTRY 2014 is a year of change in terms The processing of meat, of incentives for the whole European coffee and tea, and the Union and Hungary as well: new lthough its share in the of meat, coffee and tea, and the manufacturing of soft regulations and new funds will be output of Hungarian manufacturing of soft drinks are the available for the period of 2014- drinks are the sectors industry has decreased sectors with the highest share of FDI 2020. As the Hungarian regulations over the past eight-to- in the Hungarian food industry. with the highest share on incentive opportunities are in Aten years, the food processing Multinational companies involved of FDI in the Hungarian accordance with EU state aid rules, industry still remains one of the in vegetable oil processing, and food industry. significant changes are expected, most important sub-sectors of confectionary and snacks, for along with state aid modernization the economy. The food industry example, dominate the sector. initiated by the European Commission employed 126,000 in 2012. There are about 200 large food industry in Hungary’s Foreign Direct for the coming period. Most of the Its export revenues are vital to producers altogether, two-thirds of Investment stock was 2.4%, which new EU regulations are not finalised Hungary’s overall trade balance. which are owned by investors from increased in 2013 with additional yet and will come into force for the Hungary is the only net exporter of abroad. Large producers primarily new investments and re-investments subsequent programming period agricultural and food products in the use Hungarian raw materials. The made by international companies. from 1 July 2014. CEE region. The industry generates processing and preserving of fruits Although industrial players can 8% of the country’s exports. Most and vegetables and the manufacture be found all over the country, the 2014 is a year of food industry companies (more of pet food have also been popular abundance of raw material resources change in terms of determines certain concentrations in than 85%) are micro-enterprises targets. Major foreign investors incentives for the whole that employ fewer than 10 people. include Bonduelle, Bunge, Givaudan, the regions of Central Hungary, the The share of foreign capital in the Globus, Mars, Nestlé, POPZ, and Northern and Southern Great Plain European Union and industry is 47%. The processing Unilever. In 2012 the share of food and Central Transdanubia. Hungary as well Subsidy Alert

21. szám • 2013. december 5. Issue 21 • 5 December 2013

Tudta, hogy változatlan Did you know that regional feltételekkel lehet igénybe non-refundable cash subsidies venni a regionális vissza nem continue to be available under térítendő állami támogatásokat the same conditions until 30 2014. június 30-ig? June 2014?

Regionális támogatási térkép Regional aid map 2013 októberében az Európai In October 2013, the European Bizottság meghosszabbította Commission extended the duration Magyarország 2013. december 31- of Hungary’s regional aid map én lejáró regionális támogatási from 31 December 2013 to 30 June térképét 2014. június 30-ig. Ezzel 2014. This means that incentives lehetőség nyílik 2014. június 30-ig a for investment projects in Budapest budapesti beruházások támogatására, may be provided until 30 June 2014, illetve Pest megyében egységes 30% and the aid intensity rate for Pest 26 Investing Guide Hungary 2014 Investing Guide Hungary 2014 27 maximális támogatási intenzitás county will remain at the maximum marad érvényben. Fontos kiemelni, of 30%. It is important to note that, hogy 2014. július 1-jétől Budapest from 1 July 2014, Budapest and Regionalés Pest aid megye intensity bizonyos települései map certain municipalities in NON-REFUNDABLE CASH SUBSIDIES The main areas that attract nem lesznek jogosultak regionális will no longer be entitled to receive support are investments in jogcímű támogatásra (például regional aid (e.g. investment subsidy, manufacturing (greenfield, (2007-2013 vs. 2014-2020) 1.1. “VIP” investment subsidy brownfield or capacity extension), beruházási támogatás, fejlesztési development tax incentive), and 1. Hungarian budget: The Hungarian Government makes shared service centres (“SSCs”) and he maximumadókedvezmény), available illetőlegThe modificationsKözép- stronglythe affect maximum is a large aid investmentintensity (exceeds rate for EUR Subsidies based on a “VIP” subsidy opportunity available research and development (“R&D”). amountsés Nyugat-Dunántúl of regional maximálisthe Central Hungarian regionCentral Transdanubia50 million): 50% and of the Western maximum Governmental decision for investments greater than EUR 10 Since the introduction of the VIP incentivestámogatási are based intenzitása on a where 5-5 the regional aid intensityTransdanubia aid intensity will be determined reduced in by the 5 (“VIP subsidies”) million that create a certain number subsidy opportunity in 2004, 94 regionalszázalékponttal aid intensity map. csökkenni will vary fog. between 0% and 35%percentage regional point. aid map is available for that of new jobs, depending on the purpose companies have already received TThe map for the period 2007-2013 from 1 July 2014 depending on part of the investment between EUR The main types of cash incentives Hungarian Government support. The following figure gives a summary of and location of the investment. is valid until 30 June 2014 i.e it the location. For Budapest, the 50 million and 100 million, while related to investments are focused on A 2007–2013-as költségvetési időszakra vo- the regional differences between the aid The conditions of the VIP subsidy These companies had decided to applies to grants awarded before 30 intensity ratio will be 0% for 34% of the maximum aid intensity implementing the investment (e.g. natkozó támogatási térkép és a 2014–2020- map for the 2007–2013 budgetary period are determined in a negotiation carry out investments with a value of June 2014. investment subsidies, as in other for that part of the investment purchasing assets, construction work, as költségvetési időszakra kialakított, az and the plan for the 2014–2020 budgetary procedure between the investor and over HUF 2,211.05 billion (cca. EUR From 1 July 2014 the intensity capital cities in the region (e.g. beyond EUR 100 million. Európai Bizottsághoz benyújtott koncepció etc.), creating new jobs and training the Hungarian authorities. If the 8.5 billion) and to create, altogether, ratio in most regions will change, , Prague). Trainingperiod and that wasWhen submitted calculating to the the European maximum egyes régiókra vonatkozó eltéréseit az alábbi of employees. VIP investment subsidy investment is between EUR 10 and approximately 39,000 new jobs. The except in less developed regions R&D subsidies will still be Commission:available available amount of regional can be granted under the current 25 million, the Hungarian authorities Hungarian Government decided to (50% intensityábra ratio foglalja remains). össze: Small in Budapest in the 2014-2020 incentives, all regional incentives legislation until 30 June 2014, the investigate the possibility of grant a total of HUF 174.8 billion (cca. and medium-sized companies are programming period. – including cash subsidies, VIP scheme available after 30 June subsidizing the project from available EUR 582.9 million), paid in tranches, able to increase the intensity by 10 The maximum available aid development tax incentive, etc. – 2014 will have a new legislation EU Funds. Subsidy applications as the projects progress. A large or 20 percentageRegionális points. támogatási intenzitásokintensity decreases maximuma if the investmentMagyarországon* need to be taken into account. in line with the new EU rules. The can be submitted to the Hungarian number of projects have been located summaries below contain the rules Investment and Trade Agency (HITA) in Budapest, Central Transdanubia, applicable until 30 June 2014. either in English or in Hungarian. Northern Hungary and the Northern Maximum regional aid 2007–2013 Great Plain. Furthermore, investment intensities in Hungary* 2014–2020 73 6 Regional aid intensity map in Central volume has been especially high 51 30 in Central Transdanubia and the 10% 82 Hungary for the period of 2014-2020 Budapest 27 43 Southern Great Plain due to some very 36 64 large investments. 0% 34 26 40 63 84 79 86 • Manufacturing investments 56 20% In order to be eligible for the VIP 32 57 17 Northern Hungary 19 85 80 subsidy an investor has to create 50-100 50% 29 35% 25 4 new jobs, and for large investments of 54 10 24 53 55 5 18 50% 75 more than EUR 50 million 100-200 59 20 20%, 35%** 81 new jobs, depending on the region 46 where the investment takes place. 40% 50 The eligible costs for a 60 13 38 22 44 manufacturing investment can be the 83 68 52 15 35% 50% 14 78 purchase of the plot, construction 23 62 21 66 12 16 42 69 costs or building rental fee, 30% 2 70 67 30% 50% Northern Great Plain 48 71 infrastructural costs, the purchase 77 25% 3 of new equipment and machines, Central Transdanubia 0% 76 7 1 intangible assets, etc. The investment 31 9 58 41 period is determined by the investor, 61 49 8 37 47 74 35 and usually does not exceed five 11 Western Transdanubia 39 65 Central Hungary 72 28 years. The commitment period, (except for Budapest) 45 33 starting after the completion of the 50% investment, is five years in the case 1. 19. Galgamácsa 37. Lórév 55. Pilisvörösvár 73. Tésa of large companies and three years in 2. Alsónémedi 20. Gödöllő 38. Maglód 56. Püspökhatvan 74. Törtel 50% 3. Áporka 21. Gyál 39. Makád 57. Püspökszilágy 75. Tura the case of SMEs. 4. Aszód 22. Gyömrő 40. Márianosztra 58. Ráckeve 76. Újhartyán 5. Bag 23. Halásztelek 41. 59. Solymár 77. Újszilvás *Aid intensities depend on the size of the 6. Bernecebaráti 24. Hévízgyörk 42. 60. Szentmártonkáta 78. Üllő 50% investment and whether the investor is 7. Cegléd 25. 43. Nagybörzsöny 61. 79. Vác • R&D Investments a small or medium-sized enterprise. Aid 8. Csemő 26. Ipolydamásd 44. Nagykáta 62. Szigetszentmiklós 80. Váckisújfalu 9. Dabas 27. Ipolytölgyes 45. Nagykőrös 63. 81. Valkó The Hungarian Government places 50% Southern Great Plain intensity is 20 percentage point higher 10. 28. Jászkarajenő 46. 64. 82. Vámosmikola 11. Dömsöd 29. Kartal 47. Nyársapát 65. Táborfalva 83. Vecsés in the case of small businesses and 10 12. Dunaharaszti 30. Kemence 48. Ócsa 66. Tápióbicske 84. Verőce special importance on the development percentage point higher in the case of 13. 31. Kiskunlacháza 49. Örkény 67. Tápiógyörgye 85. medium-sized enterprises. 14. Érd 32. Kisnémedi 50. Pécel 68. Tápióság 86. Zebegény and support of R&D activity and 15. 33. Kocsér 51. Perőcsény 69. Tápiószele ** Aid intensity for Central Hungary is 0%, 16. Felsőpakony 34. Kóspallag 52. Péteri 70. Tápiószentmárton R&D investments. Because of the 17. Galgagyörk 35. Kőröstetétlen 53. Piliscsaba 71. Tápiószőlős except for certain certain municipalities Source: PwC Source: PwC Southern Transdanubia with an intensity of 20% or 35%. 18. Galgahévíz 36. Letkés 54. Pilisjászfalu 72. Tatárszentgyörgy world-class scientific knowledge * Az intenzitás mértéke függ a beruházás méretétől és a beruházó kis- és középvállalkozás státuszától. Kisvállalkozások esetében 20, míg a középvállalkozások esetében 10 százalékponttal magasabb az intenzitás. ** Közép-Magyarországon az intenzitás 0%, azonban egyes településeken elérhető 20%, illetve 35%-os intenzitás.

