2013 Investment Climate Statement
Bureau of Economic and Business Affairs
April 2013
Report

Openness To, and Restrictions Upon, Foreign Investment

Hungary maintains an open economy, and attracting foreign investment remains important for the Hungarian government. The Hungarian government established the Hungarian Trade and Investment Agency on January 1, 2011 with the aim to encourage foreign companies to invest in Hungary, facilitate bilateral trade, and support the activity of Hungarian small and medium sized enterprises (SMEs). Hungary has been a leading destination for FDI in Central and Eastern Europe, with approximately US$98 billion since 1989. However, the pace of inflows has slowed since the 2008 global crisis and Hungary’s relative advantage compared to regional competitors has slipped recently. Germany is the most significant country of origin, contributing 22% of all Hungary’s FDI, followed by Austria (14%) and the Netherlands (13%). The United States is the largest non-European investor with 4% of FDI. The automotive industry, software development, and life sciences receive the highest amount of capital investment. FDI inflow in 2008 reached Euro 4.8 billion, however due to the global financial crisis, FDI dropped to Euro 1.38 billion in 2010 as companies became more cautious about committing capital to large investments. There are approximately 200 companies in Hungary of U.S. origin, although the figure is closer to 800 if representation, sales offices, and sole proprietorships owned by U.S. citizens with dual Hungarian citizenship are considered.

Hungary's high-quality infrastructure, labor force, and central location are often cited as features that make it an attractive destination for investment. Despite Hungary's advantages, some businesses complain that obstacles and disincentives to investment remain. These include a lack of transparency and predictability, reports of corruption (particularly in the government procurement sector) and barriers related to excessive red tape. Since 2010 the government has passed a number of tax changes, such as reductions in personal income and business tax rates in order to increase Hungary's regional competitiveness. Some tax changes such as the so-called “crisis taxes”, however, have adversely affected businesses. The crisis taxes, along with more recent measures passed in 2012, targeted certain sectors including banking, energy, telecommunications, and large retail. Originally billed as “extraordinary measures” that would last only three years, it appears the government may continue the taxes beyond the three-year mark in the finance and energy sectors.

Many foreign companies have expressed displeasure with the unpredictability of Hungary’s tax regime, the retroactive nature of some of the tax measures, and the speed and volume with which the government is introducing new economic measures and changes. In December 2010, fourteen European companies filed a complaint with the European Commission, maintaining that the taxes discriminated against foreign firms in favor of domestic companies. The IMF has also criticized the taxes, stating, “The levies are difficult to justify on economic grounds as they discriminate among sectors and send negative signals about the government’s attitude towards foreign investment, which is critical for Hungary.” Many critics have claimed the taxes will reduce foreign investment and economic growth, and will offset the economic benefits of recently approved cuts in personal and corporate tax rates.

The Hungarian government encourages investments in both manufacturing and high-value added sectors such as research and development centers, manufacturing facilities and service centers. The government also believes that considerable opportunities exist in biotechnology, information and communications technology, software development, the automotive industry, and tourism.

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Index/Ranking

Year

Rank

Score

Transparency International Corruption Perception Index

2012

46/178

55/100

Heritage Economic Freedom

2012

49/183

67.1/100

World Bank Doing Business

2012

51/183

n/a

World Economic Forum Competitiveness Report

2012/2013

60/139

4.3

IMD World Competitiveness Yearbook

2012

45/59

57.34/100

Economic Recovery

Hungary’s emergence from the 2008/2009 global financial crisis has been impacted by the Euro crisis and its domestic economic policy. Following a 6.8% decline in 2009 and slight increase in 2010 and 2011, Hungary’s GDP is expected to decline by 1.3% in 2012, and subsequently stagnate in 2013. In an effort to keep the budget deficit below the 3% threshold required by the EU to lift the Excessive Deficit Procedure (EDP), the government imposed the crisis taxes mentioned above on certain sectors in 2010. As of January 1, 2013, financial and energy sector taxes were further increased when the Financial Transaction Tax and additional energy taxes came into effect. (Note. In November 2012, the government decided to increase the “Robin Hood tax” from 11% to 31%. The former 19% corporate income tax rate will remain unchanged. Therefore, effectively, total tax for energy service providers increased from 30% to 50% as of January 1, 2013. End Note.) A new public utility tax on water and sewer pipelines, natural gas, heat and electricity lines and telecommunications lines was also introduced. Despite previous government promises, the bank tax will not be reduced in 2013. As domestic demand remains subdued and the effect of large scale manufacturing investments--particularly in the automotive sector--failed to fuel GDP growth in 2012, exports remain the main engine of the economy, amounting to 80% of GDP. Hungarian exports -- especially to Germany -- are substantial and Hungary maintains a trade and current account surplus with its neighbor. The unemployment rate declined from 11.4% in 2009 to 10.5% in 2012 and the employment rate in Hungary remains slightly better than the OECD average.

In October 2008, the European Union (EU), the International Monetary Fund (IMF), and the World Bank provided Hungary with a Euro 20 billion stabilization package. The Fidesz government, which won a historic two-thirds majority in the April 2010 parliamentary elections, has so far not begun to negotiate a follow-on Stand-by Arrangement with the IMF, noting that it could meet its current and short-term financing needs through market financing. Given that the exchange rate, bond yields and Credit Default Swap (CDS) spreads stabilized in 2012, the government’s preference is to seek any necessary financing from the international market rather than the EU/IMF, provided that favorable global sentiment continues.

The government has committed to continue its strategy of deficit reduction. It made some structural changes which include eliminating early retirement, reassessing criteria for individual entitlement to disability pension, cutting administrative costs and postponing public sector wage hikes. But while welcoming the government's commitment to continued deficit and public debt reduction (particularly given Hungary's high debt to GDP ratio, which reached 78.6% at the end of the third quarter in 2012), many outside observers, including international credit-rating agencies, have criticized the government's utilization of short-term tax increases and one-off measures rather than the adoption of structural reforms as a more fiscally sustainable way to meet budget targets. Such one-off measures include nationalizing the mandatory private pension fund payments, which generated a one-time budget revenue of about HUF 3 trillion (US$13.6 billion) and at the same time channeled all pension contributions into the public pension fund. Other actions, including eliminating the independent Fiscal Council budget watchdog agency, have also drawn widespread criticism. In 2011, the three major credit rating agencies lowered their ratings on Hungarian bonds to non- investment grade. And in November 2012, Standard and Poor’s reduced Hungary’s rating to BB from BB+. In December, Fitch confirmed its previous BB+ ratings – both of which are below non-investment grade.

