Temporary measures for special transactions related to strategic companies incorporated in HungaryMore news

As part of the “economic protection plan” introduced by the Hungarian Government as an answer to the COVID-19 epidemic the Government Decree Nr. 227/2020. (V. 25.) (hereinafter: “Decree”) established temporary measures for special transactions related to strategic companies incorporated in Hungary.
According to the Decree, strategic companies are limited liability companies and public or private companies limited by shares incorporated in Hungary that conduct activities (as main or other activity) listed in Annex 1 of the Decree, such as:
a) chemical sector: production of pharmaceuticals and other chemicals, manufacture of petroleum products;
b) telecommunications;
c) trade and repair of motor vehicles and motorcycles;
d) retail and wholesale trade;
e) critical industrial sector: manufacture of electronic equipment, electric equipment, vehicles, machines, metal products;
f) defense sector: manufacture of arms and military vehicles;
g) construction of dams and water facilities;
h) energy sector: production, transmission, distribution, and trade of electricity; manufacture, distribution, and trade of gas; steam and air conditioning supply;
i) services related to the current emergency;
j) financial sector: financial intermediating, insurance, pension funds, fund management, ancillary financial activities;
k) transport industry;
l) manufacture of food products and agriculture;
m) IT services;
n) construction: construction of buildings and other infrastructure;
o) hotel services; etc.
within the sectors energy, communication, transportation and those listed in Article 4 (1) of Regulation (EU) 2019/452 of the European Parliament as strategically important (referred to as “Strategic Company” and “Strategic Activities” respectively).
According the Regulation (EU) 2019/452 the following sectors are concerned:
a) critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure;
b) critical technologies and dual use items as defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009 (15), including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies;
c) supply of critical inputs, including energy or raw materials, as well as food security;
d) access to sensitive information, including personal data, or the ability to control such information; or
e) the freedom and pluralism of the media.
The Decree defines the foreign investor as:
a) any company registered in Hungary, the EU, the EEA or in Switzerland pursuing Strategic Acquisition (see below) in a Strategic Company if their controlling owner is a citizen of or is incorporated in a country other than the areas mentioned above (hereinafter: “Foreign European Investor“); or
b) any natural person being citizen of or entity incorporated in a country other than specified above (hereinafter: “Foreign Third Country Investor“).
Furthermore, without being covered by any definition, also entities incorporated in any other (than Hungary) member state of the EU or the EEA, or in Switzerland are subject of the Decree (“European Investor“).
The acknowledgment of the Minister of Innovation and Technology must be requested if any Foreign European Investor, European Investor would acquire (directly or indirectly) the majority ownership in a Strategic Company through:
i) acquiring shares or quota;
ii) increasing registered capital;
iii) transformation, merger, demerger;
iv) acquiring convertible bonds;
v) acquiring usufruct right over shares or quota.
All the above transactions will be referred together as “Strategic Acquisitions“.
An acknowledgement of the Strategic Acquisition by the Minister of Innovation and Technology must be requested, if as a result of an Strategic Acquisition:
a) a Foreign European Investor or a European Investor would acquire controlling share in a Strategic Company;
b) a Foreign European Investor or a Foreign Third Country Investor would directly or indirectly acquire at least 10% of the shares or quota of a Strategic Company, provided that the relating cumulated investment value reaches HUF 350 million; or
c) a Foreign European Investor or a Foreign Third Country Investor would own 15%, 20%, or 50% of the shares or quota of a Strategic Company; or
d) a Foreign European Investor or a Foreign Third Country Investor – together with any other foreign investor in the Strategic Company – would hold at least 25% of the shares or quota of the Strategic Company.
Furthermore, an acknowledgement of the Minister of Innovation and Technology must be also requested if the ownership or right of use or operation of infrastructures and assets inevitable for pursuing Strategic Activities are transferred, or such infrastructures or assets are provided as security if such rights are acquired by a Foreign European Investor or a Foreign Third Country Investor or any other entity in which such investors have a controlling interest (hereinafter referred as “Operative Transactions“).
Operative Transactions and Strategic Acquisition will be referred together as “Transactions“.
The Foreign European Investor or a Foreign Third Country Investor must submit the application electronically via its legal representative to the Minister within ten days upon the execution of the Transaction (i.e. singing the respective agreement, unilateral statement or corporate resolution).
The Minister may prohibit the Transaction if:
i) it potentially infringes or endangers the public interest, public order, public safety of Hungary or the basic social needs of the citizens of Hungary;
ii) based on its ownership structure or its financing, the applicant is not controlled by an authority of an EU member states;
iii) the applicant has pursued activities related to public order or public safety of a member state of the EU; or
iv) there is a significant risk that the applicant may pursue illegal activities.
The Minister shall issue its decision within 45 days upon the submission of the application and the necessary documentation; this deadline may be prolonged by 15 days. The order prohibiting the Transaction may be challenged in court.
The applicant may request its registration in the book of shares or members list of a Strategic Company only after the Minister has acknowledged the Transaction. This acknowledgment should also be submitted to the court of registration together with the documentation of the respective Transaction and a declaration on the strategic status of the company.
If the Foreign European Investor or a Foreign Third Country Investor breaches its reporting obligation(s), an administrative fine amounting to at least HUF 100,000 in case of natural persons and at least 1% of the net turnover of the respective Strategic Company and in both cases up to twice the amount of the Transaction may be issued. Additionally, the legal statement or corporate resolution, which infringes the provisions of this Decree is void.
Any and all agreements, unilateral declarations or company resolutions not complying with the provisions of the Decree shall be void. The Minister should investigate the unreported Transaction afterwards, and if no obstacles occurred, which would result the prohibition of the Transaction, the Transaction should become (retroactively) valid.
The Decree is applicable until 31 December, 2020.
Since the regulation is very complex, we recommend the review of every planned transaction individually whether it shall be reported to the Minister or not. Please also note that the wording of the Decree is very unclear and highly disputed, see the article published by Portfolio: https://www.portfolio.hu/uzlet/20200531/hatalmas-kerdojelek-a-kulfoldiek-cegvasarlasanak-korlatozasarol-szolo-rendelet-korul-434712