*Aid intensities depend on the size of the investment and whether the investor is a small or medium-sized enterprise. Aid intensity is 20 percentage point higher in the case of small businesses and 10 percentage point higher in the case of medium-sized enterprises. ** Aid intensity for Central Hungary is 0%, except for certain certain municipalities with an intensity of 20% or 35%.

Az EKD támogatás és fejlesztési Current issues in EKD subsidy adókedvezmény aktualitásai and development tax incentives Az Egyedi Kormánydöntéssel The legislative framework of megítélhető beruházási investment subsidies based on készpénztámogatás (EKD támogatás) individual government decision jogszabályi háttere jelenleg 2013 év (EKD subsidy) is in effect until végéig hatályos, azonban várhatóan the end of 2013, but it is expected 2014 júniusáig meghosszabbítják. to be extended until June 2014. If Abban az esetben, ha az you wish to obtain a subsidy under elkövetkezendő bő hat hónapban a the current conditions during the jelenleg érvényes feltételek mellett next slightly more than six months szeretne állami támogatást igénybe for an investment planned to be venni a közeljövőben megvalósítani implemented in the near future, we tervezett beruházásához, javasoljuk suggest that you start the application a támogatás igénylési folyamat process in December 2013. elindítását még 2013 decemberében. If you are applying for a development tax Fejlesztési adókedvezmény igénylése esetén incentive, we recommend that you gain különös hangsúlyt érdemes fordítani a jogo- eligibility before the end of the year, also sultság megszerzésére még az év vége előtt because most of the eligibility criteria are arra tekintettel is, hogy a támogatásokra based on a base value, which is linked either való jogosultság feltételeinek jelentős része to the year the application process is started egy megadott bázisértékhez kötődik, mely or the start of the subsidized investment. bázisérték vagy a támogatási folyamat indí- Please also note that the Government tásának, vagy a támogatott beruházás meg- Decree on the development tax incentive kezdésének évéhez kapcsolódik. was amended, effective 26 October Egyúttal felhívjuk a figyelmét arra, hogy 2013, and includes the following minor 2013. október 26-ától változott a fejlesztési clarifications concerning the former adókedvezményről szóló kormányrendelet, provisions: amely az alábbi kisebb pontosításokat tartal- » In line with the established practice, mazza az eddigi szabályozással kapcsolato- the Government Decree declares that san: eligibility for the incentive will not be » Az eddig kialakult gyakorlatnak affected, if the actual completion date of megfelelően most már a rendelet is the investment is different from the date tartalmazza, hogy az adókedvezmény originally specified. igénybevételére való jogosultság nem » When a businesses that keeps its books veszik el, amennyiben a beruházás in a foreign currency wishes to use the befejezési időpontja a bejelentetthez képest incentive, the amount of the eligible eltér. expenses actually incurred must be » Azon vállalkozásoknak, amelyek külföldi converted to HUF at the Hungarian pénznemben vezetik a könyveiket, National Bank’s official exchange rate in az adókedvezmény igénybevételekor effect on the last day of the tax year. The a ténylegesen felmerült elszámolható schedules of the government decree have költségeket a Magyar Nemzeti Bank been modified in accordance with the hivatalos – adóév utolsó napján érvényes above changes. – devizaárfolyamának alkalmazásával kell meghatározniuk. A kormányrendelet mellékletei a fenti változással összhangban módosultak.

Amennyiben felkeltette érdeklődését If you are interested in this subsidy a fenti támogatási lehetőség, úgy opportunity, or if you have any questions kérdéseivel forduljon szokásos regarding the above, please contact kapcsolattartó partneréhez, vagy your usual relationship partner or Végső Andreához (tel: +36 1 461 9459; Andrea Végső (phone: +36 1 461 9459; e-mail: [email protected]; e-mail: [email protected]; készpénztámogatások), illetve cash subsidies) or Norbert Izer (phone: Izer Norberthez (tel: +36 1 461 9433; +36 1 461 9433, e-mail: norbert.izer@ e-mail: [email protected]; hu.pwc.com; development tax incentive). fejlesztési adókedvezmény).

Contacts: Tamás Lőcsei Zaid Sethi Dóra Máthé Partner, Service Line Leader Partner Partner [email protected] [email protected] [email protected] Tel: +36 1 461 9358 Tel: +36 1 461 9289 Tel: +36 1 461 9767

Paul Grocott Zsolt Szelecki László Réti Partner Partner Partner [email protected] [email protected] [email protected] Tel: +36 1 461 9260 Tel: +36 1 461 9733 Tel: +36 1 461 9890

János Kelemen David Williams György Antall Partner Partner Partner [email protected] [email protected] [email protected] Tel: +36 1 461 9310 Tel: +36 1 461 9354 Tel: +36 1 461 9870

Réti, Antall & Társai PwC Legal

Subsidy Alert Hungary • Issue 21 • 5 December 2013 PricewaterhouseCoopers Magyarország Kft. • Wesselényi utca 16, Budapest, H-1077 • Tel: + 36 1 461 9100 • www.pwc.com/hu This Subsidy Alert is produced by PwC’s tax department in co-operation with Réti, Antall & Partners, a Law Firm associated with PwC. Réti, Antall & Partners Law Firm • Wesselényi utca 16/A. Budapest, H-1077 • Tel: + 36 1 461 9888 • www.pwclegal.com/hu Legal Disclaimer: This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. © 2013 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. 28 Investing Guide Hungary 2014 Investing Guide Hungary 2014 29