New foreign currency loans have largely disappeared from the market, but many companies and households still have high exposure to such loans. Following various schemes to tackle Hungary’s foreign currency denominated mortgage loan problem at the end of 2011, banks reached an agreement with the government to convert foreign currency denominated mortgage loans into forint loans. They did so at a preferential exchange rate until the end of 2012, and partially wrote off debt for those who could not repay their loan. It is estimated that half of Hungary’s household debt (US$26.5 billion) is in Swiss francs. The banking sector posted a HUF 10.5 billion loss at the end of 2012 due largely to the continuation of the bank tax, the mortgage scheme and the financial transaction tax on cash withdrawals. Few banks remain profitable.

Framework for Foreign Investment

Since 1989, Hungary has undergone a dramatic transformation from a centrally planned economy to an open, pro-business economy. In 2004 it became a member of the European Union. The Hungarian Constitution guarantees private ownership, right of enterprise, and freedom of competition. In November 2010 Parliament moved to restrict tax and budgetary matters from the Constitutional Court’s purview so that no legislation can be ruled unconstitutional if it affects government’s revenues. Parliament drafted a new Constitution that came into force on January 1, 2010. Financial markets are highly developed and smoothly operating, and reflect a level of sophistication indicative of an early reformer in the region.

The Ministry of Economic Affairs established the ITDH (Investment and Trade Development Agency in Hungary) in 1993 to help companies make major investments in the country. On January 1, 2011, ITDH’s economic development responsibilities were transferred to the Hungarian Investment and Trade Development Agency (HITA) operating under the Ministry of National Economy. HITA is smaller in size than the former ITDH. The government has a National Development Program II (NDPII) for channeling EU development funds and the Smart Hungary investment incentive program, aimed at facilitating investments in key areas for development, especially in less developed regions.

The Investors’ Council --made up of the 100 largest investors-- is intended to operate as a mechanism to maintain Hungary's economic competitiveness and attractiveness to foreign investors. It is co-chaired by the Minister of Economy, the American Chamber of Commerce, the German Hungarian Chamber of Commerce, the Hungarian Joint Venture Association, the Hungarian Association of International Investors, and the Permanent Commission of EU Chambers. The Investor’s Council was dormant for several years but has been active again since March 2011.

A substantial body of laws protects foreign investment in Hungary, provides equal treatment under Hungarian laws, and enables profit repatriation. Most important are the 2006 Law on Business Organizations, the 2009 Law on Enterprise, the 1992 law on transforming state companies into economic associations, the 1996 Competition Law, and the 1995 Privatization Law. Other significant laws include the 1991 Law on Bankruptcy, the Law on Securities, and the 1994 Law establishing the Commodity Exchange. Legislation is uniform for all investors regardless of their origin. Institutions and procedures are in place to ensure compliance with legislation and competition rules. The applicability of these laws extends without differentiation to domestic and foreign investors.

The most notable legislation protecting both foreign and domestic investors is the Foreign Investment Act of 1988. It grants full protection to the investments and businesses of non-Hungarian resident investors and guarantees that investors will be treated in the same manner as national investors. The Act also contains a repatriation guarantee under which foreign investors are free to remit profits and investment capital to their home country in the event of partial or complete termination of their enterprise.

Commercial law in Hungary is well developed; however, most analysts see both a need to continue to revise the corporate legal code and to improve the judicial and administrative capacity for enforcing it. There continue to be complaints from foreign investors about the slow pace of the judicial system.

Up to 100-percent foreign ownership is permitted with the exception of designated "strategic" holdings in some defense-related industries and farmland. Foreigners investing in financial institutions and insurance companies must officially notify the government but do not need advance authorization. Foreign financial institutions may operate branches and conduct cross-border financial services in Hungary, in keeping with OECD commitments. Currently, foreign firms control two-thirds of manufacturing, 90% of telecommunications, and 60% of the energy sector. The private sector currently produces about 80% of Hungary’s output.

The Hungarian State Holding Company (MNV) became the legal successor to the Hungarian Privatization and State Holding Company (APV) in 2008, and is responsible for managing and privatizing state-owned properties. With most state-owned companies now privatized, the pace of privatizations has slowed considerably in recent years.

Ownership in Hungary is considerably more concentrated than in the U.S. It is common for one or two stockholders to have a controlling stake in large corporations. Crossholdings are common and the independence of directors sometimes difficult to establish.

Under the Investment Act, a company incorporated in Hungary may only acquire real estate "required for its economic activities," but this has been liberally interpreted and has not prevented foreign entrepreneurs from engaging in property development. According to the 1994 Land Law, only private Hungarian citizens or EU citizens resident in Hungary engaged in agricultural activity for a minimum of three years can purchase farmland up to 300 hectares, while others may lease it. For those EU citizens who do not fulfill the above requirements or for third country citizens, the law allows the lease of farmland up to 300 hectares for a maximum of 20 years. Restrictions on foreigners buying land was scheduled to remain in force for seven years following EU membership. In 2010, the EU granted a three-year extension of this transitional period, which will expire in May 2014. The government is drafting a new land bill which will likely exclude non-EU citizens from owning agricultural land.

Conversion and Transfer Policies

The Hungarian forint (HUF) has been convertible for essentially all business transactions since January 1, 1996. Hungary must eventually adopt the Euro according to its agreement to join the EU. Hungary complies with IMF Article VIII and all OECD convertibility requirements. Act XCIII of 2001 on Foreign Exchange Liberalization lifted all remaining foreign exchange restrictions and allowed free movement of capital in line with EU regulations. Foreign currencies are freely available in all banks and exchange booths. In 2001, Hungary adopted an exchange rate intervention band of +/-15% around a benchmark rate against the Euro. In order to allow the Hungarian National Bank (MNB) to exclusively focus on its inflation target of 3%, in February 2008 the MNB adopted a free-floating exchange rate regime. Since then, market forces determine the exchange rate of the HUF to the Euro and other currencies.

Although the current government, like the previous one, notes that adoption of the Euro remains a priority, a specific target date for entry has not been set. Recent reforms have aimed to strengthen Hungary's fiscal sustainability and bring it closer to meeting the Maastricht criteria and other conditions required for entry into the Exchange Rate Mechanism II (ERM II), necessary for Euro adoption. The timing of Hungary's entry into the Eurozone will largely depend on the economic policies and priorities of the government.