New retail tax in Hungary among governmental COVID-19 measurementsMore news

With regard to the COVID19 epidemic the Hungarian Government has prog­ressively implemented certain restrictive measures that may have an impact on the use of commercial stores. Let us provide you a brief summary below on the implemented measures and the affects thereof on non-residential lease agreements.

The scope of the retail tax does not only concern domestic retailers, but it is also applicable to foreign retailers under certain circumstances, expanding its application by empathising that the foreign persons or entities which do not have a Hungarian registered branch office are also fall under the introduced tax obligation in relation to the goods sold to their customers in Hungary, meaning that the e-commerce activity is also taxable under the new Decree. The Decree lists the activities considered as retail activity based on the Hungarian TEÁOR’08 classification system.

The basis of the retail tax is generally the net sales revenue deriving from the taxable activities with special provisions on the adjustment of the basis thereof.

The retail tax is progressive in nature, the retailers with the tax base of less than HUF 500 million are exempted from the retail tax. The additional rate of the retail tax increases progressively as follows:

Interestingly, a similar tax obligation was imposed by the Government following the financial crisis of 2008 on telecommunications and retail companies, however the Court of Justice of the European Union ruled that the concerned legislation is compatible with the principle of freedom of establishment and does not constitute discriminatory, therefore it is in compliance with the EU law.

The newly introduced Decree is effective until the termination of the emergency situation declared by the Hungarian Government, although it may remain effective following the emergency situation based on the Government’s intention to levy such tax on retailers.

The COVID-19 measures of the Hungarian Government and their effects on non-residential lease agreementsMore news

With regard to the COVID19 epidemic the Hungarian Government has prog­ressively implemented certain restrictive measures that may have an impact on the use of commercial stores. Let us provide you a brief summary below on the implemented measures and the affects thereof on non-residential lease agreements.

The measures of the Government

On March 17, 2020, as a first step, the Government implemented strict, stringency measures for hindering the spread of the COVID19 epidemic [Governmental Decree no. 46/2020. (III. 16.)].

It is prohibited to stay at premises offering catering services between 3 p.m. and 6 a.m. [non-applicable to (i) employees working therein and (ii) people staying therein for shift-change, take-away, or payment purposes].

Between 3 p.m. and 6 a.m. no person (excluding the employees and the business operators) shall stay in stores that do not sell foodstuff, perfume, drugstore products, household cleaning materials, chemical products or hygienic paper products, or in stores that do not qualify as pharmacies, tobacco shops, petrol stations or stores selling medical equipment.

Due to the decree it is prohibited to visit cultural institutions (theatre, cinema, museums, etc.) and a general prohibition shall be applicable to events as well (excluding religious rites, civil wedding ceremonies, funerals).

On March 18, 2020 the Government introduced special provisions for certain leases most affected by the epidemic [47/2020. no. Government Decree (III. 18.)].