available in Hungary, it is an attractive environment for multinationals (e.g. telecommunications companies, the automotive sector, etc.), which Fast growing and often collaborate with Hungarian R&D&I universities on R&D projects and expand their R&D capacities here. best performing sector In the case of R&D related in focus investments, at least 10 new jobs have he first regional service to be created in connection with the he Hungarian Government continuously emphasizes the centres appeared in R&D activity in order to apply for VIP importance of domestic R&D&I improvement in order to reach Hungary at the end of the investment subsidy. the European levels. As a result of the latest developments, the 1990’s. There are around European Innovation Scoreboard assesses the Budapest area T80 Shared Service Centres (SSC) • Shared Service Centres Tas being on European standard level in terms of innovation capacity, in Hungary, employing more than The number of inquiries and although there is room for further improvement in all other regions of 30,000 workers by now. SSCs have the expansion of already existing the country. In general, a positive trend can be observed in total R&D a proven track record in the country companies show that Hungary is expenditure; corporate R&D resources are growing rapidly and now and leading global corporations an attractive location. A host of exceed public expenditure. operate their centres in Hungary companies looking to streamline their In 2012 HUF 336 billion was spent on R&D&I in Hungary, which is such as Exxon Mobile, British Petrol, global operations through BPO and 1.2% of GDP. The National R&D&I Strategy published in 2013 aims at Vodafone, IBM, Morgan Stanley, SSCs (e.g. IBM, Vodafone, BP, Morgan significantly higher innovation expenditure for the upcoming periods, Citibank, British Telecom and Diageo. Stanley, etc.) have already found 1.8% of GDP by 2020 and 3% by 2030. The SSC industry has become one attractive locations and a productive Among the aims of the Strategy by 2020: of the fastest growing and best workforce in Hungary. In 2013 the • More R&D innovation centers joining the world’s innovation elite performing sectors in the Hungarian following companies decided to invest • Establishing or strengthening global corporate R&D centers through economy. or to expand their already existing promotion Based on a comprehensive and operations in Hungary among them: • Growth-oriented R&D-focused SME’s to find their global market representative survey PwC conducted Computacenter, Greif, Systemax, IT expectations in 2013, SSC leaders are very pleased Services and Morgan Stanley. • Promote innovative start-up companies with the operation of their Hungarian competitive positions in all of these the services provided. The past view In the case of establishing or As proof of the development the number of R&D centers has been centres: the initial targets have areas. that SSCs mainly provide simple and expanding shared service centres, at increased in recent years. Between 2006 and 2012, there was about 19% been met, and setting up the centre When comparing their current standardised low-value, transactional least 100 new jobs have to be created growth, which translates into 574 newly established R&D centres. in Hungary proved to be the right locations to other business level services is no longer true for in general, and at least 200 new jobs Although only 29% of Hungarian businesses have a centre dedicated decision. If the surveyed companies jurisdictions, SSC leaders identified Hungary. The centres, which used in Central-Hungary, to be eligible for to R&D or technology (compared with 42% internationally), they had to decide now, they would a number of areas in which Hungary to offer mainly relatively simple VIP investment subsidy. concentrate on research partnerships, with over 73% having an academic establish their SSC in Hungary again. is more favourable than others. financial services, now manage The eligible costs for VIP subsidies R&D partner (university or public research centre). The survey results also indicate a high These include the availability of a many complex processes such as aimed at creation or expansion of Hungarian Government has been advocating a strengthening of degree of customer and employee highly educated workforce, and the group treasury, external reporting, SSCs are 24 months’ salary and cooperation between research-centers with multinational background satisfaction. More importantly, most of mentality, attitude, problem solving IT, HR, and financial modelling contribution for new employees and the domestic universities, as well as SME’s engaging in R&D. the participating centres are planning skills, and cultural and language functions. Many activities have been employed within a three-year-period. In order to preserve the prominent position of multinational further expansion and growth in the diversity of people working in the transferred to Hungary from the companies’ Hungarian R&D centers in international competition, the country in the near future. sector. Hungary’s IT, telecom and group headquarters that only very The key considerations for selecting Key arguments for availability of highly qualified human resources is guaranteed. For logistic infrastructures were also rated few would have imagined 10 years a location for an SSC are generally investing in the this purpose, the Hungarian education system ensures high-quality as very favourable. Another key area is ago. This could not have happened consistent globally: relatively low that Hungarian SSCs have been very without the Hungarian SSC’s strong, Hungarian Service education and open cooperation and partnership between companies labour cost and the availability of successful and have been delivering reliable and consistently high level Sector and universities. Hungary aims to exploit the available resources as much as possible skilled workforce being the most some very positive results with respect performance. • Availability of skilled labour in order to hit the EU average in terms of R&D investment. The decisive factors. Infrastructure and to quality, ability to quickly transfer Although the majority of the • Cost savings Government intends to provide the most extensive opportunities to the economic environment of the activities from other locations and then SSC sector is currently located in • Cultural compatibility and improve companies’ R&D-related activities. country also play an important role increasing the quality and efficiency of Budapest, the number of centres in language skills when making investment decisions. such processes, and achieving a high the countryside is increasing. Larger • Expertise in particular back- As Zoltán Cséfalvay, State Secretary at the Ministry for National Although quality of life and other level of customer satisfaction. Hungary cities with their own universities, such office or service activities Economy stated “a development period is coming for Hungary with subjective elements typically have was concluded to be an ideal location as Debrecen, Szeged and Pécs can • Technological and other regard to the R&D sector; the Government intends to spend about 10% less significance, often these make the for SSCs that provide complex and provide great opportunities for new infrastructure of its EU Funds on R&D approximately HUF 700 billion from the EU's real difference when similar countries centres that are looking for young, • Business security and strong 2014-2020 programming period.” Beyond EU Funds, grants are also high-value services. or locations are in head-to-head intellectual property regulation available from the national budget, either in the form of cash subsidy Another important development to ambitious, qualified skilled employees or tax incentive. competition. Hungary has a strong note is the increasing complexity of who speak foreign languages. 30 Investing Guide Hungary 2014 Investing Guide Hungary 2014 31

incentive agreement with the Hungarian Government and, geographical locations at the same time. Although these Interview with Andor Faragó, General Manager in that same year, as a result of the establishment of our centres generally follow similar business strategies, they Hungarian service centre, BT won the Investor of the Year can nevertheless often become rivals when the firm’s award at the LA BAULE World Investment Conference management is deciding what activity to centralise or (WIC). In 2011 the number of our employees reached relocate, to what extent, and where. For this reason British the 500 mark, and in 2012 we won the Family Friendly it’s important that the costs of employment and of Workplace award. Currently we employ more than 900 conducting business (employers’ taxes, contributions, people in Hungary, and thanks to our continuous growth duties, and so on) should, overall, remain competitive Telecom we will soon reach an important milestone, having 1,000 relative both to the region and to Europe’s other employees in Hungary. developing countries. Besides this, a stable and predictable environment and preliminary consultations in Hungary What expansion and development opportunities are critical for building the trust of potential investors. are there for the Hungarian shared service centre BT (British Telecom) is one of the (SSC), and what factors can assist with this? What do you think of Hungary’s investment world’s leading information and incentives policy? communications service providers, One of the critical preconditions for further growth and serving customers in more than 170 new investments is the availability of labour in sufficient That Hungary should remain an attractive destination countries and employing close to 90,000 quantities and of an appropriate level of education. It for investors is clearly an important goal. Executives employees all around the globe. Its is in a common interest that Hungary maintains its around the world agree that the emphasis is increasingly principal activities include the provision competitiveness and continuously improve the skills shifting from crisis management to measures for ensuring of networked IT services globally; of its working population – particularly in the area sustainable growth, and my opinion is that it would be local, national and international of foreign languages. Most large global companies a good idea to align the country’s investment incentives telecommunications services to its operate service and business support centres in several policy with this trend. customers for use at home, at work and on the move; broadband and internet products and services and converged fixed/mobile products and services. BT’s office in Budapest, opened in 1999, marked the company’s first foray into the rapidly growing markets of Central and Eastern Europe. The company’s excellent position within the region today is a telecommunications business in the CEE region. result of the in-depth local knowledge Besides our presence in Hungary and the supported by a wide range of ICT successes of our first off-shoring projects, it was offerings, and strong partnerships with the availability of highly educated people with regional providers. excellent foreign language skills, the state of the In 2007 the company further enhanced art infrastructure, combined with a supportive, its presence by opening its European investor-friendly attitude on the part of the Operations Centre, employing more than Hungarian Government and the municipality in 900 employees in Budapest and Debrecen Debrecen that prompted BT to choose to locate as of today. The highly skilled workforce its European Service Centre to Hungary. Ensuring of the centre supports 12 countries across the continuity of our business and our services Europe and focuses on customer service is extremely important to us, and for this reason management, financial services, service we set up offices in two locations from the very delivery and various commercial & beginning – in Budapest and in Debrecen, and business support services. it is essentially because of this that some of our functions are now shared between these two sites. What factors contributed to your decision to choose Hungary as the site for BT’s What milestones have you reached since service centre? 2007 that you’d like to mention?

BT has been present in Hungary since 1999. At In 2007 we opened our new offices in Budapest first, our activity was limited to conventional and in Debrecen. In Spring of 2008 we signed an 32 Investing Guide Hungary 2014 Investing Guide Hungary 2014 33

and for training of disabled or disadvantaged workers. The training subsidy is not a regional incentive. According to the new draft EU regulations, changes are expected regarding training subsidy as well.

1.3. “VIP” job creation subsidy The Hungarian Government provides job creation subsidy for those investments entitled to VIP investment subsidy and that create at least 250 new jobs in disadvantaged- or 150 jobs in the least-developed micro-regions. The maximum available amount of subsidy is EUR 3 million, depending on the location and the number of new employees.

1.4. “VIP” vocational training facility subsidy “VIP” subsidy opportunity is available for establishing vocational training facilities and the development of the equipment for practical trainings. In order to be qualified for the subsidy the number of vocational school students with training agreements has to be increased by at least 50 compared to the average number of trainees in the two school-years prior to the submission of the subsidy request. The maximum subsidy amount is EUR 8,000 per student, and the total subsidy received can not exceed EUR 2 million per Beneficiary.

