New restrictions introduced to the Hungarian FDI ruleset

By Government Decree No. 566/2023 (XII.14) (Amended Government Decree), which entered into force on 13 January 2024, the provisions of the Hungarian Foreign Direct Investment regime (FDI ruleset) regulated in the Government Decree (no. 561/2022 (XII. 23.) (Government Decree) were amended as follows:

(i) the scope of exemptions from the applicability of the notification obligation was narrowed as well as

(ii) the Hungarian State obtains a new statutory pre-emption right in respect of solar power plant projects.

Limitation of exemption from the notification obligation for intra-group transactions

Since the relevant provisions were not clearly formulated in the previous version of the Government Decree, the Amended Government Decree makes it clear that only those transactions are exempted from the FDI ruleset that

• are implemented directly with respect to a foreign entity and
  
• results in an indirect change of ownership over a Hungarian strategic company that is a related subordinated affiliate of the foreign entity within the meaning of the Hungarian Accounting Act.
  

Intra-group transactions between foreign entities that are implemented directly at the level of a Hungarian strategic company (i.e. results in a direct change of control) are notifiable to the competent Minister pursuant to the FDI ruleset.

The Hungarian State’s pre-emption right in respect of transaction related to solar projects

According to the Amended Government Decree the Hungarian State has a statutory pre-emption right in case of notifiable transactions that concern Hungarian strategic companies engaged in solar power plant-related activities as main or supplementary business activity under the TEÁOR code 3511’08 (“electricity production”). The Hungarian State’s newly granted pre-emption right prevails over all other (contractual or statutory) pre-emption rights. However, small household power plants, i.e., power plants with capacity below 50 kVA are excluded from the pre-emption right.

The applicable procedure for the exercise of the pre-emption right is regulated by the Amended Government Decree as follows:

• Following the filing of the notification by the foreign investor to the Minister of National Economy (Minister), the Minister examines the submission in order to determine if the transaction falls under the scope of the FDI ruleset and if its subject to the Hungarian State’s pre-emption right. If the Minister concludes that the pre-emption right is applicable, it notifies the applicant accordingly.
  
• From the date of the notification provided to the applicant, the Hungarian State has 60 business days to exercise its pre-emption right. The pre-emption right is exercisable through the state-owned Hungarian National Asset Management private company limited by shares (MNV Zrt).
  
• The minister responsible for energy policy (currently the Minister of Energy) decides on the existence of the statutory pre-emption right, whether to exercise or waive it, within 15 working days after he received the documentation filed by the applicant from the Minister. The minister responsible for the energy policy should notify the Minister and MNV Zrt. of its proposal, and in case it proposes to exercise the pre-emption right, the necessary documentation should be provided to MNV Zrt in order to enable it to conclude the acquisition.
  
• The Hungarian State’s ownership acquired by exercising the statutory pre-emption right over the strategic companies will be exercised by the minister responsible for energy policy and the shareholdings in such strategic companies must be contributed in-kind to the state-owned energy holding company, MVM Zrt. within 6 months of the acquisition.
  
• If the minister responsible for the energy policy decides to exercise the pre-emption right, the Minister terminates the procedure under the FDI ruleset. If the Minister receives the proposal from the minister responsible for the energy policy not to exercise the pre-emption right or it fails to provide its opinion within the 15 business-day deadline, then the Minister proceeds with the FDI screening and decides in the merit of the submission, i.e. may acknowledge the transaction or deny the approval.

Summary

The changes to the FDI regulations contribute to legal certainty for transactions affecting downstream subsidiaries in Hungary. An exception to the notification obligation only exists if the transaction does not take place directly at the shareholder level of the Hungarian subsidiary, but one level higher, i.e. at the level of the foreign shareholders.

With the introduction of the statutory pre-emption right regarding transactions relating to solar power plants, the Hungarian state now has the opportunity to acquire the shares for sale for strategic reasons instead of completely prohibiting the transaction - as was previously the case.

Your Contact

If you have any questions, please contact our Hungarian colleagues and our Deloitte Legal Germany Hungarian Desk Lead:

dr. Péter Göndöcz
Partner | Deloitte Legal Hungary
pgondocz@deloittece.com

dr. Márk Chiovini
Managing Associate | Deloitte Legal Hungary
mchiovini@deloittece.com

Dr. Marcell Baumann, LL.M.
Counsel | Deloitte Legal Germany
mbaumann@deloitte.de

This article is a translation of the article "Temporary changes in the FDI ruleset".