Leases for non-residential premises in the tourism, catering, entertainment, gambling, film, performance, event and sports sectors may not be terminated until June 30, 2020. The rent under these leases may not be increased during the emergency, even if the lease contract allows.

On March 27, 2020 the curfew restrictions became more stringent by the Government Decree no. 71/2020 (III.27.). According to the decree everyone shall restrict social contact with other people – excluding with people from the same household – to the lowest possible level and maintain at least a 1.5 metre distance from others. The decree prohibited staying at businesses offering catering services (which prohibition is not applicable to employees working therein), however take-away and home delivery services are still possible. People may only leave their permanent, temporary or private residence for valid reasons determined in this decree.

The following shall qualify as such valid reasons:

  1. working, other professional duties, or conducting other economic, agricultural or forestry activities and purchasing in stores selling assets, equipment (especially technical goods, building materials and equipment) essential for performing such tasks and duties connected to such activities
  2. escorting infants when taking care of groups of children
  3. seeking healthcare supplies and medical services, including – beyond the treatment activities – healthcare services aimed at the protection of physical and mental health (especially psychotherapies, physiotherapy treatments, corrective-gymnastic therapy)
  4. individual leisure sport activities, recreational walking activities as specified in Article 5
  5. family gatherings for the purpose of attending weddings and funerals
  6. purchasing in grocery stores selling daily consumer products (hereinafter: Grocery Store)
  7. purchasing in stores selling other daily consumer products (perfume, drugstore products, household cleaning materials, chemical products or hygienic paper products) (hereinafter: Drugstore)
  8. purchasing in stores selling pet food and animal fodder;
  9. purchasing in agricultural stores including stores selling fertiliser, and slaughterhouses;
  10. purchasing in markets and local produce markets (hereinafter: Market)
  11. purchasing in stores selling medicine, medical equipment (hereinafter: Pharmacy)
  12. purchasing at petrol stations;
  13. purchasing in tobacco shops;
  14. using hairdressing and manicure services
  15. using transport, cleaning and hygienic services
  16. using repair services of cars, bicycles, agricultural and forestry machines and equipment,
  17. using services related to waste management;
  18. if necessary, managing administrational duties requiring personal appearance, namely using the services of authorities, banks, financial, insurance companies and the post office;
  19. taking care of animals, walking pets in public areas, using services of a veterinarian surgery
  20. fulfilling parents’ rights and obligations
  21. religious activities

Legal consequences

The listed restrictions make a significant impact on the real-estate sector (especially on the retail branch). The operation of commercial units (which has been profitable recently) has collapsed from one day to the next due to the loss of clients. According to our experiences both the lessors and lessees are seeking survival solutions on the market, including legal arguments serving to protect their interests.

We need to take into account the fact that the Hungarian civil code (hereinafter: “Civil Code“) does not contain a generally applicable provision for epidemic or for another unavoidable circumstance that qualifies as a force majeure. However, (force majeure-type) circumstances non-foreseeable at the conclusion of an agreement can be legally significant:

  1. In cases of claims for damages due to breach of contract: the party breaching the contract shall be relieved of its liability if it proves that the damage occurred in consequence of an unforeseen circumstance beyond its control, and that there had been no reasonable cause to take action for preventing or mitigating the damage;
  2. In cases where the performance of services becomes impossible: if none of the parties is liable for the impossibility of the performance, then the parties shall settle the account with each other regarding the performed services but beyond such no claim for damages shall be requested. However, we draw your attention to the fact that the judgement of economic unfeasibility is quite controversial in Hungary;
  3. In the case of requesting to have the agreement amended by the court: the court is entitled to amend the agreement upon the request of any of the contracting parties if in the long-term contractual relationship of the parties (such as a lease agreement concluded for a term of years) performing the contract under the same terms is likely to harm his relevant lawful interests in consequence of a circumstance that has occurred after the conclusion of the contract, and (i) the possibility of that change of circumstances could not have been foreseen at the time of conclusion of the contract; (ii) the change of circumstances has not been caused by the contracting party requesting the amendment; and (iii) such change in circumstances cannot be regarded as normal business risks. The court shall have powers to amend the contract at the earliest time from the date of enforcement of the right to amend the contract before the court (the actual date of filing the statement of claim), in a manner to ensure that neither of the parties should suffer any harm to their relevant lawful interests in consequence of any change in the circumstances.

Obviously, the parties can stipulate force majeure clauses in their agreement, the judgement of such cases depends on the applicability of these provisions and the content thereof.