Short-term portfolio transactions, hedging, short and long-term credit transactions, financial securities, assignments and acknowledgment of debt may be carried out without any limitation or declaration. While the Forint remains the legal tender in Hungary, parties may settle financial obligations in a foreign currency.

Hungarian legislation allows for profit repatriation and re-investment. The timeframe for remittances are in line with the financial sector’s normal timeframes (generally less than 30 days), depending on the destination of the transfer and on whether corresponding banks are easily found. There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs.

Expropriation and Compensation

Article XIII of Hungary’s Fundamental Law provides protection against expropriation, nationalization, and any arbitrary action by the government except in cases of acute national concern. In such cases, immediate and full compensation is to be provided to the owner. There are no known cases where the Hungarian government has discriminated against U.S. investments, companies, or representatives in expropriation. However, there have been some complaints from other foreign companies within the past several years that expropriations have been improperly executed without proper remuneration. These cases have turned to the legal system for dispute settlement.

Dispute Settlement

Hungary’s judicial system underwent significant changes due to legislation passed in 2011 and effective January 1, 2012. Parliament renamed several courts and added a new court, the Court of Public Administration and Labor. Presently, the Hungarian judicial system includes four tiers: district courts (formerly referred to as local courts) and courts of public administration and labor; courts of justice (formerly referred to as county courts); courts of appeal; and the Curia (the renamed Supreme Court). Hungary also has a Constitutional Court that reviews cases involving the constitutionality of legal regulations and court rulings.

Hungary also established the National Court Administration Office (OBH) and invested significant authority in the OBH President. The OBH President is nominated by the Hungarian President, approved by a two-thirds Parliamentary majority and serves a nine-year term. Under the revised judicial system, the OBH President’s responsibilities include judicial appointment recommendations, court leadership decisions and caseload distribution. Currently the OBH President has the authority to choose the venue for specific cases in order to ensure timely proceedings, though this power is being challenged before the Constitutional Court. Domestic and international observers have voiced concerns regarding the independence of the judiciary due to the broad powers of the politically-appointed OBH President, despite the recent legislative changes introducing certain limitations to the original authority.

The Act on Bankruptcy Procedures, Liquidation Procedures and Final Settlement of 1991, amended several times, covers all commercial entities except banks (which have their own regulatory statutes), trusts, and state-owned enterprises to bring Hungarian legislation in line with EU regulations. Bankruptcy proceedings can only be initiated by the debtor provided he/she has not sought bankruptcy protection within the previous three years. Within 90 days of seeking bankruptcy protection, the debtor must call a settlement conference to which all creditors are invited. Majority consent of the creditors present is required for all settlement plans. If agreement is not reached, the court can order liquidation. The Bankruptcy Act establishes the following priorities of claims to be paid: 1) liquidation costs; 2) secured debts; 3) claims of the individuals; 4) social security and tax obligations; 5) all other debts. Creditors may request the court to appoint a trustee to perform an independent financial examination. The trustee has the right to challenge, based on conflict of interest, any contract concluded within 12 months preceding the bankruptcy.

Liquidation procedures may be filed with the court by the debtor, the creditors, the administrator, or the Criminal Court. Once a petition is filed, regardless of who filed it, the Court notifies the debtor by sending him a copy of the petition. The debtor has 8 days to declare whether he acknowledges insolvency. If accepted, the company declares if any respite for the settlement of debts is requested. Failure to respond to this shall result in the insolvency being presumed. Upon request the Court may allow a maximum period of 30 days for the debtor to settle its debt. If the Court finds the debtor insolvent, it shall, in the decree, appoint a liquidator. The Liquidation Decree shall be published in the Company Gazette. The Court shall notify the competent tax and customs authorities, the health insurance administration agency, the pension insurance administration agency and all payment service providers carrying the debtor’s accounts, of the insolvency. There have been some concerns raised about the transparency of the liquidation process because a company may not know that a creditor is filing a liquidation petition until after the fact.

Hungary has accepted binding international arbitration in cases where the resolution of disputes between foreign investors and the state is unsuccessful. There are domestic arbitration bodies within the Hungarian Chamber of Commerce, the Ministry of Labor, and local municipal governments. Hungary is a member of the International Center for the Settlement of Investment Disputes (ICSID). Hungary is also a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. In the last few years mediation has become a tool of increasing importance for dispute settlement to avoid lengthy court procedures.

Performance Requirements / Incentives

Performance requirement/incentives are available to all enterprises registered in Hungary, regardless of the nationality of owners or location of incorporation, and applied on a systematic basis. To comply with European Union rules, the government of Hungary no longer grants tax holidays based on investment volume.

Eligibility for incentives is regulated by government Decree 163/2001, as amended by 241/2002, in accordance with EU regulations. Incentives can be received by tendering procedures for: (1) research and development, employment, training; (2) economic sectors; or (3) regions. The government defines an intensity indicator for incentives, which is the maximum value of the total of various incentives in proportion to the present value of the investment. This can be higher for less developed areas or for small and medium sized enterprises (SMEs).

Hungary has a well developed incentive system for investors, the cornerstone of which is a special incentive package for investments over a certain value (typically over Euro 10 million). The incentives are focused on investors establishing manufacturing facilities, logistics facilities, regional service centers, R&D facilities, bioenergy facilities, or tourist facilities. Incentive packages may consist of cash subsidies, development tax allowances, training subsidies, and job creation subsidies. The incentive system is compliant with EU regulations on competition and state aid and is administered by the Hungarian Investment and Trade Development Agency and managed by the Ministry of National Development.

Parliament enacted a National Development Plan for 2007-2013. In the Framework of the New Hungary Development Plan (NHDP), Hungary will receive around Euro 22.4 billion from the EU. This will be complemented by the national public contribution amounting to 15% of the total available funding. The Hungarian government will add to this amount around 1,000 billion HUF (US$4.3 billion). Projects using EU structural and cohesion funds will be subject to a series of requirements, including a portion of own-source financing. As these programs are implemented, the inflow of EU funds is creating numerous opportunities for investment. In an attempt to ease the effects of the global financial crisis, the GOH initiated an economic stimulus package worth over Euro 5 billion for businesses, including SMEs that have been particularly affected by the unavailability of credit. In the current climate, loans have been hard to obtain even for SMEs with good credit histories, and expiring loans have been hard to renew. The package includes a Euro 1.4 billion liquidity package (micro loans, SME loans, and Hungarian Development Bank loans), a credit guarantee of over Euro 270 million, as well as interest and venture capital subsidies from the New Hungary Development Program and the New Hungary Rural Development Program. The division of EU Resources for the Sectoral Operative programs is as follows (The following figures are for 2007-2013; negotiations between the government and EU for the period 2014-2020 have also begun):