2. Subsidies from the research and technology innovation fund

1.2. “VIP” training subsidy million, or EUR 2 million if more Subsidy opportunities are The Hungarian Government than 500 new jobs are created. It The maximum amount available from the Hungarian offers “VIP” subsidy opportunity is provided for both general and of the training subsidy, national budget, primarily aimed at for training employees hired to new special trainings. The maximum if 50 to 500 new jobs are research and development activities positions. The subsidy is available aid intensity is 60% in the case of created, is EUR 1 million, involving a broad cooperation to investors creating at least 50 general training and 25% for special of companies, universities and or EUR 2 million if more new jobs. The maximum amount training. The aid intensity can be research institutions. The subsidies of the training subsidy, if 50 to increased further in the case of than 500 new jobs are are available through a tender 500 new jobs are created, is EUR 1 small and medium-sized enterprises created. application process. 34 Investing Guide Hungary 2014 Investing Guide Hungary 2014 35

3. Subsidies from EU Funds New funding will be TAX INCENTIVES available for Hungary A wide range of tender calls are development activities, the creation Tax incentives are available for in 2014-2020 available from EU Funds for which of new workplaces, environmental companies’ future transactions. investments of less than EUR investments, and technological Applications have to be submitted 10 million can also qualify. The investments (with preference till the end of 2015. Hungary’s aim to the competent Authority in conditions for applying, the timing, given to small and medium-sized is to utilize this opportunity as Hungary or to the competent EU and the total amount of the subsidy enterprises). much as possible. Therefore some institution before projects start. available vary from tender to tender. The programming period of tender calls financed from the These tenders reflect the importance 2007-2013 is about to close, the EU Funds of the 2007-2013 period will Development Tax given to supporting research and Funds available can be disbursed still be published in 2014. Incentives

Each development tax incentive may be claimed for a 10-year period New programming (beginning once the development is period of 2014-2020 completed) in Corporate Income Tax New funding will be available (“CIT”) returns within a maximum for Hungary in the amount of period of 14 years from the original EUR 20.5 billion regarding the application for the incentive. programming period of 2014- In any given tax year, the tax 2020. The first calls will be incentive is available for up to 80% expected in the second half of of the tax payable, but in total up 2014 after the new strategy plans to the state aid intensity ceiling. and rules are finalized. Applications for tax incentives have The main goals of the to be submitted to the Ministry following programming period for National Economy, and the will be to increase the level of Hungarian Government has the right employment, to improve the to grant permission if the aggregate eligible costs of the investment competitiveness and global exceed EUR 100 million. If the performance of the business investment is below this threshold, sector, to encourage R&D&I taxpayers need only notify the activities and to increase energy Ministry for National Economy and resource efficiency through before starting the investment. the following main areas: Tax incentives are available • Economic Development and for investments if, among other Innovation conditions: • Smart Transport Development • the current value of the • Human Resources investment is at least HUF 3 Development billion (cca. EUR 10 million) • Environment and Energy [at least HUF 1 billion (cca. Efficiency EUR 3.33 million) in certain • Territorial Development and designated areas]; or Urban Development • the eligible costs come to at The Prime Minister’s Office least HUF 100 million (cca. coordinates the responsible EUR 0.33 million) in the case Ministries in utilizing the new of environmental protection sources available for the projects, broadband Internet programming period of 2014- services, R&D projects, and 2020. motion picture and video All tender application have to production; or be submitted in Hungarian, and • the company carries out an the subsidy contracts are also in investment resulting in job Hungarian. creation. In the case of job creation projects, the tax 36 Investing Guide Hungary 2014 Investing Guide Hungary 2014 37

incentives are calculated based on 24 months’ salary for new Other Tax Incentives employees employed within the implementation phase and the Tax incentive related to R&D subsequent three-year period. A CIT base allowance and Local Business Tax (“LBT”) base allowance III. How does one There are limitations neither apply to R&D activities if the taxpayer carries out R&D activities on the amount of the eligible itself. The direct costs of an entity’s own R&D, and also the value of costs nor the number of newly purchased R&D services – if it was not incurred in connection with invest in Hungary? created jobs; R&D services purchased from a Hungarian resident taxpayer, a private The investment projects can only entrepreneur or a Hungarian permanent establishment of a foreign be subsidised if company – are deductible from the tax base. 1. Establishing your business As of 2014, not only the taxpayer, but its related company may also • the investment results in deduct the direct costs of the taxpayer’s own R&D efforts from its pre- n Hungary the same rules for commonly established in Hungary. to companies established after 15 the creation of new facilities tax profit, in the proportion agreed between them. establishing a business apply Foreign businesses may also conduct March 2014. Existing Hungarian or the extension of existing to foreign individuals and the business activities in the form limited partnerships have one year facilities; or Tax Advantages for Shared Service Centres legal entities as to Hungarian of a branch office or representative to adopt the new regulations; while • the investment results Jobs created by SSCs may entitle the companies to obtain CIT and citizensI and Hungarian entities. office established in Hungary. limited liability companies and in substantially changed LBT incentives. For CIT purposes, SSCs may obtain a tax allowance In the following table we have New corporate laws will enter into companies limited by shares are products/services provided or for job creation and in this case, depending on the location of the summarised the four main types force in spring 2014. The table below obliged to adopt these changes – production/service processes SSC, the amount of the allowance may be up to 12 months’ total of business associations most reflects the new rules applicable principally – within two years. (excluding investments in basic salary expenses (50% of 24 months’ salary for new employees) and research, applied research and contributions for newly hired employees. The LBT base may also experimental development). Limited partnership Limited liability Private company Public company be reduced by HUF 1 million (cca. EUR 3,333) per each additional (Betéti társaság) company limited by shares limited by shares In the case of HUF 3 billion (HUF employee in the year they are hired. (Korlátolt felelősségű (Zártkörűen működő (Nyilvánosan működő 1 billion in certain designated areas) társaság) részvénytársaság) részvénytársaság) investments, the tax incentive is Film, performing arts and spectator sports incentives available provided that in the four In Hungary companies are encouraged to subsidize film production, Main • Business association • Business association • Business • Business association characteristics with legal with legal personality; association with with legal personality; years following the year in which the performing arts and spectator sports through the high rate of tax tax incentive is first used against the personality; • Established with legal personality; • Only existing private savings available. As sponsors, companies are able to achieve tax • At least one member an initial capital • Established with companies limited tax base: savings up to 104.75 % of the financial support they provide for film with unlimited contribution, the share capital by shares can be • the annual average number of makers, performing artists or sport clubs. liability; amount of which is consisting of shares transformed into this • At least one other predetermined by of a pre-determined type of business employees has increased by at member is only law; number and face association. least 150 (excluding the number obliged to provide a • The members are value. • The shares can of employees who are employed capital contribution only liable up to • Invitations to the only be subscribed by a foreign branch) compared (limited liability). the amount of their public to subscribe publicly. with either the year before the capital contribution for shares are (limited liability). prohibited. investment was made or the average number of employees for the three years preceding For whom Founders who do not Generally Founders who have It is usually recommended have the minimum recommended the required minimum recommended only the investment (by 75 in certain capital required for because of limited capital and intend to if the company’s designated areas); or a limited liability liability. provide different rights activity requires public company. to the members of the founding. • annual wage costs have increased company in the form of by 600 times the minimum wage preference shares (i.e. (excluding the wage costs of the preferred dividends, employees who are employed preference related to by a foreign branch) effective voting rights, etc). on the first day of the tax year (by a multiple of 300 in certain Minimum number Two One One Two designated areas) compared with of founders either the annual wage costs of the year before the investment Minimum amount HUF 1/member HUF 3,000,000 HUF 5,000,000 HUF 20,000,000 was commenced or the average of initial capital (cca. EUR 10,000) (cca. EUR 16,667) (cca. EUR 66,667)

annual wage cost for the three Source: PwC years preceding the investment. Applied exchange rate: 300 HUF/EUR 38 Investing Guide Hungary 2014 Investing Guide Hungary 2014 39