According to the trending of the market, in the current situation the lessees of (commercial) lease agreements reject the payment of rent with reference to paragraph (2) of Section 6.336 of the Civil Code. The referred provision is as follows: “No lease payments shall be made for the period when the thing cannot be used for reasons beyond the lessee’s control.” The argument is that they can (and shall) conduct solely commercial activities in the store, therefore the usage of the store guaranteed by the lessor incorporates the usage for commercial purposes as well.

The application of the provision referred to above to the current situation generates many interpretational questions to which even the absenting judicial practice cannot answer. According to the argument representing the interest of the lessee, it is a provision that imposes liability to the lessor, regarding the usage of the premises intended to be leased by the lessor for commercial premises, in all cases and for the entire term, in cases where the reason of the absenting usage is within the sphere of interest of the lessee. However, the lessor could argue that since the commercial usage (i.e. the profitability of the lessee) is not subject to the agreement, the lessee shall bear the risk of their own activities (such as in the case of leasing agreements), furthermore the government measures do not aim to close stores, rather “solely” prohibits staying in the stores (excluding the employees working therein). The future court awards to be made regarding these disputes will be available only in several years. In our opinion the final decision may depend on the extent of the commercial-specific clauses the parties stipulated in the lease agreement and that on what extent the lessee can prove that the lessor accepted certain characteristics of the leased premises at the conclusion of the agreement (for example: extent of visiting clients).

If the rejection of the payment of the rent proves to be justified in accordance with paragraph (2) of Section 6:336 of the Civil Code, then the extent of the rent reduction is questionable as well, as the provision concerned does not help in calculating the extent of the justified rent reduction. Do we need to calculate the extent of the rent reduction by collating the original opening hours with the opening hours resulted by the restrictions or shall we take a 24-hour base value? Is the extent of the decrease in turnover relevant? In our opinion, the calculation may be made with regard to the rent and the opening hours of the agreement.

We should not forget the fact that the implemented prohibitional measures shall not be applied to the employees of the stores. As a consequence, the store shall not be closed (as the current situation stands) and the operation cost will presumably be borne by the lessee.

We believe that the current circumstances do not entitle the lessee to terminate the lease agreement.

The lessees have another option to manage the situation by having the agreement amended by the court. In this case special attention must be paid to initiate the civil procedure as early as possible since the rent can be amended with retroactive effect only from the date of filing the statement of claim to the court. Although it must be emphasized that the outcome of these statement of claims cannot be clearly foreseen either.

It is also questionable how long the epidemic restriction (state of emergency) will be applicable. Do we need to prepare for a long-term economic crisis or do the restrictive measures create only temporary difficulties? These circumstances will affect the success of the parties’ legal tools. It is certain that the restrictions and the commercial consequences thereof burden the entire industry (lessors and lessees as well), therefore we will need risk-sharing techniques aimed at long-term cooperation rather than legal battles in which the consequences are exclusively imposed solely to one of the parties.

Labor safetyMore news

The compliance deadline (January 8, 2017) defined in the amendment (Act 79 of 2016 on the harmonization of the employment legislation) of the Act 93 of 1993 on Labor Safety (Mvt.) which brought significant changes regarding the workers’ representatives, will expire soon.

Since Juli 8, 2016 a workers’ representative for occupational safety shall be elected at all employers with at least twenty workers [Mvt. par. 70/A. subpar. (1) point a)]. In companies, where an employer employs less than twenty employees the election of a workers’ representative for occupational safety is initiated by the local branch of the trade union or the shop steward, or failing this, by the majority of employees [Mvt. par. 70/A. subpar. (1) point b)]. In both cases, the conditions for the election and conducting the election is the employer’s responsibility.

Should you have any questions, do not hesitate to contact our colleague Dr. Miklós Molnár.

What can we do for effectiveness of EU law?More news

In all areas of business, numerous provisions of EU law confer direct and indirect rights and obligations on businesses and enterprises of the Member States. The law of the European Union has become an integral and equal part of the national legal systems of the Member States. The authorities in each Member State – among them in Hungary – are primarily responsible for implementing EU law into national law and enforcing it correctly.

If an individual or business entity considers any measure or practice attributable to a Member State incompatible a provision or a principle of EU law or a national authority may not ensure the full effectiveness of Union law, they can lodge a written complaint to the European Commission.

The complaints and correspondence submitted will always be examined by the services and departments of the European Commission. Any complaint should be as complete and accurate as possible, particularly as regards the facts complained of in relation to the Member State in question and as far as possible the provisions of EU law which you consider to have been infringed by the Member State.

