26 June 2018
Hungary: Market Profile
- Picture: Hungary factsheet
- Graph: Hungary real GDP and inflation
- Graph: Hungary GDP by sector (2016)
- Graph: Hungary unemployment rate
- Graph: Hungary current account balance
- Graph: Hungary merchandise trade
- Graph: Hungary major export commodities (2016)
- Graph: Hungary major export markets (2016)
- Graph: Hungary major import commodities (2016)
- Graph: Hungary major import markets (2016)
- Graph: Hungary trade in services
- Graph: Hungary FDI stock
- Graph: Hungary FDI flow
- Graph: Hungary short term political risk index
- Graph: Hungary long term political risk index
- Graph: Hungary short term economic risk index
- Graph: Hungary long term economic risk index
- Graph: Hungary vs global and regional averages
Since transitioning from a centrally planned to a market economy, Hungary has made significant privatisation progress. Investment and private consumption are now among the key drivers of growth supported by the recovery of credit to the private sector, while the brightening outlook in the global and European Union economies is lending strong support to Hungary's trade.
Source: World Bank
2. Major Economic Indicators
Note: (e) estimate, (f) forecast
Source: IMF, World Bank
3. External Trade
3.1 Merchandise Trade
Source: WTO, World Bank WITS database
3.2 Trade in Services
4. Trade Policies
- Hungary has been a member of the WTO since January 1, 1995 and has been a member state of the European Union since May 1, 2004.
- Hungary's main trade partners are in the EU and the absence of customs charges supports large volumes of trade. Hungary applies the EU's Common External Tariff (CET), which means goods manufactured and imported from within the EU are not subject to customs charges. The average tariff rate for EU states is just 1%, which is among the lowest globally, although goods imported from outside the EU will incur duties of between 0-17%. Most of the country's major trade partners are within the EU, hence risks are less pronounced, such that Hungary's average tariff rate stands at 1.5%.
- In December 2016, EU states agreed on a proposal to modernise the EU's trade defence instruments, with a view to shielding EU producers from damage caused by unfair competition. The proposed regulation amends current anti-dumping and anti-subsidies regulations to better respond to unfair trade practices, and furnishes Europe's trade defence instruments with more transparency, quicker procedures and more effective enforcement. In exceptional cases, such as in the presence of distortions in the cost of raw materials, it will enable the EU to impose higher duties through the limited suspension of the lesser duty rule. This will provide some protection to Hungary's secondary and tertiary sectors.
- Trade bureaucracy and customs delays are a significant hindrance to foreign investors, particularly those outside of the EU. Though there are increasing efforts to reduce trade bureaucracy, paper-based procedures remain cumbersome and costs and connectivity issues add to market barriers.
- A multitude of issues persists with regard to the respect for Intellectual Property Rights (IPR) in a number of countries around the globe, which means many Hungarian businesses face additional costs when importing finished or intermediate goods from such trading partners. Such issues include (but are not limited to) the registration of patents and utility models of low quality and of trademarks applied for in bad faith, as well as lengthy registration proceedings and a burdensome procedure for legalising foreign documents. In addition, protection against IPR infringements through administrative, judiciary and customs authorities is still insufficient in Hungary itself. Furthermore, there is still much uncertainty regarding the protection of trade secrets.
- In March 2016, the EC announced a new support package for European farmers, which involves mobilising an estimated EUR500mn within the next two years. The intervention ceilings for dairy products have been nearly doubled. This will limit the ability of foreign businesses to export products such as milk, fruits and vegetable farmers to Hungary.
- In 2016, the EC introduced an import licensing regime for steel products exceeding 2.5 tonnes. The regulation will be active until May 15, 2020. In Q215 the EC issued regulations on trade restrictions on cattle, beef, watermelons and prepared tomatoes with Turkey. This will help to protect domestic agriculture and regional farming businesses.
Source: Global Trade Alert, BMI
5. Trade Agreements
Multinational Trade Agreements
- Hungary is a member of the European Union effective from May 1, 2004, adopting the EU’s common external trade policy and measures.
- The European Union (EU) is a political and economic union of 28 member states that are located primarily in Europe. As an EU member Hungary applies the EU Common External Tariff and enjoys tariff-free trade within the EU. Within the Schengen Area, passport controls have been abolished. A monetary union was established in 1999 and came into full force in 2002, and is composed of 19 EU member states which use the euro currency; however, Hungary maintains its own currency.