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Sectoral Operative Programs

Billion HUF

USD Billion (approximate)

Economic development

674.03

3.10

Transport

1721.47

7.92

Social Renewal

933.29

4.29

Social infrastructure

538.95

2.48

State Reform

40.61

0.18

Electronic Public Administration

99.49

0.46

Environment, Energy

1053.56

4.85

Implementation

94.88

0.44

National Performance Reserve

98.38

0.45

Regional Operative Programs

1620.59

7.45

NHDP total

6875,25

31.63

Performance requirements, such as job creation or investment minimums, can be imposed as a condition for establishing, maintaining, or expanding an investment. There is no requirement that investors purchase from local sources, however the EU Rule of Origin applies. The government imposes “offset” requirements for defense sector investments over one billion forint. Investors are not required to disclose proprietary information to the government as part of the regulatory process. There are no restrictions on participation in government financed or subsidized research and development programs.

The process of obtaining visas, residence permits, and work permits can be lengthy and tedious but does not inhibit foreign investors’ mobility. Employment of foreign nationals must meet Hungarian Labor Code requirements.

There have been no complaints against Hungary related to any failure to fulfill any trade related investment measures (TRIMS) treaty obligation.

Right to Private Ownership and Establishment

The Hungarian constitution guarantees the right to private ownership. Foreign and domestic private entities may establish and own business enterprises and engage in all forms of remunerative activity, except those prohibited by law. Hungarian law guarantees the right to establish of private entities, as well as the right to acquire and dispose of interests in business enterprises. Many foreign companies operate through representative offices.

The Foreign Investment Act of 1988 grants full protection to the investments and businesses of non-Hungarian resident investors. The Act guarantees that investors will be treated in the same manner as national investors, and contains a repatriation guarantee under which foreign investors are free to remit profits and investment capital to their home country in the event of partial or complete termination of their enterprise.

The registration of business associations is compulsory in Hungary. All firms registered in Hungary are under the Court of Registration’s legal authority. The Court maintains a fully computerized registry, provides public access to company information, and is developing an electronic filing system. The Court also enforces compliance with the Company Act, enacted in June 1998, which compels registry courts to process applications to register limited liability and joint-enterprise companies within 30 days (60 days for unincorporated business entities). If the court fails to act in the period, the new company is automatically registered. The act eliminated separate registrations at the tax and social security authorities. The minimum capital required for a limited-liability company is HUF 500 thousand (US$2,100) and for a joint stock company it is a minimum of 5 million HUF (US$21,300). As of July 1, 2008 businesses may be established in one hour electronically or by a simplified registration procedure. Lowering administrative burdens and red tape was also included in the 2013 budget.

Protection of Property Rights

Secured interests in property (mortgages), both moveable and real, are recognized and enforced but there is no title insurance in Hungary.

On January 1, 2003, Hungary acceded to the European Patent Convention and has accordingly amended the Hungarian Patent Act. Hungary is a party to the WTO Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement and most other major international IPR agreements, including the most recent World Intellectual Property Organization (WIPO) copyright Treaty and the WIPO Performance and Phonograms Treaty. It is also a party to the EU Information Society Directive, and implemented the EU Enforcement Directive in 2005.

The United States and Hungary signed a Comprehensive Bilateral Intellectual Property Rights (IPR) Agreement in 1993 that addresses copyright, trademarks and patent protection. A subsequent industrial property and copyright law entered into force on July 1, 1994 that significantly strengthened the domestic patent system. A new Copyright Law passed in June 1999 made necessary technical changes required by the WTO TRIPS Agreement.

The 1993 IPR agreement recognizes an exclusive right to authorize the public communication of works, including the performance, projection, exhibition, broadcast, transmission, retransmission or display of these works. It also requires that protected rights be freely and separately exploitable and transferable (contract rights), and recognizes an exclusive right to authorize the first public distribution, including import, for protected works.

Patent protection in Hungary covers the use, sale, offering for sale, and import of a patented product or products made using a patented process. The definition of infringement has been extended to include “supplying the means.” A person who sells or offers to sell the means of producing a patented product is liable if that person is proven to have known that the means could be used for infringement. An example is the sale of decoder boxes that would allow the user to pirate a cable signal.

Under the revised Patent Act, effective January 1, 1996, an invention may be patented if it is novel and has industrial application. The patent application process takes from six months to one year, and patents are issued for a period of twenty years from the filing date. Foreigners applying for a Hungarian patent whose permanent residence is not in the European Economic Area (EEA) must be represented by an authorized Hungarian patent agent. Hungarian patent law conforms to the guidelines of the European Patent Convention, to which Hungary is a signatory.

Trademarks may be granted for any product-distinguishing sign capable of being graphically represented. They are issued for ten years and are renewable. The Hungarian Intellectual Property Office (HIPO) is in charge of patent revocation and trademark invalidity proceedings, while all disputed related to the infringement of IPR fall under the jurisdiction of the courts.

In May 2004 the United States Trade Representative (USTR) announced that Hungary was placed upon the Special 301 Watch List of countries due to weak enforcement and inadequately protected confidential pharmaceutical test data. The government of Hungary has taken some positive steps towards more complete implementation of its international obligations by putting into effect a ministerial decree to provide data exclusivity protection for pharmaceutical products authorized in the EU or Hungary after April 11, 2001. Due to this and other measures, USTR removed Hungary from the Special 301 Watch List in 2010.

In July 2010, the U.S. Patent and Trademark Office and HIPO launched a pilot program to facilitate patent recognition between the United States and Hungary. Due to the success of the pilot program, in April 2012 the USPTO and HIPO signed a Memorandum of Understanding to streamline and expedite patent recognition even further as part of the Patent Processing Highway (PPH). More details about this program and other participating countries can be found on USPTO’s website at www.hipo.gov.hu/English/szabadalom/pph/.

In January 2008, the GOH established a National Board Against Counterfeiting and Piracy (HENT), led by a government commissioner, the Hungarian Intellectual Property Office (HIPO), and the Ministry of Justice (MOJ), with participation from law enforcement and other government agencies, various business chambers, industry associations, and NGOs. The Board established a strategy until the end of 2010, which was approved by the government in October 2008. Since its creation, the HENT has undertaken a number of positive measures to increase training of judicial law enforcement officials, improve coordination between rights-holders and law enforcement officials, and increase public awareness of the importance of intellectual property rights protection. Ongoing areas of concern include internet-based piracy and the failure of judges to impose deterrent-level sentences for civil and criminal IP infringement. In January 2011 HENT was reorganized by a governmental decree and given a legal framework for its operation. HENT is in the process of establishing a new strategy to meet current IPR challenges.