The Commission will not disclose the identity of the complainants unless they have given it their express permission to do so.

If the Commission that the complaint is well-founded and there may be an infringement of Union law which may require the opening of an infringement procedure, it addresses a letter of formal notice to the Member State concerned. In the light of the reply or the absence of a reply from the Member State, the Commission may decide to issue a reasoned opinion to the Member State and calling on the Member State to take the necessary measures to comply with Union law within a specified period.

If the Member State fails to comply with the reasoned opinion, the Commission may decide to bring the case before the Court of Justice of the European Union. At the close of the procedure, the Court of Justice will deliver a judgment stating whether there has been an infringement of Union law. After announcement of the judgement the Member State concerned has to take all necessary measures to comply with Union law as decided by the Court of Justice. If the Member State does still not comply, the Commission may again bring the matter before the Court of Justice seeking to have periodic penalty payments or a lump sum payment imposed on the Member State.

However, please note that the national authorities and courts in each Member State are primarily responsible for implementing European Union law into national law and ensuring that it is enforced correctly. Therefore, it is essential that the complainants seek redress from national administrative or judicial authorities.

A well-prepared, complete and accurate complaint is essential for being regarded as well-founded for initiation an infringement procedure against a Member State.

Do you have any further questions? We can help. Please contact us.

Changing corporate lawsMore news

As of March 1, 2012 regulations of corporate law have been changed again by the legislator. We would like to briefly summarize the most remarkable corporate law changes for the companies’ decision makers:

Szécsényi/Vágvölgyi: new publicationMore news

Eastlex, on of the leading CEE legal journal just published an article by László Szécsényi and Balázs Vágvölgyi on the final settlement of FX loans in Hungary. You can read the article (in German) here.

Compulsory energy performance certificateMore news

From 1 January 2012, an energy performance certificate has to be obtained by the developer, the owner or the landlord when buildings are sold or let.
The certificate will remain valid for 10 years (although in certain cases new certificates will be required.) and it must be prepared by a duly authorised engineer or professional company.

The requirement of the energy performance certificate has been introduced in order to implement a relevant EU directive. According to the Government Regulation of 176/2008. (VI. 30.),  this requirement applies to certain buildings when – if it is a newly-built building – it starts to be used; if it is an existing building, it is bought or sold or is let for a term of more than one year; if it is a state-owned building with more than 1,000 m2 of usable floor space.

A certificate is not required when ownership is transferred before the occupancy permit (“használatba vételi engedély”) is granted, or when a co-owner acquires an ownership share.

The buildings affected by this requirement are buildings with 50 m2 or more of usable floor space.

Currently, there is a confusion around the implementation and especially the enforcement of this new requirement. According to the media communication of the Ministry of the Interior, a violation against the energy certificate requirement constitutes a general infringement of  Section 31 (1) a) of the Government Regulation 218/1999. (XII. 28.) and a penalty with a maximum amount of HUF 50.000,― can be imposed against the violator. On the other hand, the relevant EU-directive lays down that the penalties provided for must be effective, proportionate and dissuasive. The Hungarian government has the possibility of introducing more effective and dissuasive penalties until 9 January 2013 at the latest, therefore we expect that the maximum amount of the above fine will be increased in order to have a deterrent effect.

New rules for payment order procedureMore news

Pursuant to Act No. 50 of 2009 on the payment order procedure (fizetési meghagyásos eljárás), from the 1st of June 2010, it is a notarial power to enforce due pecuniary claims in payment order procedures. The goal with the new regulation was primarily to relieve the ordinary courts, since more than 400 thousand of these non-litigious procedures were conducted in front of the courts in every year.

According to the new regulation, if the amount of the claim does not exceed over one million forints the due pecuniary claims are to be enforced only through payment orders, provided that the obligor has a known place of domestic residence, a seat or a local representative, and the claim does not arise from employment or other similar relations.

The Chamber of Civil Law Notaries (MOKK) provides a computer system for the notaries to complete their new tasks. They pursue automatic data procession and certain conducts can be done automatically.

As natural persons we can lodge our request for issuing a warrant of payment orally or using the paper-based submission form, whereas the legal persons or natural persons acting through their legal counsel may do so only electronically. The electronically submitted applications are distributed automatically and equally between the notaries, the ones submitted orally or in a paper based form will belong to competence of the notary they were presented in front of. All notaries have the power to act nationwide.