- The Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada will be provisionally applied as of September 2017. The agreement is expected to boost trade between partners as CETA removes all tariffs on industrial products traded between the EU and Canada. CETA also opens up government procurement. Canadian companies will be able to bid on opportunities at all levels of the EU government procurement market and vice-versa, though some sectors are restricted. The agreement will only enter into force fully and definitively when all EU Member States have ratified the Agreement.
- Europe Free Trade Association (EFTA) includes Switzerland, Norway, Liechtenstein, Iceland. The European Economic Area (EEA) unites the EU Member States and the three EEA EFTA States (Iceland, Liechtenstein, and Norway) into an Internal Market governed by the same basic rules. These rules aim to enable goods, services, capital, and persons to move freely about the EEA in an open and competitive environment, a concept referred to as the four freedoms. The Agreement on the European Economic Area, which entered into force on 1 January 1994, brings together the EU Member States and the three EEA EFTA states, referred to as the Internal Market.
- EU-Japan FTA: Japan wants to speed up negotiations for an early signing of a FTA with the EU. In 2013 EU governments instructed the European Commission to start negotiations with Japan. On 6 July 2017 the European Union and Japan reached an agreement in principle on the main elements of the EU-Japan Economic Partnership Agreement.
On 8 December 2017, the negotiations were finalised. After the legal verification and translation processes, the European Commission can then submit the agreement for the approval of the European Parliament and EU Member States. The European Commission has now proposed to the Council and then the European Parliament that they approve the EU-Japan EPA.
Source: WTO Regional Trade Agreements database, BMI
6. Investment Policy
6.1 Foreign Direct Investment
6.2 Foreign Direct Investment Policy
- Hungary's accession to the EU was accompanied by the tightening of legal protection for foreign investment and the government has attempted to guide capital inflows towards targeted sectors such as manufacturing facilities, research and development, IT, automobiles and tourism. The property rights of foreign investors are also guaranteed against expropriation or nationalisation, except in cases of national security, in which the private owner is entitled to fair compensation.
- There are no legal restrictions on foreign ownership in any sector, and under the Foreign Investment Act of 1988, international companies are guaranteed equal treatment alongside Hungarian businesses, with full freedom with regard to repatriation of profits.
- Currently, foreign firms control 66% of the manufacturing sector, 90% of the telecommunications sector, and 35% of the energy sector. The private sector currently produces about 80% of Hungary’s economic output. Foreign investors interested in financial institutions and insurance companies must officially notify the government of their intentions, but do not need advance authorisation.
- Under the Investment Act, companies incorporated in Hungary are permitted to purchase and own real estate to support their economic activities. Nevertheless, only private Hungarian or EU citizens resident in Hungary with a minimum of three years of experience working in agriculture or holding degree in an agricultural discipline can purchase farmland, according to the 2014 Land Law. All others may only lease farmland.
- The Hungarian government regulates the prices of certain goods, setting upper and lower limits to which the private sector must adhere. Price-regulated sectors include energy and pharmaceuticals, and companies operating in these fields have suffered losses in cases where the government has been too slow to adjust upper limits or failed to meet subsidy obligations, as in the case of medicinal goods and electricity.
- The Hungarian government has publicly declared that reducing foreign bank market share in the Hungarian financial sector and tightening regulations governing NGOs are key priority areas. Accordingly, several state-led initiatives over the past several years targeted the banking sector and reduced foreign participation.
- Regulations in 2015 obligated banks to retroactively compensate borrowers for interest rate increases on certain consumer loans. Increasing entry barriers in certain sectors could have undermined previous sunk-cost investments, contributing to a general sense of policy-induced uncertainty regarding the protection of intangible assets.
- Performance requirements, such as job creation or investment minimums, can be imposed as a condition for establishing, maintaining, or expanding an investment. Hungary's rules and regulations regarding labour mobility are broadly in line with EU directives. Most non-EU citizens require a work visa and permit in order to go and work in Hungary, which generally takes about a month to obtain. Indeed, there is large amount of bureaucracy that businesses must contend with when trying to bring in foreign workers from non-EU states.