or her most important rights and option of immediate termination Establishing a business in Hungary obligations within 15 days after European Economic may be exercised if the other party step-by-step signing. Area (EEA) nationals violates an employment obligation Effective 1 January 2014, the substantially and wilfully or by STEP 1 mandatory minimum gross monthly An EEA national staying gross negligence, or acts in a way wage is HUF 101,500 (cca. EUR Preparation of corporate documents by a Hungarian attorney-at- in Hungary for longer than that renders the continuation of 338), but for workers employed the employment impossible. The law (certain documents must be countersigned by a Hungarian three months needs to obtain attorney). Time to complete: minimum one day. Costs: Attorney fees in positions requiring a secondary reasons for termination with a a Registration Card and range widely. school diploma or advanced notification period can be related to an Address Card from the vocational training (or higher the employee’s performance, to the Immigration Office. STEP 2 education) it is HUF 118,000 (cca. employee’s conduct in connection Opening of a bank account EUR 393) per month. Employers with the employment, or to the The company where the Time to complete: one day. must pay additional premiums for employer’s operations. EEA national carries out his/ Costs: depending on the bank. shifts, nightwork and overtime. Special rules apply to layoffs in Standard working hours for full- her activities must report which numerous employees are time employment are eight hours STEP 3 the EEA national’s position dismissed at the same time. There a day. The employer may set out and nationality to the Labour are specific situations during Registering the company at the Hungarian Court of Registry and a variable work schedule within a Office. which an employment cannot be obtaining a tax identification number. Time to complete: in the case certain period of time, which allows terminated effectively (i.e. during of companies established using template constituting documents – an unequal allocation of working maternity leave). If the employer one working hour from the issue of the company’s tax identification Third hours for a given employee. This number (NB: this simplified registration procedure is not available country nationals terminates an employment during period may last for four months or for public companies limited by shares), otherwise the registration such periods, the notification 16 weeks in general, but in specific period shall start once the given procedure takes 15 working days. It should be noted that the The Hungarian entity is cases – i.e seasonal work or standby situation ceases to exist. There process can be more time-consuming if the procedure is suspended obliged to submit a workforce – it can reach six months or 26 are certain consequences if the fee, which is not necessarily equal because the tax authority needs more than one day to provide the demand application form weeks. A specific provision in the employer unlawfully terminates to the employee’s salary (in specific Court with the tax identification number. before a work permit Costs: collective bargaining agreement may employment (i.e. the employee cases, e.g. when the employee application can be submitted. Registration fees: extend this period to 12 months or may claim compensation). In the would reach the relevant age for • for limited partnerships: HUF 50,000 (cca: EUR 167); 52 weeks. case of ordinary termination of retirement within five years, it can • for limited liability companies and for private companies limited Employers may not demand more When the workforce demand employment, the termination period be even higher amount). However, by shares: HUF 100,000 (cca. EUR 333) than 250 hours of overtime a year, or application has been is at least thirty days, but the length the employee is only entitled to • for public companies limited by shares: HUF 600,000 (cca: EUR more than 300 hours if a collective accepted, the work permit of the termination period increases severance payment if he/she has 2,000) bargaining agreement is in place. application can be submitted. in proportion to the number of worked for the employer for at least Simplified registration procedure: The statutory minimum amount The permit must be obtained years the employee has spent at three years. No severance payment of paid leave is twenty days, which the employer, with 90 days as the need be paid, if (a) the employee • for limited liability companies and for private companies limited before commencement of the by shares HUF 50,000 (cca. EUR 167); increases with the employee’s maximum termination period. qualifies as retired at the time of the employment. • for limited partnerships: HUF 25,000 (cca. EUR 83) age (the first increase is when the Employees are entitled to termination notification’s delivery Publication fees: uniformly HUF 5,000 (cca. EUR 17). In the case employee reaches the age of 25). severance payment if or when the employer ceases to exist of the simplified registration procedure, publication is free of The maximum amount of paid A Schengen visa has to be (a) the employer terminates the without a legal successor; or (b) charge. leave is thirty days, which applies obtained for the individual employment by termination with if the grounds for termination are to employees over 45. Minors and to enter Hungary. The notification; or related to the employee’s conduct STEP 4 employees with children are entitled application should be (b) the employer ceases to exist in connection with the employment Registration with the Hungarian tax authority, municipality, chamber of to additional days. The paid leave submitted with the work permit without a legal successor; or or related to the employee’s skills commerce and the Hungarian statistical office. Repesentative of the days must be granted in the year in application at the Hungarian (c) the employee terminates (except for health issues). company or an authorised tax expert can perform the administration which they are due; however, there embassy in the individual’s the employment by immediate are exceptional options for taking termination; or required for the registration. Time to complete: one day. home country. Foreign workers Costs: free of charge. them in the following year. (d) the employer terminates the Employment may be terminated employment unlawfully and the Foreign nationals can work in After receiving the visa by mutual agreement, or by employee would have been entitled Hungary under the terms of a employment. The employment termination with notification, and entering Hungary, the to severance payment if he/she had Hungarian work contract or as Labour Law contract must specify the employee’s or immediate termination. The individual needs to go to the be lawfully terminated. assignees. The legal requirements base salary and the employee’s employees cannot be dismissed Immigration Office to obtain Depending on the number of for staying and working in Hungary An employment relationship can position. After the employment (except during the probationary the residence permit and years the employee has spent at applicable to the EEA (European only be established through a written contract has been signed, the period) without sufficient register his/her Hungarian the employer, the amount of the Economic Area) and third-country employment contract, regardless employer must provide the employee justification that clearly describes address. severance payment can be between nationals are different, as outlined of the anticipated duration of the with a written description of his the reasons for the termination. The one month’s and six months’ absence below. 40 Investing Guide Hungary 2014 Investing Guide Hungary 2014 41

preceding the financial year under 2. Accounting requirements review did not exceed 50 persons.

he statutory accounting to publish the SFS – following One-stop shop records must be the penalties – the tax number of maintained in accordance the company will be withdrawn Companies automatically receive with local GAAP. and the company will be declared tax identification and social TBookkeeping has to be coordinated terminated. security numbers at the time they and reviewed, and Statutory file their registration documents Financial Statement (SFS) has Foreign currency with the Court of Registration. to be prepared by an accountant bookkeeping The Court of Registration also certified and registered as auditor forwards requests for VAT and or chartered accountant at the A company can prepare its statistical registration to the Hungarian Ministry for National annual financial statements in relevant authorities, at the Economy. They are responsible the convertible foreign currency company’s request (thus steps 3 for the Hungarian bookkeeping specified in its founding document, and 4 may be combined). and for compiling and supplying provided that at least 25% of its (i) true and reliable information, income, costs and expenditures; for maintaining and ensuring and (ii) financial assets and What constitutes statutory accounting records in Hungary? that the data disclosed in the financial liabilities were earned Type of Required GAAP to be Specific Currency to Language Frequency Required SFS conforms to legal provisions, or incurred, as applicable, in that accounting by local used format be used to be used of update for tax record law purposes provide a true and fair view and convertible currency in both the are sufficiently documented in Nominal Nominal Yes Local Yes Hungarian Hungarian Monthly/ Yes – for current year and the previous year. ledger ledger (specific forint, Euro quarterly CIT compliance with Hungarian A company is in compliance with chart or functional (depending accounting principles; furthermore the conditions if the total amount of accounts) on their name and individual licence frequency of of items listed in both points (i) and VAT return) number are included in the SFS. (ii) is at least 25%. Point (ii) does not Journal Yes Local No Hungarian Hungarian Monthly/ No Documents can be stored outside include off-balance-sheet items. book forint, Euro quarterly of Hungary. However, if audited by Additionally, since 2010 all or functional (depending on tax authorities, original documents companies are permitted to prepare and records must be made available frequency of their annual financial statements VAT return) within a maximum of three in Euros, and since 2014 in USD Trial Yes Local Yes (specific Hungarian Hungarian Annually Yes – for working days. Documents must be (without the above limitation) if balance chart forint, Euro CIT stored in a readable format for a this is specified in their accounting of accounts) or functional minimum of eight years. Hungarian policies. However, the accounting Fixed asset Yes Local No Hungarian Hungarian Annually Yes – for companies must file their local register forint, Euro CIT and VAT currency cannot be changed for five or functional GAAP SFS and founder’s resolution years after that. Cash book Yes Local No Hungarian Hungarian Continuous Yes – for (regarding profit distribution) forint, Euro (to reflect CIT annually within five months of Audit cycle or functional all events their financial year end. They must affecting liquid assets be filed electronically (not XBRL) A company’s supreme body is immediately) using the mandatory pre-defined obliged to elect an auditor for a Purchase Yes Local No Hungarian Hungarian Monthly/ Yes – for special pdf file format that is fixed term of not more than five day book forint, Euro quarterly CIT and VAT uploaded onto the website. Printed or functional (depending years. Audits of annual financial on

documents converted into an image statements are not compulsory if S ubledgers / frequency of file format (scanned) will not be both of the following conditions are VAT return) accepted. A special file received satisfied: Sales day Yes Local No Hungarian Hungarian Monthly/ Yes – for

from the Ministry of Justice must • The company’s annual net sales B ooks book forint, Euro quarterly CIT and VAT also be filed in order to support or functional (depending revenue (calculated for the financial on the payment of the publication fee.

year) does not exceed an average P rime frequency of Non-compliance with the above- of HUF 300 million (cca. EUR 1 VAT return) mentioned accounting requirements million) for the two financial years Other - VAT Yes Local No (to be Hungarian Hungarian Monthly/ Yes – for can trigger penalties and criminal subledger based on forint quarterly VAT preceding the financial year under performance (depending law consequences. review; and date) on In the event of non-compliance • The average number of company frequency of VAT return) with the obligation to deposit and employees for the two financial years Source: PwC 42 Investing Guide Hungary 2014 Investing Guide Hungary 2014 43

3. Hiring and employment Personal Income Tax

compared with previous quarters’ data (Q2 2013: Tax and social security liabilities Labour costs 10.3%; Q3 2013:9.8%). The aim of the Hungarian Government over the next few years is to simplify administrative obligations and Hourly labour costs in Hungary rose by 1.2% in the Unemployment rate (2013 Q3) 14% decrease labour costs borne by employers. year up to the third quarter of 2013 compared with the 12% 11% Employers can provide their employees (and in certain 9.80% 8.40% 8.60% 8% 8.50% same quarter of 2012. 7.30% cases the employee’s close relatives) with fringe benefits The table below shows the changes compared with (e.g. meal vouchers, vacation and recreation, local travel third quarter of 2012 (working-day adjusted). passes, etc.).

y y These benefits are taxed at preferential rates Nominal hourly labour costs

8.1 plain plain compared with the taxation of employment income. total central central h u ngar h u ngar (2013 Q3, %change) western b u dapest so u thern so u thern northern northern Benefits available to all employees of the employer can great great

6.2 transdan u bia transdan u bia transdan u bia also be provided at preferential tax rates. 5.9 Source: KSH Although there is no special expatriate tax regime in Hungary for assignees, they can be provided with certain 4.2 3.9** Remuneration tax-free benefits. 2.8 2.9 The social security coverage of international assignees 2.3 2.4 2.1 2.1 The remuneration received for work should reflect the from EEA countries is governed by EC Regulation 1.5 1.6 1.2 1.2 1 1 1.1 0.8 activity carried out and the qualification required for 883/2004 or 1408/71. Third-country nationals assigned 0.4 0.4 0.4 0.5 -0.6 -0.1 -7.3-2.9 -1.6 the job. The statutory gross minimum wage for 2014 is to Hungary become subject to Hungarian social security

y HUF 101,500 (cca. EUR 338) per month. Supplementary if the length of their assignment exceeds two years, E A 17 E U 28 ital y spain latvia