As an important novelty, the deadlines have been reduced, as the aim was also to have quick and efficient proceedings. The documents received are recorded in the MOKK’s system in 3 working days at most. If there is no rejection or transmission of the request, and no need for completion or the requested documents are already completed, the notary will issue the warrant of payment in 15 days (or 3 days in case of electronically submitted request) calculated from the day the request was presented – without the opponent having been heard.

The defendant has 15 days (as of the delivery) to present his/ her opposition, and hence, the opposition presented in time will transform the non-litigious payment order procedure into a lawsuit before the court. On the other hand a payment order without being contradicted has the same effect as a final, legally binding judgment.

The client requesting the above non-litigious procedure has to pay a court fee for MOKK calculated a rate equal to the amount indicated in the pecuniary claim and with a rate of 3 or 1% depending on whether it is a main proceeding or a procedure for permitting postponement or payment in installations. A stamp fee does not have to be paid except when the case is brought to the court.

Anita Bartal
Do you have more questions? Please contact us.

EXPO REAL – Stand A1.022More news

Our firm will participate also in this year as exhibitor on EXPO REAL in Munich.

During EXPO REAL between 4th and 6th of October, 2010 you may find our colleagues in Hall A1 Stand 022.

If you would like to arrange a meeting with our lawyers in advance you may find our contact details here.

REAL VIENNA – stand C0609More news

Our law firm will be represented also in this year as exhibitor on Real Vienna from 18th to 20th of May 2010.

Our colleagues would be pleased to greet you on our stand C0609. Please visit us.

Checkliste – Liegenschaftskauf in Ungarn [Csekklista – ingatlan-adásvétel Magyarországon], Eastlex 2008/Heft 2, 65-66.o.More news

Our publications available only to registered users.


Baurecht in Ungarn [A magyar építési jog], Eastlex 2008/6, 212-216. o.More news

Our publications available only to registered users.


Reugeld und Vorkaufsrecht im Konkursverfahren [A bánatpénz és az elővásárlási jog a felszámolási eljárásban], Eastlex 2009/4, 184. l.More news

Our publications available only to registered users.


Aktuelle Änderungen des ungarischen Gebührenrechts [A magyar illetékszabályok aktuális változásai], Eastlex 2009/5, 184. kk. l.More news

Our publications available only to registered users.


Eigentumsvorbehalt als Sicherungsmittel bei internationalen Finanzierungsgeschäften in Ungarn [A tulajdonjog fenntartása mint a nemzetközi finanszírozási ügyletek biztosítéka], ZfRV 2007, 64-70. o. (ZfRV – Zeitschrift für Rechtsvergleichung, Internationales Privatrecht und Europarecht)More news

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Significant changes in construction lawMore news

The main reason of the changes on the construction activity and construction contracts is to provide higher administrative control over construction projects which are financed by state sources. The new provision shall also apply for private projects.

The provisions of the new government decree are compulsory, this means that the parties may not deviate from it. The main goal of the decree is to control the payment of sub-contractors, the calculation of the contactor’s fee, the scope of the employer’s, designer’s, construction supervisor’s, contractor’s duties and set forth the mandatory elements (in details) of a construction and design agreement. As of October 1, 2009 agreements on construction works pursued as business activity have to be made in writing, while those falling under the scope of the Public Procurement Act have to be countersigned by an attorney or in-house council.

If the parties agreed that the contractor’s fee is a lump sum the contractor may not claim the consideration of the additional works (többletmunka). In this case the contractor may be remunerated only in respect of the extra works (pótmunka) if any. The decree set forth the definition of additional works (works contained in the construction documents but not considered in the contractor’s fee) and extra works (works not contained in the construction documents). The additional works may be invoiced only (i) in case the contractor’s fee is calculated based on the bill of quantities (i. e. itemised settlement of account) and (ii) the contractor certifies with the priced bill of quantities that the given additional work was not included in the budget.

In order to put an end to the debt chain in the construction industry, the payment in larger project will be controlled and made via an external third party (i.e. bank). It will involve the investor/employer, the contractor and the subcontractors to sign a special contract through an external party, such as a bank or other financial institution. The payment manager will handle on the one hand the funds provided by the employer and on the other hand the performance securities provided by the contractor. The engagement of a ‘safe hand’ is compulsory if (i) the investment falls under the scope of the Hungarian Procurement act and its value exceeds HUF 90 million or (ii) the value of the investment exceeds the European value threshold for public construction works (currently EUR 5.150.000,-). In the later case the value of the investment will be established based on the calculation method published in the regulation on construction fine (and not the amount specified in the general contractor’s agreement).