Sources: WTO - Trade Policy Review
6.3 Free Trade Zones and Investment Incentives
Free Trade Zone/Incentive Programme
Main Incentives Available
|As part of the EU accession, Hungary eliminated foreign trade zones. Though the Ministry of National Economy had plans to nominate customs free zones, there currently seems to be little demand. Nevertheless, Hungary offers a well-developed incentive system for investors, which is anchored by a special incentive package for investments over a certain value, which is typically over USD11 million. Administered by the Hungarian Investment Promotion Agency (HIPA) and managed by the Ministry of National Development (MND), the incentive system is compliant with EU regulations on competition and state aid.||Investors who establish manufacturing facilities, logistics facilities, regional service centers, R&D facilities, bioenergy facilities, or those who make tourism industry investments stand to benefit from the incentive packages which may consist of cash subsidies, development tax allowances, training subsidies, and job creation subsidies.|
7. Taxation – 2017
- Value added tax: 27%
- Corporate income tax: 9%
7.1 Important Updates To Taxation Information
- In December 2016, Hungary's National Assembly approved several laws and amendments that will have a considerable impact on the operating environment for businesses. One such bill established a 9% flat rate corporate tax starting from January 1 2017. This tax decrease has made Hungary's tax rate one of the lowest in the EU.
- According to Hungary’s economy minister, Mihály Varga, during an interview with Magyar Idők on February 5, 2018, the Hungarian government will reduce taxes by HUF1,500 (EUR4.8 bn EUR) over the course of six years to boost wage growth and support enterpreneurship.
- Hungary significantly reduced the rate of employer's social contribution to only 19.5% as of 2018, broken down into: 10% pension contribution, 7% health insurance contribution, and 1.5% unemployment contribution.
7.2 Business Taxes
|Type of Tax||Tax Rate and Base|
|Corporate Income Tax||9% on taxable earnings|
|Dividends||5% on net earnings (except distribution by companies in oil and gas sector).|
|Capital Gains Tax||9% of accounting profit|
|Value Added Tax||Payable at the general rate of 27%. For some goods and services, reduced rates of 18% and 5% are applicable.|
|Healthcare Tax||Individuals may be subjected to a 14% healthcare tax on certain types of separately taxed income, including dividend income, income from borrowing and lending securities, and income from capital gains. As of 2018, income from renting out real estate cannot be subject to 14% healthcare tax.|
|Inheritance, Estate transfer, and Gift Taxes||A preferential 9% tax rate applies to residential property but the general inheritance and gift tax rate is 18%.|
Source: General Department of Taxation, Minstry of Economy and Finance, PwC
8. Foreign Worker Requirements
8.1 Localisation Requirements
Hungary's rules and regulations regarding labour mobility are broadly in line with EU directives. Most non-EU citizens require a work visa and permit in order to go and work in Hungary, which generally takes about a month to obtain.
8.2 Obtaining Foreign worker permits for skilled workers
There is significant bureaucracy that businesses must contend with when trying to bring in foreign workers from non-EU states. Firstly, a workforce demand is required. The hiring company must advertise the job at the Hungarian Labour Office for a fixed period (around 15 days). This is to give a chance for unemployed Hungarian citizens to apply for the position. Thereafter, a work permit may begin to be processed. Most work permits and working visas are issued for two years only. Both of these documents can be renewed if the employee wishes to extend his/her stay in Hungary and continues to fulfil the application requirements. Generally, the highest number of foreign workers employed with a work permit at the same time in the whole territory of Hungary cannot exceed the number of announced applications in an average month in the year before the year in question.
8.3 Visa/Travel Restrictions
Nationals of Canada, Australia, and the USA intending to stay in Hungary for more than 90 days need to apply for a long term stay visa, whereas EU nationals staying longer than 90 days need only register with the immigration department. In addition, citizens of many other countries may travel to Hungary without a visa and may stay there for a maximum period of 90 days. For Hong Kong, this exemption applies only to holders of a Hong Kong Special Administrative Region passports.
8.4 Schengen Visa
Hungary is also part of the Schengen Agreement as of December 7, 2017, which has made traveling between member countries much easier and less bureaucratic. The Schengen visa and entry regulations are only applicable for a stay not exceeding 90 days. In the wake of the migrant crisis in Europe, the Schengen States have tightened controls at their common external borders to ensure the security of those living or travelling in the Schengen Area.
