Hungary: Investing in Hungary
Hungary maintains a high per capita stock of foreign direct investment (FDI) for Central and Eastern Europe standards. However, the 2009-2010 crisis has strongly affected FDI flows to the country and since then the volume of inward FDI flows has been lower. According to UNCTAD's World Investment Report 2022, FDI inflows decreased to USD 5.4 billion in 2021 compared to USD 6.8 billion one year earlier; whereas the FDI stock stood at USD 101.7 billion. The main investors are Canada, the Cayman Islands, the Netherlands, Germany, Luxembourg, and Austria. FDIs are mainly oriented towards financial services, manufacturing, trade, real estate, and scientific and technical activities. As per the Hungarian Promotion Agency, in 2021 investment projects reached an all-time high of 422 projects that created 13,883 new jobs. In the same here, the South Korean Company SK Innovation launched Hungary's largest greenfield FDI project ever (worth EUR 1.9 billion) aimed at building a battery plant in Iváncsa. According to the latest figures from OECD, in the first semester of 2021, Hungary welcomed an investment inflow of USD 1.1 billion, a drastic contraction compared to the level recorded in the same period one year earlier (USD 2.7 billion).
The national foreign investment screening mechanism requires foreign investors seeking to acquire more than a 25% stake in a Hungarian company in sensitive sectors - such as defence, intelligence services, certain financial services, electric energy, gas, water utility, and electronic information systems for governments - to seek approval from the Interior Ministry. Furthermore, approval from the Ministry of Innovation and Technology (MIT) has to be sought for greenfield or expansion of existing investments.
Hungary has benefited in recent years from a change in direction of FDI from low-value textile and food-processing sectors to wholesale, retail trade and repair of vehicles. The country’s central location and high-quality infrastructure have made it an attractive destination for FDIs. Furthermore, it has one of the lower corporate tax rates in Europe. However, the demographic decline of the country and the slow progress of the education system impede crucial structural transformation, with several foreign companies identifying shortages of qualified labour as the main obstacle to investment in Hungary. The country ranks 35th out of 82 countries in the Economist Business Environment ranking and 39th out of 63 in the World Competitiveness Index.
Foreign Direct Investment | 2020 | 2021 | 2022 |
FDI Inward Flow (million USD) | 7,047 | 7,559 | 8,571 |
FDI Stock (million USD) | 102,128 | 104,788 | 104,254 |
Number of Greenfield Investments* | 100 | 121 | 96 |
Value of Greenfield Investments (million USD) | 3,760 | 6,372 | 12,420 |
Source: UNCTAD, Latest available data
Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.
Country Comparison For the Protection of Investors | Hungary | Eastern Europe & Central Asia | United States | Germany |
Index of Transaction Transparency* | 2.0 | 7.5 | 7.0 | 5.0 |
Index of Manager’s Responsibility** | 4.0 | 5.0 | 9.0 | 5.0 |
Index of Shareholders’ Power*** | 7.0 | 6.8 | 9.0 | 5.0 |
Source: Doing Business, Latest available data
Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.
Strong points for FDI in Hungary:
Weaknesses for FDI in Hungary include:
The recovery from the Covid-19 crisis has been facilitated by support measures. To reform the economy and increase competitiveness, incentive measures include:
• The improvement of the administrative situation and the reduction of formalities
• The facilitated acquisition of building permits;
• As part of the EU budget cycle (2021-2027), EUR 52.8 billion will be allocated to productivity, research, development, innovation, infrastructure and renewable energy;
• To promote investment, the corporate tax rate was lowered to 9%, and the social security contributions to 13%;
• The government provides special incentive package for investments over a certain value (generally above EUR 10 million), for investors who establish manufacturing facilities, logistics facilities, regional service centers, R&D facilities, bioenergy facilities, or those active in the tourism sector.
Any Comment About This Content? Report It to Us.
© eexpand, All Rights Reserved.
Latest Update: November 2023