In January 2011, the Customs Authority and Tax Authority (NAV) were merged and given jurisdiction over IPR enforcement. NAV is a member of HENT, and also works closely with the Business Software Alliance (BSA). In January 2011 the NAV created a special Cyber-crime unit to better enforce IPR internet infringements.

Transparency of the Regulatory System

The regulatory process in Hungary is relatively open and transparent. As a whole, labor, environment, health and safety laws are consistent with EU regulations. However, some companies operating in Hungary have claimed that recent “crisis taxes” are inconsistent with EU regulations since they target certain industries/sectors over others and do not reflect the costs of regulating the affected sectors. Regarding taxation, the EU launched infringement procedures against the telecommunication tax implemented in 2010, and elevated it to the European Court of Justice at the end of 2012. If the ruling – expected in 2013 - is unfavorable, Hungary would have to repay HUF 220 billion (US$986 million) to affected companies.

Laws in Parliament can be found on Parliament’s website (http://www.parlament.hu/parl_en.htm). Legislation, once passed, is published in a legal gazette and available online at www.magyarkozlony.hu. Civil organizations have complained about a loophole in the current law that allow individual MPs to submit legislation and amendments without having to give a reason, which is otherwise compulsory for legislation submitted by government institutions. The government has an inconsistent record of inviting interested parties to comment on draft legislation and does not always incorporate input into final documents.

Company representatives working in industries impacted by the crisis taxes have complained repeatedly that the business sector was not consulted before new taxes were announced. Furthermore, they have argued that the government has failed to take into account industry concerns. Foreign investors, some sectors of civil society, and international organizations, including the EU, have requested that the government consult stakeholders before drawing up regulations.

There are some exceptional types of regulations where consultation with the public is required, including environmental and land use regulations. The Environmental Act (LIII/1995) and the Regional Development and Country Planning Act (XXI/1996) require the government to solicit input from affected parties. Open-ended public hearings are uncommon, and the courts generally cannot review administrative decisions. Some ministries are beginning to put draft rules and laws on the Internet and to invite comments, but this practice is not yet widespread.

In January 2012, a new, shorter and more flexible Public Procurement Act came into force. Contracting parties reported that 4,063 procurement procedures were conducted in 2012 under the new Act. Most of these were negotiated procedures without public announcements. However, this is allowed under the new law insomuch as the procurement does not reach or exceed HUF 150 million (US$750,000) as noted in the Public Procurement Law’s Article 122, paragraph 7. This paragraph further says that only SME’s can submit bids for negotiated procurement announcements—thereby the Hungarian government believes that these types of procedures support SME.

Some experts consider the new Public Procurement Act too liberal and thus susceptible to corruption through various loopholes. State-owned or government-friendly companies still seem to have an advantage over private market players for public procurement tenders. Companies operating in subsidy or in price-regulated sectors may suffer due to insufficient transparency and responsiveness to the setting of prices or subsidies. Parties requesting bids are required to post information on their websites about the project and results of the public procurement process. Additionally, bids will need to indicate all subcontractors that will be used and how they will participate in the project. The new law also simplifies the current process by reducing the amount of paperwork for bidders. The current Hungarian government extended the law to investments financed by the Hungarian Development Bank and increased the number of open tenders.

The Accounting Law of 2000 and subsequent modifications were designed to bring Hungarian financial reporting standards and practices in line with the International Accounting Standards and the EU Fourth and Seventh Directives. Under the latest modification, effective January 1, 2005, listed companies under the scope of Decree 1606/2002 of the EC are obliged to prepare consolidated financial statements in accordance with international financial standards, except for companies which are subsidiaries of a parent company already preparing a consolidated annual report.

According to Transparency International’s National Integrity Study, systemic corruption adds as much as 20-25% to the costs of government procurement. A Freedom House study estimated that only 10% of government procurements are transparent. Government procurement reform is a major topic of discussion among foreign chambers of commerce and business entities. These groups have provided their suggestions to the GOH for inclusion into draft legislation.

Efficient Capital Markets and Portfolio Investment

Prior to the global financial crisis, capital adequacy was not an issue in Hungary as funds were readily available for businesses, due in large part to a large foreign presence and significant competition in the banking sector. Since the crisis, banks have increased their capital adequacy ratios above the required 8%. In line with EU requirements, banks also need to reduce loan-to-debt ratios from the current 140% to 110% by 2014.

Lack of confidence in financial markets over the past two years has affected Hungarian banks. The government has effectively banned banks from lending in foreign currency by stipulating that only those who earn their income in foreign currency can take foreign currency denominated loans to eliminate exchange rate risk on customers. Forint loans to businesses are hard to obtain as well, as the requirement to decrease the loan-to-deposit ratio is forcing banks to promote deposits aggressively and lend to the less risky sectors, including consumer loans. At the end of 2012, Hungary’s loan-to-deposit ratio was down to 110%, compared with 170% in 2008. On the whole, foreign investors continue to have equal access to credit on the local market, with the exception of special governmental credit concessions such as small business loans. Markets for direct finance are thin.

Hungary has an impressively modern financial sector. In April 2000, the responsibilities of the Bank Supervisory Board were merged with the state insurance and pension supervisory agencies to form the Hungarian Financial Supervisory Authority (PSZAF) and its importance was further enhanced by Act CXXXV of 2007. This body is a consolidated financial supervisor regulating all financial and securities markets. In order to increase its ability to foresee possible problems in the financial sector, PSZAF’s authority was increased through a package of modifications to existing financial laws passed by Parliament in December 2009 and October 2010. These include stricter regulations on loans for private individuals, better information about exact loan conditions and costs, and a code of ethics for banks. These changes are designed to prevent individuals from taking on loans they are unlikely to be able to repay and provide better protection for those who cannot meet current installments and wish to change their loan conditions or opt for early repayment. In December 2010 Parliament empowered the PSZAF to pass decrees in line with Hungarian National Bank (MNB) decrees and other existing legislation. This creates a strong two-pillar system of control by the Central Bank and the PSZAF over the financial sector and provides new tools to allow them to address systemic and other risks. Tasks related to the establishment of the European Systemic Risk Body and the European System of Financial Supervisors would also be delegated to the PSZAF.