9.1 Sovereign Credit Ratings
|Rating (Outlook)||Rating Date|
|Standard & Poor's||BBB- (Positive)||16/09/2016|
Source: Moody's, Standard & Poor's, Fitch Ratings
9.2 Competitiveness and Efficiency Indicators
|Ease of Doing Business Index ||42/189||48/190||48/190|
|Ease of Paying Taxes Index||95/189||77/190||93/190|
|Logistics Performance Index ||31/160||N/A||N/A|
|Corruption Perception Index||57/176||66/180||N/A|
|IMD World Competitiveness||46/63||52/63||N/A|
Source: World Bank, IMD, Transparency International
9.3 BMI Risk Indices
|Economic Risk Index ||35/201|
|Short-Term Economic Risk Score||63.3||69.4||67.9|
|Long-Term Economic Risk Score||67.2||69.2||70.1|
|Political Risk Index ||60/201|
|Short-Term Political Risk Score||72.7||71||69.8|
|Long-Term Political Risk Score||72.2||71.4||71.4|
|Operational Risk Index||47/201|
|Operational Risk Score||61.8||63.1||62.8|
Source: BMI Research
9.4 BMI Risk Summary
Despite a strengthening domestic outlook, real GDP growth in Hungary will slow in 2018. An increasingly tight labour market and subdued foreign direct investment inflows will weigh on output. Gross external debt will remain high by regional standards, although the downward trajectory will ensure it is sustainable in the medium term.
Investors in Hungary benefit from the country's relatively stable operating environment and a highly urbanised labour force with a strong skills base. As a member of the EU, Hungary offers open markets, and an increasingly competitive corporate tax regime, while its geographic location and strong overland transport links consolidate its position as a major sub-regional trade hub within Central and Eastern Europe.
Note: Higher score = Lower risk
Source: BMI Economic, Political Risk Indices, BMI Country Risk summaries
9.5 BMI Operational Risk Index
|Operational Risk||Labour Market Risk||Trade and Investment Risk||Logistics Risk||Crime and Security Risk|
|Central and Eastern Europe Average||60.9||55.0||63.4||63.6||61.4|
|Central and Eastern Europe Position (out of 11)||7.0||7.0||7.0||8.0||6.0|
|Emerging Europe Average||56.6||54.1||58.4||57.4||56.7|
|Emerging Europe Position (out of 31)||10.0||13.0||10.0||10.0||9.0|
|Global Position (out of 201)||47.0||57.0||48||48.0||39.0|
100 = Lowest risk; 0 = Highest risk
Source: BMI Operational Risk Index
|Country||Operational Risk ||Labour Market Risk||Trade and Investment Risk||Logistics Risk||Crime and Security Risk |
|Emerging Markets Averages|
|Global Markets Averages||49.8||49.8||50.0||49.3||49.9|
Note: Higher score = Lower risk
Source: BMI Operational Risk Index
10. Hong Kong Connection
10.1 Hong Kong’s Trade with Hungary
|2015||Growth rate (%) |
|Number of Hungary residents visiting Hong Kong||9,800||-5.0|
|Number of Hungary residents in Hong Kong||N/A||N/A|
Source: Hong Kong Tourism Board, Hong Kong Immigration Department
|2017||Growth rate (%) |
|Number of European residents visiting Hong Kong||1,909,825||2.5|
|Number of Emerging European residents in Hong Kong||N/A||N/A|
10.2 Commercial Presence in Hong Kong
|2016||Growth rate (%)|
|Number of EU companies in Hong Kong||2,107||N/A|
|- Regional headquarters||442|
|- Regional offices||717|
|- Local offices||948|
10.3 Treaties and agreements between Hong Kong and Hungary
Double Taxation Avoidance Agreements (DTAs)
Hungary has a double taxation agreement (DTA) and Investment Promotion & Protection Agreement (IPPA) with China (mainland), which it concluded on June 17, 1992. This came into effect on December 31, 1994 and has entered into force in both countries on 31st December 1994.
Source: Hong Kong Internal Revenue Department
10.4 Chamber of Commerce (or Related Organisations) in Hong Kong
Public Relations Department, Office of the Ambassador of Hungary, Hong Kong
Address: Suites 1208-09, 12/F, ICBC Tower, Three Garden Road, Central, Hong Kong
Email: email@example.com, firstname.lastname@example.org
Tel: (852) 2878 7010
Source: Directory of Hong Kong Trade and Industrial Organisations, Hong Kong Trade and Industry Department
Consulate General Of Hungary in Hong Kong and Macao
Address: Suites 1208-09, 12/F, ICBC Tower, Three Garden Road, Central, Hong Kong
Hours of Business: Monday to Thursday 9:00 a.m. - 5:00 p.m, Friday: 9:00 a.m. - 2:00 p.m.
Consul-General: Pál Kertész
Tel: (852) 2878 7555
Fax: (852) 2878 7010
10.5 Visa Requirements for Hong Kong Residents
Holders of a valid HKSAR Passport or valid BNO Passport can enjoy visa-free access to enter Hungary for the purpose of short-term visits of up to 90 days within a 180 day period. For work purposes, Hong Kong citizens need a working visa in Hungary.