Within the framework of emergency measures stemming from the COVID-19 epidemic, the Hungarian Government introduced sweeping changes to the foreign investment screening rules (Decree no. 227/2020 concerning the necessary measures for the protection of companies seated in Hungary – the “Government Decree”).

Important note: due to the end of the state of danger, the Government Decree has been repealed, with the vast majority of its rules implemented into law until 31 December 2020. For more details see our new blogpost at: https://lawpoint.oppenheimlegal.com/showlawpoint?id=71h1OJZR7j26TGZS2VT2q2KHqQFjZFwx

There have been already similar measures introduced in January 2019 in Hungary (see our blogpost for details). The new Government Decree, however, now significantly broaden the material scope of the relevant transactions (‘triggering events’) and allocates the approval procedure to the Ministry for Innovation and Technology (as opposed to the Ministry of the Interior). The measures are effective from 26 May 2020 (for all transactions concluded from that date) and are currently scheduled to last only temporarily, until 31 December 2020.

According to the mew Government Decree, those transactions require ministerial approval (and thus shall not be implemented before such approval is granted) where

1. the investor qualifies as a foreign investor,
2. the relevant transaction qualifies as a triggering event, and
3. the triggering event concerns a strategic company.

The scope of foreign investors include both all individuals, companies and other legal entities from countries outside the EU, the EEA and Switzerland, as well as entities seated within these territories if they are “majority influenced” by entities outside of such territories.

Importantly, the text of the Government Decree could also be interpreted to include in its scope entities within the EU, the EEA and Switzerland (irrespective of their foreign majority influence): we expect that the Government would soon clarify this issue. 

A transaction qualifies as a triggering event (and thus is subject to obligatory notification as per below), if, as a result of the transaction:

• the foreign investor would acquire (directly or indirectly) a majority influence in a strategic company,
• the foreign investor would acquire at least 10% of all shares, provided that the overall value of the investment reaches or exceeds HUF 350 million,
• the foreign investor would acquire 15%, 20% or 50% in a strategic company or if the joint shareholding of all the foreign investors would exceed 25% in a strategic company, or
• the foreign investor would acquire the right of operation (including transfer, assignment or encumbrance) in any indispensable infrastructure.

Strategic companies are defined in a very broad manner, including companies having activities in energy, transport and communications (but also chemical, finance, pharma, construction, etc.). The list of the relevant activities that are covered are contained in the Annex to the Government Decree.