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07 September 2017
newsletter
hungary

Potential Hurdle for Acquisitions in Hungary by Non-EU and Non-EEA Investors

The Hungarian Ministry of the Interior recently submitted a legislative proposal to the Hungarian Government to amend the Act on Hungarian National Security Services (the "Proposal").

The Proposal suggests an amendment pursuant to which investors from non-EU and non-EEA countries who wish to invest in Hungary would have to obtain prior permission from the minister responsible for national security (the "Minister").

If adopted, investors from outside the EU and EEA would need to apply and obtain such permission if they intend to acquire more than a 25 % interest in an existing or yet to be established company with its registered seat in Hungary, provided that this company pursues activities that are deemed sensitive for national security. These activities are listed in the Proposal and include (i) activities that are classically considered sensitive, eg arms manufacturing, dual-use items or nuclear energy technology, and also (ii) energy, gas and water supply, financial and telecommunication services, and the production of medicinal products.

Pursuant to the Proposal, the Minister would have 60 days to decide whether to approve or refuse the investor's request based on consideration of national security aspects. If the Minister refuses the request, the investor will have the right to appeal to the Hungarian Government within 30 days of receipt of the Minister's decision.

The Proposal could pose a considerable impediment for third-country investors and the objective character of such decisions are not yet demonstrated with underlying provisions. However, the Proposal is now in an initial phase and neither regulates potential situations that might undermine the aims of the Proposal (eg if the investor establishes a Hungarian company with an activity that does not require a permit and changes the activity after successful establishment), nor sets forth rules for situations in which the provisions of the Proposal would overlap with capital market regulations that are triggered if an investor acquires more than 25 % of the shares of a Hungarian company listed on the Budapest Stock Exchange.

Co-Author: Roland Szebényi