Competition from State-Owned Enterprises (SOEs)

Beginning in the 1990s, there has been considerable privatization of former state-owned enterprises. Today, few SOEs remain, and primarily operate in strategic sectors, for example in the areas of national security, energy (MVM) and transportation. However, in the past year and a half, the government tried to make several strategic investments in areas that are outside the scope of national interest, such as the telecommunications sector and the production of machinery (RABA). At present we are aware of few complaints from private companies regarding competition from SOEs. Since mid-2012, the government has made it more difficult for energy companies to operate and has publicly stated its interest in nationalizing some private firms.

Corporate Social Responsibility (CSR)

Since the mid-1990s, corporations began to pay more attention to social responsibility. Foreign long-term investors have "imported" their CSR mechanisms, policies and models, which local Hungarian corporations have begun to adopt. According to a survey conducted by CSR Hungary, 55% of businesses have a CSR policy and 44% of businesses think that CSR increased their competitiveness. The Hungarian Business Leaders Forum (HBLF), a non-profit representative body of local and international business leaders in Hungary, considers CSR as part of its mission. In 2006 the government signed a strategic resolution (No. 1025) for the reinforcement of social responsibility of employers. Since 2006 CSR Hungary - the country's largest CSR forum - has held several conferences every year, where company and communication managers, researchers and university students exchange information and experiences, and where an annual CSR award is presented. CSR Hungary has a club card, awards scholarships to promising students in economic or technical studies, and runs a social awareness forum. According to Nielsen Global Omnibus research over 60% of Hungary’s adult population has a preference to companies committed to CSR, exceeding the 54% EU average.

Price Regulation and Liberalization

The Price Act of 1990 authorizes the government to determine compulsory prices when the Competition Act fails to protect interests of consumers. This sets the upper or lower price limit for certain goods and services to be established by a relevant government authority.

Foreign companies operating in price-regulated sectors, such as energy and pharmaceuticals, have suffered decreased margins due to government delays in adjusting prices upward and extending subsidies to new drugs. Multinational pharmaceutical firms believe they have spent considerable time negotiating with the Ministry of Health with little effect on the price and reimbursement policies of the national health system. Many pharmaceutical companies see the current government plan for pharmaceutical subsidies as impractical.

Substantial market deregulation has occurred over the past few years. The electricity market has been unbundled and is largely privatized. In June 2003, the Hungarian government passed the Gas Act, which provided the framework for gradual liberalization of the natural gas market from January 2004. However, that same Act reduced the political autonomy of the Hungarian energy regulatory office. In 2007 the GOH initiated electricity and natural gas market liberalizations, which were for the most part completed in 2009, although the Hungarian Energy Office continues to regulate gas prices.

According to the Amendment on Electricity and Gas Act passed by Parliament in June 2010, the Ministry for National Development, in consultation with the Hungarian energy regulator, quarterly sets the new price regime of universal service providers (USPs). USPs have seen their profit margins decrease substantially due to their inability to make money when the set price is below the price of imported gas.

Portfolio Investment

The 1996 Offering of Securities, Investment Services and Securities Exchange Act, and the 1990 Securities and Stock Exchange Act govern the public issuance and trading of bonds, shares and other securities. The Budapest Stock Exchange (BSE) has 35 members, which are licensed-broker or broker-dealer companies, including several U.S.-based firms. It is a full member of the Federation of International Stock Exchanges and an associate member of the International Securities Market Association. The total market capitalization in December 2010 amounted to Euro 66.4 billion, of which shares amount to Euro 20.86 billion, government bonds and treasury bills amount to Euro 35.96 billion. Average daily turnover was Euro 82.35 million, which is 5.5% higher than in 2009. In November 2005, the BSE integrated the Commodity Exchange, creating a commodities section. In December 2010 the BSE listed a total of 71 issuers. These include 52 equity, 8 bond, 3 mortgage, 10 investment funds, one government bond and T-bill issuer, two investment and turbo certificate issuers, and one compensation note issuer. Some of these issue several types of instruments. 66% of capitalization is concentrated in four companies (MOL, OTP, Magyar Telecom, and Richter), the “Blue-chips’ which determine the Stock Exchange Index.

Political Violence

Despite an uptick in protests in 2006, political violence has not been characteristic of the political landscape in Hungary. The transition from communism to democracy was negotiated and peaceful, and four peaceful changes of government via the ballot box have followed. There is little cause to expect insurrections, political terrorism, or interstate war. There has been no violence directed against foreign-owned companies, although Hungary's economic troubles have contributed to an increase in political extremism.

Corruption

The Hungarian Ministry of Justice is responsible for combating corruption. There is a growing legal framework in place to support its efforts. Hungary is a party to the OECD Anti-Bribery Convention and has incorporated its provisions into the penal code, as well as subsequent OECD and EU requirements on the prevention of bribery. Hungary adopted a national strategy on combating corruption and passed two modifications of the Criminal Code in 2001 (Act CXXI and CIV). Parliament also passed the Strasbourg Criminal Law Convention on Corruption (Law XLIX of 2002) and the Strasbourg Civil Code Convention on Corruption (Law L of 2004). Hungary is a member of GRECO (Group of States against Corruption), an organization established by members of the Council of Europe to monitor the observance of their standards for fighting corruption. Transparency International (TI) is active in Hungary and its 2012 Corruption Perceptions Index rated Hungary 46th out of 178 countries (1st being best), up from 54th in 2011. Among other countries in the region Hungary is 4th behind Estonia, Slovenia, and Poland. However, after the new rating was published, TI commented that Hungary’s new ranking was not a true reflection of improvement, but rather the study’s changed methodology. TI has said that in reality Hungary is doing worse than it was in 2011.

Giving or accepting a bribe is a criminal offense, as is an official’s failure to report a bribery incident. Penalties can include confiscation of assets, imprisonment, or both. Since EU membership, legal entities can also be prosecuted. An extensive list of public officials and many of their family members are required to make annual declarations of assets, but there is no specified penalty for making an incomplete or inaccurate declaration. The 2003 “glass pocket law” extended the State Audit Office right to review businesses’ government contracts to public-private transactions that were previously considered “business-confidential.” Conflict of interest legislation prohibits members of parliament from serving as executives of state-owned companies.