The provisions on the payment management agreement – inter alia – set forth that the (i) the completion protocol issued by the construction supervisor (műszaki ellenőr) and (ii) the payment to the general contractor(s) or subcontractor(s) of the amount specified in the invoice issued based on the completion protocol.

The employer must certify that the funds (in form of cash, credit, loan, etc.) covering the entire project are available at the entry into effect of the general contractor’s agreement. Until the date of commencement of the given work phase at the latest, the employer must (i) provide the consideration of the given phase, work part etc. is available on the payment manager’s account or (ii) must ensure that the funds covering the value of the given phase work part is under the exclusive control of the payment manager, in both cases The payment towards the contractor or subcontractors is conditioned to the approval of the completion protocol by the construction supervisor. Therefore, the employer does not have any control over the payments. The amount of the (partial) contractor’s fee may be covered by means of the following sources: (i) treasury bonds/bills issued by one a member state of the EU, (ii) securities, (iii) national or EU funds, (iv) loans or credits or (v) cash deposited on the escrow account of the payment manager.

The payment manager is entitled to retain from the amount payable to the general contractor the consideration due to the subcontractor if the general contractor failed to fulfil its payment obligation towards the subcontractors. Practically, the payment towards the general contractor is conditioned by the subcontractor’s confirmation of receipt. The fee of the payment management and all costs related to the payment management is payable by the employer.

If the involvement of a payment manager is compulsory, the subcontractors will be registered in an electronic registry forming a part of the construction diary (log book). The general contractor will enter the data on each subcontractor in the electronic registry. The payment manager will be entitled to retain the amounts due to the subcontractors from the payments towards the general contractor. If employer does not provide the payment manager with the required funds within the pre-agreed deadline, the contractor is entitled to suspend the works for 30 days. If the employer fails to certify that it has ensured the required funds during the time of the suspension the contractor may rescind the general contractor’s agreement.

The new regulation provides inter alia for or changes the compulsory content of the construction documents, construction diary, the design, contractor’s, subcontractor’s and payment management agreement. In addition, if the involvement of a payment manager is compulsory than the employer has to commission a construction supervisor as well. The changes also affect the hand over procedure.



Daniel Kellner

Do you have more questions? Please contact us.

On the CEO’s discharge of liabilityMore news

Not available in English.

Amendments to the Condominium ActMore news

As one of the most interesting changes of the Hungarian Condominium Act from a real estate developer’s aspect, the condominium representative (közös képviselő) may not act in the name and on behalf of the condominium during the various proceedings of the building authority. As a consequence, in the future the building authority shall notify each condominium member having a client status in the building/occupancy permit proceeding separately and thus the period opened for the appeal or waiver of the right to appeal will commence at different dates in case of each owner.

Due to the amendments the operation of the condominiums is placed under the judicial oversight proceedings of the Hungarian Prosecution Service. It is though questionable whether the Prosecution Service possesses the necessary manpower and financial background to deal with its new duty or – in lack of resources – such judicial oversight proceedings will remain an un-exercised right (same as the judicial oversight proceedings of the courts of the courts of registration).

In order to strengthen the transparency of the financial operation, condominiums with a yearly turnover exceeding HUF 10 million or having more than 50 apartments are obliged to appoint a certified public accountant to check the yearly financial report.

The amendments introduce the presumption of receipt: the condominium member being in arrears with the payment of common costs may not delay or avoid the payment by refusing to take over the payment notice. According to the new provisions on the eight business day reckoned from the second unsuccessful attempt to deliver the payment notice it will be deemed as delivered to the debtor even if the letter returns from the (postal) address of the member with the mark ‘did not look for it’. As a consequence the order of payment procedure may be commenced even if lack of delivery of the payment notice or the condominium representative may initiate the registration of the mortgage on the debtors’ individual condominium unit, provided that the registration is allowed by the bylaws of the condominium.

The Act on Condominiums as amended clarifies the rules on the alienation of the parts of a condominium jointly owned by the condominium members and altogether aims to align the provisions of the Act on Condominiums as to ensure the compatibility with the Act on the Land Registry.

Balázs Vágvölgyi
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New taxation on the cafeteria systemMore news

The benefits in kind (cafeteria) system has been subject to significant changes as of 2010. Even if most of the changes have an unfavourable impact on the employees (and vice versa: the changes will probably lead to an increase of the state budget), professionals consider that the employers still should implement some sort of cafeteria system instead to pay the amounts allocated for such purpose as part of the base salary.