* malta wages (e.g. evening and night shifts, weekend work and unless a bilateral social security agreement stipulates france poland finland estonia sweden belgi u m a u stria * h u ngar denmark b u lgaria german y lith u ania u gal port overtime) are additional items. Average monthly wages otherwise. young children, the employer can apply social tax and slovenia l ux embo u rg netherlands training fund contribution allowances. The eligibility ireland u nited kingdom vary by region, as shown in the table below. Personal income tax and social period of the allowances and their exact proportion Average monthly gross wage security rates applicable (50% or 100%) depends on the employee groups to which the allowances can be applied. The allowances czeh rep u blic * 963 (2013 Q1-Q3, EUR) *Not working day adjusted 910 to employment income could be applied on the gross wage to a maximum of ** Excluding public administration 758 704 697 c y pr u s Source: Eurostat, 2013 634 618 the first HUF 100,000 of the gross wage. 602 593 Employee As a part of the job protection action plan. the Within the employed labour force, the following Government introduced two new taxes for small and increase can be seen between 2001 and 2011 (according Personal income tax 16% medium-sized enterprises (SMEs): a fixed-rate tax of low to the data of the last two population censuses). The Pension contribution 10% tax-bracket enterprises (“KATA”), and a small business 2014

proportion of daily commuters rose to 34% (2011) from tax (“KIVA”). By chosing these methods of taxation, y y Health insurance and 29.9% (2001). The majority of the commuter workforce SMEs can reduce their administration costs. total plain plain unemployment contribution 8.5% central central h u ngar h u ngar western b u dapest so u thern so u thern northern is represented by the age groups of 30-39 and 40-49 northern great great

(2011: 57.47%). Source: KSH transdan u bia transdan u bia transdan u bia R&D-related allowance An employer that qualifies as a research facility Unemployment Employer can apply social tax and training fund contribution Demographic capital, education, language allowances (100%) on the gross wage to a maximum The impact of the global economic crisis can be Social tax 27% of the first HUF 500,000 of the gross wage, in the case still sensed on the Hungarian labour market. Due to In 2012 the number of students who acquired a Training fund contribution 1.5% of researchers with at least a Phd. As of 2014, such declining labour market trends of preceding months, the degree (graduated with a qualification in university and an employer can apply social tax and training fund unemployment rate in Q1 2013 reached 11.8%. This rate college level education and tertiary undergraduate and contribution allowance (50%) on the gross wage to a Source: PwC is equal to the historical peak (Q1 2010). postgraduate) reached nearly 64,000. The most common maximum of the first HUF 200,000 of the gross wage in One of the most important goals announced by the fields where fresh graduates finished studies were: business Job protection action plan the case of doctoral candidates and employees enrolled Hungarian Government is to encourage companies to and administration; teacher training and education, To improve the situation of unqualified/unskilled in a doctoral programme. create jobs. The recently developed job protection plan engineering manufacturing and construction; social and employees, jobseekers, youth (under the age of entered into force on 1 January 2013 to moderate the behavioural science. The number of students in vocational 25 years) and senior (above the age of 55 years) Free enterprise region consequences. The aim of the job protection plan is education continues to increase (Source: KSH, 2013). employees, and mothers with young children, the Employers operating in a free enterprise zone to preserve and create new jobs by reducing employer Strict language requirements of secondary and higher Government set a 10-point job protection action plan, can apply social tax and training fund contribution burden. education, and several bilingual schools foster the effective as of 1 January 2013. With these steps the allowance (100% in the first two years, 50% in the The programs of the job protection plan might have development of language skills. Besides English and Government intented to reduce costs of employing such third year), per employee, if certain conditions are met. contributed to the fact that during the year prior the German there are also French, Spanish, Russian and people. When employing young or old people, unskilled The allowances can be applied on the gross wage to a unemployment rate has showed continuous decrease Chinese bilingual schools available in Hungary. or long-term unemployed people, or mothers with maximum of the first HUF 100,000 of the gross wage. 44 Investing Guide Hungary 2014 Investing Guide Hungary 2014 45

base”), the company can choose Local Business Tax Transfer Pricing does not include the foreign taxable to file a declaration presenting income. its cost settlement and pay CIT Entrepreneurs must pay the In Hungary transfer pricing rules in accordance with the general local business tax (“LBT”) in the apply. Accordingly, if the prices Rulings provisions or pay CIT on its municipalities where their activities applied in related-party transactions minimum tax base. are located. are not arm’s-length prices, the Tax The Tax Authority and the Ministry A special regime applies to LBT must be paid on the amount Authority is entitled to modify a for National Economy provide income from royalties, under which of adjusted annual turnover company’s CIT and special tax base the following types of ruling upon half of the general tax rate may determined by law. When calculating by the difference between the prices submission of a formal request: be applicable on royalties. Thin the LBT base, the annual turnover applied and the arm’s-length prices. • Non-binding rulings on the capitalisation rules may apply to can be reduced by the cost of goods Taxpayers are obliged to prepare interpretation of regulations, interest on any non-banking debt sold, the costs of mediated services transfer pricing documentation on provided free of charge. and noninterest-bearing loans and subcontractors’ activities, the intragroup transactions and also on • Binding rulings may be received from related parties in costs of materials and the direct transactions carried out between requested by taxpayers and excess of three times the equity. costs of R&D. However, as of 2013 Hungarian companies and their foreign entities regarding Tax losses can be carried forward only the base part of the cost of foreign branches. The documentation any type of tax, provided the indefinitely and their use is no goods sold and part of the value has to be prepared for every contract ruling has bearing on the longer subject to the Tax Authority’s of mediated services as calculated (transaction) between related parties tax consequences of a future approval. As of 2012, tax losses are based on brackets determined (including in-kind contributions contract, transaction or chain deductible up to 50% of the positive in relation to their annual sales made at the time entities are of transactions, and a detailed tax base. revenues may be deducted from this established). description is provided. Hungary has concluded double tax tax. Royalty and interest income are TP rules do not apply to • Binding rulings may be treaties with 73 countries, including exempt from LBT. transactions between a resident requested regarding CIT, PIT, all EU member states, Canada, The tax rate is determined by taxpayer’s permanent establishment LBT and SME tax, provided 4. Key tax related issues China, Hong Kong, South-Korea, the local government within whose and related company if the resident the ruling has bearing on the Brazil, Mexico, India, and others. jurisdiction the company carries out taxpayer under the provisions of tax consequences of past and Double tax treaties are currently its business activities, but cannot an international treaty adjusts the ongoing transactions. Corporate Income Tax The most common additions to under renewal with the USA, exceed the maximum determined in corporate tax base, ensuring that it • Super rulings (binding for the tax base include: Switzerland, Japan, Moldova, Serbia the Local Tax Act (2%). If a company Resident taxpayers are subject • Provisions for prospective and the United Arab Emirates. carries out its business activities to unlimited tax liability. Non- obligations and for future Dividends, interest and royalties within the jurisdiction of more than residents are subject to corporate expenses; are exempt from withholding tax one Hungarian local municipality, its income taxation on the income from • Depreciation based on the under the domestic rules. LBT base has to be allocated amongst their Hungarian branch’s business accounting rules; Capital gains realized by foreign the different municipalities. activities. • Penalties and fines levied by the persons are exempt from CIT in LBT has to be paid even if the In general, Hungarian companies Hungarian Tax Authorities; Hungary. However, this exemption company had a tax loss for CIT are subject to corporate income tax • Costs and expenses not does not apply to capital gains related purposes. (“CIT”), which is based on profit incurred in the interest of the to stakes in Hungarian real estate The LBT base of a foreign before tax and is subject to certain company’s business activity; companies; in these cases, transfer permanent establishment of a modifications. • Interest expenses in excess of tax may also apply. Hungarian company is exempted the allowable amount under the From 1 January 2012, there are from the Hungarian LBT. The most common deductions thin capitalization rules (see further incentives available for from the tax base include: details below). holding intellectual properties. Innovation Contribution • Losses carried forward (see The CIT rate is 10% on the first Any gains on the sale (or a capital details below); HUF 500 million (cca. EUR 1.66 increase that is not in cash) for Companies fitting the definition • Reversal of provisions; million) of the positive CIT base qualifying intellectual property in the Accounting Act are subject to • Deductions relating to research without any further preconditions would be exempt from corporate this contribution, except for small and development (“R&D”) and 19% on the CIT base above income tax if the seller reported the and medium-sized enterprises. activity (see details below); this limit. If a company’s CIT base acquisition to the Tax Authority and The innovation contribution • Depreciation based on rates or the pre-tax profit (whichever held the property for at least one is calculated on the LBT base, prescribed in the CDTA; is higher) is less than 2% of its year. Alternatively, if such reporting furthermore, no innovation • Reversal of impairment losses; total revenues reduced by the was not made, gains realized on a sale contribution is payable, with • Capital gains from the cost of goods sold, the value would still be exempt if the taxable retroactive effect from 2012, on alienation of registered shares; of mediated services and the gain is used to purchase qualifying that part of the tax base allocated to • 50% of royalties received by income of the foreign permanent intellectual property within three foreign permanent establishments. Hungarian entities. establishments (“minimum tax years of the sale. The tax rate is 0.3%. 46 Investing Guide Hungary 2014 Investing Guide Hungary 2014 47