While legislation is in place, persistent suspicion of corruption in some government procurement actions has arisen due to a lack of transparency and uneven implementation of corruption prevention laws. Non-governmental organizations, the business community, and foreign governments share many of these concerns, and maintain an ongoing dialogue with the government to identify strategies to improve conditions. The GOH set up an Anti-Corruption Coordination Board, led by the Ministry of Justice, with participation from other government ministries, chambers and NGOs, which submitted a strategy and action plan to Parliament in 2008. This board disbanded in late 2009 and no new organization as arisen in its place. TI continues to actively support a transparent party financing system, however there has been little progress on reforming this issue over the past several years.

In addition, observers have raised concerns about appointments of Fidesz Party loyalists as heads of quasi-independent institutions like the Media Council and the State Audit Office.

In December 2009, Parliament passed new measures designed to reduce the opportunity for corruption in public procurements. However, most of these measures have not been implemented. The government has suggested that it does not intend to set up new anti-corruption institutions. Rather, it prefers to strengthen and build upon existing institutions. From January 1 2012, the Anticorruption Division of the Central Investigative Chief Prosecutor’s Office increased the number of prosecutors specializing in high-profile corruption cases from eight to thirty-five.

In terms of risk, as a consequence of Hungary’s strategic location in central Europe, its cash based economy and well-developed financial services industry, money laundering in Hungary is related to a variety of criminal activities, including illicit narcotics-trafficking, prostitution, trafficking in persons, fraud and organized crime. Other prevalent economic and financial crimes include official corruption, tax evasion, real estate fraud, and identity theft. Hungarian legislation on combating money laundering is in line with international obligations. The core elements of Hungary’s Anti-Money Laundering/ Combating Terrorist Financing (AML/CFT) regime are established in the Hungarian Criminal Code (HCC), which contains the Money Laundering and Terrorist Financing offenses; Act CXXXVI of 2007 on the Prevention and Combating of Money Laundering and Terrorist Financing (AML/CFT Act). A new AML/CFT Act was introduced in 2007, when Hungary transposed the third EU AML/CFT Directive, and it’s Implementing Directive, into national law as well as introducing the financing of terrorism into preventive legislation. Anti-money laundering legislation includes banks; investment service providers, employer pension services, and commodity exchange services; insurance intermediary and mutual insurance fund services; sellers and issuers of international postal money orders; real estate agents and brokers; auditors; accountants; tax consultants and advisors; casinos or card rooms; precious metal and high value goods traders; lawyers; and notaries. Hungary is a member of the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task Force (FATF)-style regional body.

Bilateral Investment Agreements

Hungary and the United States do not have a bilateral investment treaty (BIT), nor is one currently under negotiation.

Hungary has bilateral investment treaties with the following countries: Albania, Argentina, Australia, Austria, Azerbaijan, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, Chile, China, Croatia, Cuba, Cyprus, Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, India, Indonesia, Jordan, Kazakhstan, Kuwait, Latvia, Lebanon, Lithuania, Luxemburg, The former Yugoslav Republic of Macedonia, Malaysia, Moldova, Mongolia, Morocco, The Netherlands, Norway, Paraguay, Poland, Portugal, Romania, Russian Federation, Serbia, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Thailand, Tunisia, Turkey, Ukraine, United Kingdom, Uruguay, Uzbekistan, Vietnam and Yemen.

Hungary has tax treaties which eliminate many aspects of double taxation with the United States and the following countries: Albania, Australia, Austria, Azerbaijan, Belarus, Belgium, Brazil, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, the Federal Republic of Yugoslavia, France, Georgia, Germany, Great Britain, Greece, Hong Kong, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Kazakhstan, Kuwait, Latvia, Lithuania, Luxembourg, The former Yugoslav Republic of Macedonia, Malaysia, Malta, Mexico, Moldova, Mongolia, Morocco, The Netherlands, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, South Korea, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, Tunisia, Ukraine, Uruguay, Uzbekistan and Vietnam. Negotiations were recently concluded in 2010 to revise Hungary’s current tax treaty with the United States; it awaits Senate ratification.

Strategic Agreements

In mid-2012 the government announced its plan to sign “strategic cooperation agreements” with key investors engaged mainly in production, with the aim that they continue operations in Hungary, and thereby contribute to growth and employment. As of January 24, 2013, 11 such agreements have been signed with the following companies: 1) Coca-Cola (US), 2) Richter Gedeon (Hungary), 3) Alcoa-Kofem (US), 4) Daimler AG (Germany), 5) Suzuki (Japan), 6) Hankook Tire (South Korea), 7) Microsoft (US), 8) GE (US), 9) Stadler Trains (Switzerland) 10) Tesco (UK), 11) IBM (US). Additional strategic agreements are expected to be signed with National Instruments (US), TATA (India), and Siemens (Germany) in early 2013.

Taxation

Since April 2010, the government has made a number of significant tax changes. The government approved cuts in personal and corporate income tax rates, intending to spur economic growth. The personal income tax rate was reduced to 16% for all income groups. The corporate income tax rate was increased to 19% for a tax base above HUF 500 million (US$2.1 million) and reduced to 10% below this threshold. In 2012 the government increased the VAT from 25% to 27%, which is the highest in the EU. At the same time, the government imposed temporary financial sector taxes and “crisis taxes” on the energy, telecommunications, and retail sectors. Retail companies pay up to 2.5% when tax bases exceed HUF 100 million (US$426,000), telecommunications companies pay up to 6.5% when tax bases exceed HUF 5 billion (US$21.5 million), and energy suppliers pay up to 1.05% for all tax bases. In November 2012, the government decided to increase the “Robin Hood tax” from 11% to 31%. The former 19% corporate income tax rate will remain unchanged. Therefore, effectively, total tax for energy service providers increased from 30% to 50% as of January 1, 2013. The government also imposed a tax on electric wires, telecommunications cables, and pipelines including gas, water, and sewer pipes, adversely affecting companies operating in these areas.

The government recently announced that the bank tax would continue, despite an earlier agreement with the Banker’s Association to end the bank tax by 2014. It claimed that the government’s first priority was to keep the budget deficit below 3% of the GDP. Consequently, the bank tax will remain in place. It also introduced a financial transaction tax: 0.2% on all money transfers and 0.3% on cash withdrawals. The manufacturing sector however, is exempt from these “crisis taxes,” because the government considers manufacturing to be one of the driving forces of exports and growth.

OPIC and Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation (OPIC) has operated in Hungary since October 1989, offering U.S. investors financing through direct loans or guarantees, political risk insurance, and capital for private equity funds. OPIC helps U.S. companies compete in new markets and developing countries when traditional lenders or financing is not available. OPIC’s financial support ranges from small micro financings to large infrastructure project loans.