It is beneficial though that the former yearly limit of the benefits in kind (HUF 400.0000,-) has been abolished and instead each benefit will have its individual limit provided that in all cases the amount exceding the given limits subjects the tax of 98,79%. Also, the circle of the fund allowances (amounts paid by the employer to mutual or pension fund account of the employee) wasn’t limited.

The most unfavourable novelty is the change of the former tax (and social security) exempt status of several benefits to a taxable benefit in kind category. As most probably the employers will not takeover such taxes the employees may select the elements of the package from three categories having different tax rates.

The allowance to employees using the Internet at home, life assurance respectively the housing allowance keep their tax (and social security) exempt status and there is no upper limit  thereof (first category).

The elements in the second category may be given up to a certain limit and subject to a ‘preferential‘ tax of 25%. The employer may dispense the lunch (hot meal) voucher up to HUF 18.000,-/month, the school allowance up to the 30% of the amount of the yearly statutory minimal salary, local travel pass as per the tariffs of the local public transportation company, the holiday voucher up to the yearly amount of the statutory minimal salary, the voluntary pension fund allowance up to 50% statutory minimal salary/month respectively the voluntary health fund up to 30% statutory minimal salary/month. The reimbursement of the tuition fees of any training is limited to amount of the statutory minimal salary multiplied with 2,5 and is taxable with 25% only (i) if it has been ordered by the employer and the training offers professional knowledge related to the business activity of the employer (ii) the curricula of the training is related to the given position. Please note that if the value of the certain benefit exceeds the threshold above the difference is subject to a tax of 97,89%.

The elements of the third category (cold meal voucher, culture voucher and gift voucher) do not have an upper limit (but the cafeteria package regulation will provide for such limits) and may be disbursed subject to a normal tax of 54% nevertheless, adding all payroll burdens (levied either on the employer or the employee) it increases to 98,79%.

Benefit Limit Tax
Internet unlimited 0%
Housing allowance HUF 5 million 0%
Life insurance unlimited 0%
Cold meal (lunch) voucher HUF 18.000,-/month 25%
Holiday voucher 73.500,- /month 25%
Transporation pass Unlimited 25%
School allowance 22.050,-/year 25%
Voluntary health fund premium 22.050,-/year 25%
Voluntary pension fund premium 36.750,- /month 25%
Training 183.750,- 25%
Cold meal voucher, gift voucher, culture voucher Unlimited 98,79%

Linda Horváth

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Amended rules of land transfer taxMore news

With the effect of 1st January, 2010 the Hungarian legislation has adopted amendments to the Act XCIII of 1990 on Duties. The latest amendments intend to eliminate the loopholes of the provisions concerning the new land transfer tax payable upon the sale of the real estate-companies.

The original provisions (Act LXXVII of 2009) prescribe that a purchase of a company that owns directly a real estate in Hungary (“share deal”) is subject to the same land transfer tax as a regular asset deal (the general rate is 4%, and, over 1 Billion asset value, 2%). According to the initial version of the new regulation the share acquisition of the affiliated companies in the company that owns directly a real estate in Hungary shall be accumulated. A duty obligation is arisen in case the acquirer’s accumulated shareholding is increased on at least 75 % in the company that owns directly a real estate in Hungary.

This regulation may be easily circumvented as according to the original regulation the purchase of a holding company having an ownership ratio of 100% in the project company owning real estate was not subject to the land transfer tax. The explanation was clear stating that the acquired holding company did not own directly a real estate in Hungary.

The new provisions define the “company owning a real estate in Hungary” (“SPV”) and – compared to the original provisions – extend the affected share deals significantly as not only the direct real estate owner companies are concerned. A SPV means henceforward (i) a company owning directly a real estate in Hungary, (ii) a company having at least 75% ownership ratio in the company defined in clause (i), or (iii) a company that indirectly owns an ownership ratio of at last 75% the company defined in clause (ii). The indirect ownership ratio is calculated according to the ownership ratio(s) of the affiliated companies between the purchased company and a company owning a real estate directly in Hungary.

The new regulations intend to eliminate the loopholes mentioned above but may not correspond with the logic of the original provisions and there is still some inconstancy. In light of the new provisions the collateral share acquisition of the affiliated companies shall only be accumulated if a SPV-purchase might be identified.

We think that with some creativity of the counsellors and appropriate transaction structure there is a possibility to avoid the payment of the land transfer tax according to the law.

We take the view that system of land transfer tax  payment obligation still offers some possibility for investors to optimise their intended transactions.

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László Szécsényi