three years, even if there are stands and the rental of real estate are group. The essence of a VAT group is institutions. The rates, among others, subsequent changes to the CIT VAT exempted in general, but taxpayers that its members act under a single are 0.15% on balance sheet totals of law) are also available. might opt to treat these transactions as VAT number in their transactions (i.e. up to HUF 50 billion, and 0.53% on • Advance Pricing Agreements VATable. The supply of building plots they issue invoices under a shared balance sheet totals of HUF 50 billion are available for the purpose of is, however, not VAT exempt. VAT number and submit a single, joint and above. setting a transfer price or price There are some special transactions tax return), and product and service Telecommunication service range with the Tax Authority. that may be out of scope of Hungarian supplies between the members do not providers are subject to a special tax • As of 2012, the Hungarian IP VAT, provided that special conditions qualify as business transactions for with rates of HUF 2 per minute for office is authorised to classify are met. These are the acquisition of any VAT purposes. calls made and HUF 2 per message whether a specific future project contributions in kind, the acquisition of The VAT act allows Hungarian sent for private individuals, and can be treated as an R&D project. any assets by way of succession and the taxpayers to apply the domestic HUF 3 per minute for calls made and This classification is binding for transfer of business as a going concern. reverse-charge mechanism to the HUF 3 per message sent for entities any other authorities. Based on the general rule to be following transactions: other than private individuals. The applied in the case of business-to- • Services related to immovable monthly ceiling of the tax payable Value Added Tax business services, the place of supply property (e.g. construction, is HUF 700 per phone number for is where the customer has established maintenance); private individuals and HUF 5000 As a general rule, Value Added Tax its business. • Sales of waste materials; per phone number for entities other (“VAT”) should be charged on the The standard VAT rate in Hungary • Sales of carbon quotas; than private individuals. following transactions: is 27%. There are also two reduced • Sales of real estate and land if the In addition to corporate income • Supplies of goods and services rates: 18% and 5%. The 18% VAT rate application of VAT was chosen; tax, energy suppliers and public provided for consideration in is applicable to certain dairy products • Sales of certain agricultural utility service providers are subject Hungary; and products made from cereals, products (e.g. maize, wheat, to another income tax, popularly • Intra-Community acquisitions of flour, starch and milk. The 18% barley, rye, etc.); known as the “Robin Hood tax”. goods in Hungary; VAT rate should also be applied to • Sales of pigs (e.g. pork, pork side). As of 2013, the government increased • Imports of goods. commercial accommodation services Under the general rule, VAT returns its rate from 8% to 31%, although, it Certain services are exempt from and to services that grant admission have to be submitted quarterly. is possible to claim development tax VAT, including but not limited to to musical and dancing events. The However, under some circumstances amount can be recovered, provided the domestic distributor or the user for incentive up to 50% of the tax liability. medical, cultural, sporting, and 5% VAT rate is applicable to certain monthly or annual VAT returns have that the tax balance reaches or exceeds own purposes; and in the case of toll Insurance tax is levied on educational services provided as pharmaceutical products, audio to be prepared. an absolute value of HUF 1 million manufacturing, the party that orders the insurance companies. The rates are public services; and financial and books, printed books, newspapers, In the case of intra-Community (cca. EUR 3,330) for monthly filers, toll manufacturing. The product fee is 15% on insurance premiums for casco insurance services. Intra-Community district heating services, certain live transactions, the taxable person has HUF 250,000 (cca. EUR 833) for calculated on the basis of the weight of insurance services provided and 10% supplies of goods and services and performance activities, and the supply to submit recapitulative statements quarterly filers or HUF 50,000 (cca. the product multiplied by the fee rate. on property and accident insurance exports are also treated as exempt of certain goods in the pork sector. (monthly or quarterly). These EUR 167) for annual filers. The tax returns have to be filed services provided. transactions. Related companies that have statements can only be submitted to the quarterly, and an advance payment has The buyer and first domestic The supply of a building or parts established business presences in Hungarian Tax Authority electronically. Environmental to be made for the fourth quarter of the distributor of certain products are of a building and the land on which it Hungary are entitled to form a VAT From 1 January 2013 taxpayers Protection Product Fee year. The National Tax¬ and Customs liable to pay public health product registered in Hungary have to submit Authority’s tax body is responsible for tax. The products which fall under a domestic recapitulative statement Businesses engaged in tasks related to the product fee. this tax are beverages, energy drinks, about those transactions, the VAT manufacturing, importing and intra- In certain cases the product fee can cocoa powder with added sugar, other amount of which reaches or exceeds Community purchases of certain be reclaimed if the taxpayer meets the pre-packed products with sugar, salty HUF 2 million (cca. EUR 6,667) products must pay an environmental requirements. snacks, seasonings, flavoured beer and together with the basic data of the protection product fee (“product fee”). In addition to the above listed main alcoholic beverages, and fruit jam. The related business partner. In respect The following products are subject to taxes, Hungarian taxpayer entities rates vary depending on tariff number of the incoming invoices, those cases the product fee in 2014: are subject to several smaller taxes, and salt, sugar, cocoa, methyl- also have to be considered and reported • Certain petroleum products; e.g. excise tax, customs duties, stamp xanthine, or taurine content. in which the sum of the VAT on all • Tyres; duties, registration tax, community Payment service providers, credit transactions carried out by the same • Packaging materials (included as tax, tourism tax, sector-specific taxes institutions and special services partner in a given VAT period reaches part of the packaging); (energy tax, pharma taxes), accident intermediaries are subject to the or exceeds HUF 2 million. If a domestic • Batteries; tax, etc., which are not covered in this financial transaction tax levied recapitulative statement has to be • Commercial printing paper; and booklet. on payment services, e.g. bank prepared (i.e. there are transactions • Electrical and electronic products. transfers and direct debits. The with a VAT amount higher than the The parties liable to pay the product Other Taxes amount payable in general is 0.3% threshold), the VAT return can only be fee are the first domestic distributor of the amount of transaction but submitted electronically. or the user for own purposes; in the Several new taxes have come into may not be more than HUF 6,000 If a taxpayer has a negative VAT case of domestically manufactured effect in the last few years. per transaction (except for cash balance in a return period, this petroleum products, the first buyer from The bank tax is levied on financial withdrawal). 48 Investing Guide Hungary 2014 Investing Guide Hungary 2014 49

An interview with János Berényi, President of HITA About the “Hungary has several Hungarian Investment and Trade Agency (HITA) advantages in the region, due to both its location FOSTERING FOREIGN INVESTMENT Established in 2011, the Hungarian Investment and Trade Agency (HITA) and its strategic situation” is tasked with boosting foreign investments and facilitating bilateral trade.

KATALIN NÉMETH What do you make of the Investment Promotion Director situation with regard to the ABOUT THE HUNGARIAN +36 1 872 6530 INVESTMENT AND TRADE AGENCY (HITA) capital investments made in [email protected] Hungary in recent years? The Hungarian Government founded the Hungarian Investment and Trade Agency with the aim of promoting foreign investment In the past few years we’ve seen and bilateral trade, as well as helping SME development orientated a positive trend emerging in this towards EU integration. HITA has representative offices in six area. The total volume of foreign regional centers in Hungary and a foreign network operating under direct investment arriving in the Hungary’s diplomatic services and special assignments in more country topped 80% of GDP in than 50 countries. HITA’s Investment Promotion Department’s main TAMÁS KOKAS 2012, which was the highest figure tasks are: Head of Department in the region, while in 2013 positive – Supplier programmes decisions regarding investments During the pre-decision stage +36 1 872 6548 in Hungary totaling EUR 1.2 • Tailored information packages on the economy, industrial [email protected] billion were taken, involving 35 sectors, incentives, business environment, supplier network projects. It’s important to mention • Assistance in location search and evaluation that 18 of these projects are new • Organization of site visits and partner meetings investments, while 17 involve During implementation the expansion of companies that • Supplier search are already here, which is of • Supplying information on permitting procedures particular significance. And that’s JUDIT CZAKÓ • Assistance in applications for VIP incentives not to mention the fact that the Head of Department – Knowledge- implementation of these projects In operations based Industries and Services will create some seven thousand • Expansion assistance +36 1 872 6623 new jobs. If we look at the • After care services [email protected] • Intermediary body between the government and the companies sectors concerned, the majority of these investments involve the CONTACT DETAILS automotive industry, service Hungarian Investment and Trade Agency centre-type capital projects, and H-1055 Budapest, Honvéd u. 20. the food industry. Telephone: +36 1 872 6520 Fax: +36 1 872 6699 GYÖRGYI SOMFALVI-PETÉNYI What trends can be observed? E-mail: [email protected] Head of Department - Incentives Has the Hungarian investment Web: www.hita.hu +36 1 872 6515 environment changed in the [email protected] past few years? 50 Investing Guide Hungary 2014 Investing Guide Hungary 2014 51