Labor

Hungary's civilian labor force of 4.3 million is highly educated and skilled. Literacy exceeds 98% and about two-thirds of the work force has completed secondary, technical or vocational education. Hungary is particularly strong in engineering, medicine, economics, and science training. An increasing number of young people are attending U.S. and European-affiliated business schools in Hungary. Foreign language skills, especially in English and German, are becoming more widespread, yet Hungary still has the lowest level of foreign language proficiency in the EU.

Hungary’s unemployment rate decreased from a peak of 11.8% in March 2010 to 10.6% in November 2012. This rate is just slightly lower than the EU-27 average of 10.7%. Hungary’s labor participation rate is 58.1%-- low by European standards, but 3.5% higher than at the end of 2009. Despite the high unemployment rate, in certain sectors there remains a shortage of skilled and well educated employees. Regional differences in employment opportunities also prevail. The northwest and central regions of the country at times see shortages of skilled workers, particularly in the financial and manufacturing sectors. But east of the Danube, unemployment levels are above average, though the labor force is cheaper and still skilled. The government has turned its focus to help education adapt better to labor market requirements and is encouraging cooperation between higher education institutions and business. To achieve this goal, the government is reallocating state-funded scholarships from the humanities to the hard sciences and engineering with the aim of increasing university output in sought-after fields. Wages in Hungary are significantly lower than those in Western Europe. Average Hungarian labor productivity is lower than the EU average, but greater than that of other Central and Eastern European economies. To boost employment, this year’s budget earmarked HUF 300 billion (US$1.36 billion) for job protection, promoting the employment of unskilled workers, women returning from maternity leave, and those under 25 or above 55 years of age.

A new Labor Code came into force on July 1, 2012. It left the basic legal framework unchanged but introduced some significant changes to make the labor market more flexible and to boost the labor force participation rate. The new law transferred some of the collective bargaining rights from trade unions over to works councils. (Note: Although works councils have a similar mission to those of labor unions, they only exist at individual firms. Work councils are often more dependent on corporate leadership and less capable of representing employees’ interests. End note.) Thus, the role of trade unions is expected to decrease further. Hungary’s trade union membership rate, currently about 15% (the EU average is 25%), is also expected to fall.

Roles of Government and Trade Unions

The tripartite National Council for Interest Reconciliation, which was previously charged with negotiating the minimal wage, was replaced by the National Economic and Social Council (NGTT) in 2011 (Law on the composition of the National Economic and Social Council XCIII/2011). The new Council’s members are representatives of employers and employees, delegates of Hungary’s historical churches and certain members of civil society. The organization does not include representatives of the government, and its decisions, regarding the minimum wage and other labor regulations are no longer binding. The minimum wage is now set by decree after consultation with NGTT.

The Hungarian labor code guarantees the right to join trade unions and gives unions the right to operate inside a company. Unions are entitled to negotiate collective bargaining agreements. The labor code limits the length of the workday plus overtime to 12 hours; guarantees maternity leave; provides for at least 20 days of annual leave; mandates at least 30 days notice prior to severance and requires severance pay for those employed at least three years. The law forbids discrimination based on gender, age or nationality. The minimum employment age is 16 years, though apprenticeships may begin at age 15. Hungary adheres to ILO conventions protecting worker rights. Labor/management relations are better than in much of Europe. As a result of the current economic situation, labor-related strikes are occurring with increasing frequency.

In late 2010, Parliament accepted a law that tightens provisions for a strike by civil servants and rules a strike illegal unless a preliminary agreement is reached on a provision of minimum service. If parties are unable to decide, they may bring their case to a Labor Court, which has five days to set minimum service levels. Parties have five days to repeal the Court’s decision and the entire process cannot take more than 15 days.

Foreign Trade Zones/Free Ports

The 1988 Law on Foreign Investment, the 1995 Law on Customs, Customs Procedures, and the 1995 Law on Foreign Currency permitted and regulated the operation of foreign trade zones. Prior to Hungary becoming a full member of the EU, 143 companies operated in about 130 customs free zones, producing about half of total Hungarian exports.

According to Law CXXVI of 2003, permits for operating in customs free zones expired. Currently no company operates in customs free zones and all of them transferred their assets and continued operation following customs handling of their assets. The Ministry of National Economy plans to nominate customs free zones, but currently there seems to be little demand for this service. Possible sites could include Székesfehérvár, Gyõr, Kecskemét, Miskolc, Záhony or Szombathely.

Foreign Direct Investment (FDI) Statistics

According to the National Bank of Hungary, foreign direct investment between 1995 and the third quarter for 2012 amounted to Euro 75.3 billion (which includes shares, other participation, and reinvested incomes, equivalent to US$7.9 billion). Since a record high of Euro 6.2 billion in 2005, annual FDI inflow has been declining (from Euro 5.5 billion in 2006 to Euro 3.3 billion in 2011). Leading foreign investors include Germany, Austria, the Netherlands, and the United States. 72% of total FDI is from the EU. 15% of cumulative FDI in Hungary is in manufacturing, 3.6% in energy and utilities, 12.7% in trade, 6.5% in information technology, 7.5% in financial services (of which 6% is banks), and 7.1% in real estate. Hungary has a reasonably significant level of foreign investment abroad, primarily through acquisitions in other Central and Eastern European countries. By the third quarter of 2009, total Hungarian investment abroad amounted to Euro 11.1 billion. The majority of this is directed to services and crude oil processing.

Of the U.S.’s 50 largest multinationals, 40 are present in Hungary. The following U.S. companies have major investments here: GE, Alcoa, AES, Coca-Cola, O-l (Owens Illinois), General Motors, Guardian Industries, IBM, Lear Corporation, Pepsi Co, Sara Lee, Procter & Gamble, Visteon, Ford, Citibank, Emmis International, Emerson, Zoltek, PACCAR, Celanese, Exxon Mobil, EDS Sykes, Jabil Circuit, McDonald’s, Burger King, National Instruments, AIG/Lincoln, HP, Cisco, Microsoft, Oracle, Johnson & Johnson, Pfizer, Lilly, Monsanto, BD Medical, Johnson Controls, and, Dow Chemical.

Among the largest non-U.S. foreign investors in Hungary are: Deutsche Telekom, Audi, Nokia, Telenor, Vodafone, E.ON, Sanofi-Aventis, Electrolux, RWE, Tesco Global, Suzuki Motor, Auchan, Hankook, Mercedes Benz, SAP, ABB, Philips, CP Holdings, and Robert Bosch.

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