strategic partnership agreements are implementing investments and international trade fairs themselves at our independent stand concluded by the government in Hungary, and as a part of this and exhibitions, and organising at the world’s major trade fairs and with large corporations that are service package its Investment delegations of businesspeople for exhibitions. active in Hungary could give added Grants Department conducts ministerial and prime-ministerial HITA presents two awards every momentum to investments going comprehensive project management visits. In 2014 we organised meetings year. In the spring, the Investor forward. in relation to the cash subsidies of businesspeople in connection with of the Year award, and in autumn, (EKD grants) that are awarded by two important prime-ministerial the Exporter of the Year award Why would you recommend the government on a case by case visits: one on the occasion of Prime is presented by us in recognition Hungary to potential foreign basis. Besides this, it also provides Minister Viktor Orbán’s official of the companies selected by investors? What advantages its partners with other opportunities visit to Beijing, and the other at the the professional judging panel. does the country offer? How for obtaining assistance (EU co- Hungarian-Arab Business Forum The latter award is primarily do you view the investment financed tenders, development tax held by HITA in Saudi Arabia in intended for Hungarian SMEs. environment? allowance, job-creation and training March. Besides this, we also organise Another event, which is growing grants, and other state subsidies), meetings of businesspeople in in popularity each year, is the Hungary has several advantages in as well as information relating to relation to Joint Economic Committee HITA SME Academy series of the region, due to both its location the classification of a project as a meetings. Another of our key tasks programs for small and medium- and its strategic situation. Thanks to high-priority investment. HITA has is to provide Hungarian companies sized enterprises, which we will be our geographical location we are one a separate program for encouraging with the opportunity to represent holding again this year. of the most significant transportation businesses that have already hubs in the region, making our country one of the most important established a presence in Hungary logistics bases in Europe. From to make additional investments. Hungary both the EU market of 500 To this end, in 2012 we launched million consumers, and the Russian, the Reinvest Program. As a part of Ukrainian and Balkan markets of this program, our staff contacted almost 210 million, are within easy the subsidiaries of multinational reach. In terms of motorway density companies that already have a Hungary comes first in the region, presence in Hungary, in order to and in terms of overall road density gauge the company managers’ we are third in Europe, after Belgium opinions regarding the investment The improvement in the worth mentioning the new Labour and Holland. In addition to this, environment, and to channel macroeconomic environment has Code, which gives parties more more than 210 modern industrial their comments and initiatives to led to a decrease in state debt, the flexibility in agreements on the estates are available to accommodate government decision-makers, as budget deficit is now below three terms and conditions applicable manufacturing investments, to say well as to offer them our services in percent, and economic growth to the conduct of work. Under the nothing of the highly trained and the interests of encouraging them new law, instead of the 200 hours motivated labour force and the lower to expand and reinvest. A total of Hungary devotes par- permitted before, now 250 hours average wage levels than in Western 30 “reinvest meetings” were held in ticular effort to encour- of overtime can be authorised, new Europe or the U.S. 2013. Another important activity of aging investment, and forms of employment have been ours is to recommend Hungarian to improving the invest- introduced, and the Job Protection How can HITA help foreign suppliers to large companies that Action Plan gives companies an ment environment. companies? intend to establish operations in incentive to retain existing jobs. Hungary, thus, again, strengthening The new act on vocational training HITA provides numerous services the viability and market presence of has clearly got under way; this is places considerable emphasis on that help encourage foreign Hungarian businesses. certainly a positive change. As an the balance between theoretical businesses to invest in Hungary. open economy, Hungary devotes and practical training, and training This is one of our main activities, What kind of events and forums particular effort to encouraging curricula that reflect genuine as the Hungarian Investment does HITA have planned for investment, and to improving needs have been compiled. It’s and Trade Agency serves as an 2014? the investment environment. also important to highlight the information and consultation This is consistent with numerous reduction in corporate tax rates: the centre for companies who have One of HITA’s main activities is measures by the Hungarian 10% corporate income tax plus 19% sited their operations in Hungary arranging meetings for businesspeople government to create a business- dividend tax are among the most or intend to do so. HITA provides in connection with various events, friendly environment. Here it’s favourable in the region. Also, the support services to companies that maintaining a presence at local 52 Investing Guide Hungary 2014 Investing Guide Hungary 2014 53

member of PwC’s global network of We operate responsibly, and we make sure we communicate we are able to make responsible associated law firms (PwC Legal), and we extend the same this to our stakeholders, e.g. and value-creating decisions. As a comprised of more than 1900 towards our stakeholders clients and our current and future responsible business, we believe lawyers in 75 countries. We focus employees. We approach corporate in sustainable development and PwC on refining our understanding of responsibility from four perspectives strive to put the above principles the characteristics of industrial Since our principal activity is audit, which we call the four quadrants – into practice every day in all key sectors, as well as on teamwork and creating transparency is both an community, environment, workplace areas of our operation: in corporate in Hungary integral part of our daily work and a practical approach, thus ensuring and marketplace. By considering values, management systems, and that we provide our clients a fast and its main principle. We care about our the wider impacts of our actions and the services we provide. This is our We specialize in your owned businesses as it not only personalized response. business and social environment, decisions in these four quadrants, common goal. industry poses potential risks but also offers optimization opportunities. How can As auditors and advisors, we need you identify these opportunities? to know more about our clients than We aim to understand your business simply numbers, in order to work with operations and objectives, and find the them successfully. We need to know most suitable solution to your taxation what factors are driving the industries issues with you. Our clients trust us in which our clients operate, and how because the comprehensive skills of these factors influence the prospects our experts and our international of their business. That’s why we resources enable us to help them with strive to continually expand our all taxation issues, such as corporate industry expertise and experience. taxation, indirect taxes and tax Our experts have up-to-date and in- authority proceedings. In addition, depth knowledge, which enables us state aid and incentive services, such to understand our clients’ problems as finding relevant national and and provide solutions tailored to their EU funding opportunities play an specific needs. important role in our service portfolio.

Assurance: services for Advisory: industry- and transparency and function-specific solutions responsible corporate for any business problem governance Our expert team provides solutions Transparency and responsible to business issues that pose a challenge to our clients by using corporate governance play more best domestic practices combined important roles for companies than with international experience. We ever before. We believe that it is believe that together we can develop our primary task to help our clients sustainable and efficient solutions achieve these objectives, become that provide lasting value to our familiar with their problems and clients. In addition to providing needs, detect possible risks and industry-specific guidance, we also offer customised solutions tailored help clients with critical business to their specific needs. In addition issues, innovative corporate to reviewing companies’ financial activities, sector and function-specific reports to assess their integrity, solutions, strategy development, our assurance practice also helps improving operational effectiveness, clients with IT and enterprise risk organisational development and management, internal auditing, BPR, IT solutions, and offer financial business processes, and responsible modelling, corporate valuation and corporate governance issues. financing advisory services.

Tax advisory services A new approach to legal advice Taxation is one of the most complex challenges for both multinational Réti, Antall & Partners companies and Hungarian privately PricewaterhouseCoopers Legal is a Contacts PwC Offices Budapest Győr H-1055 Budapest H-9024 Győr Bajcsy-Zsilinszky út 78. Hunyadi Street 14. (Leier City Center) Telephone: +36 (1) 461 9100 Telephone: +36 (96) 547 660 Fax: + 36 (1) 461 9101 Fax: + 36 (96) 547 661

Contacts at PwC Budapest Office Contacts at PwC Győr Office

Tamás Lőcsei Armin Krug Partner – Tax, Legal and Incentive Services Partner – Assurance Services Direct: + 36 (1) 461 9358 Direct: + 36 (1) 461 9552 E-mail: [email protected] E-mail: [email protected]

Andrea Végső Kornélia Lett Manager – State Aid Leader of the Győr Office – and Incentive Services Assurance Services Direct: +36 (1) 461 9459 Direct: + 36 (96) 547 660 E-mail: [email protected] E-mail: [email protected]

Norbert Izer Contacts at Réti, Antall & Partners Manager – Tax Services PricewaterhouseCoopers Legal Direct: + 36 (1) 461 9433 E-mail: [email protected] Dr. László Réti Attorney-at-law, Managing Partner Direct: + 36 (1) 461 9890 E-mail: [email protected]

Dr. György Antall Partner Please visit our website at www.pwc.com/hu Direct: + 36 (1) 461 9870 Investing Guide Hungary 2014 was prepared by PricewaterhouseCoopers Hungary Ltd. in cooperation with the Hungarian E-mail: [email protected] Investment and Trade Agency. Additional content was provided by Napi Gazdaság Kiadó Kft. as publisher.

Neither PricewaterhouseCoopers Hungary Ltd. nor the co-authors accept any responsibility for losses arising from any action taken or not taken by anyone using this publication. It should not be regarded as a basis for ascertaining tax liability in specific circumstances. Professional advice should always be sought before acting on any information contained in this booklet.

© 2014 PricewaterhouseCoopers Hungary Ltd. All rights reserved. PwC refers to PricewaterhouseCoopers Hungary Ltd. and may sometimes refer to the PwC network. Each member firm is a separate legal entity.

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