investing guide en 2012

One of Hungary’s most important competitive advantages is the government’s commitment to making it easier to do business, and to help manufacturing companies achieve their best.

Why invest in Hungary?

State aid and incentives

Tax and legal environment

Hiring and employment

Interview with the President of HITA

Investing GuideHungary 2012

3

Investing Guide Hungary 2012

Contents05 What should you know

about Hungary?

05 Location and climate

06 Infrastructure in Hungary

11 Main industries

19 Why invest in Hungary?

19 Cash subsidies

26 Tax incentives

29 How does one

invest in Hungary?

29 Establishing your business

33 Hiring and employment

38 Key tax-related issues

44 About the Hungarian

Investment

and Trade Agency (HITA)

45 Interview with the

president of HITA

46 About PwC

Published by PricewaterhouseCoopers Hungary Ltd. in cooperation with Hungarian Investment and Trade Agency • PubLISHInG dIreCTor: Viktor Bálint, Marketing & Communications Director, PwC • tel.: +36 1 461 9100 (PwC in Budapest) • e-mail: [email protected] • edITor: Márta Szabó • ArT dIreCTor: Zsolt Dupka • ProduCTIon mAnAGer: János Madarász • PubLISHer: napi Gazdaság Kiadó Kft.

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19

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45

PwC Hungary in Budapest and also in Győr.

Trusted business advisor

www.pwc.com/hu

© 2012 PwC. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Auditing Ltd., PricewaterhouseCoopers Hungary Ltd. and PricewaterhouseCoopers Advisory Services Ltd. which are member rms of PricewaterhouseCoopers International Limited, each member rm of which is a separate legal entity.

hirdetes-investing-210x255.indd 3 2012.03.06. 9:28

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even in challenging times, Hungary remains

a main target for expanding

companies due to its many recources

and advantages.

Location and climate

Hungary’s central loca-tion makes it a favourite destination for foreign investors who intend to expand their operations in Central Eastern Europe. The country’s telecommunica-tions, transport and logis-tics infrastructure, and the quality of education and life have attracted large amounts of foreign investment to Hungary in recent years. The capital, Budapest, is the cen-

tre of the country’s economic activity; however, the main cities are also gaining an increasing role.

The country’s favour-able geographical location places it at the crossroads of main commercial routes. From Hungary, a market of some 250 million people can be reached within 600 miles (about 1,000 kilome-tres).

EU accession in 2004 brought both commercial and regulatory advantages.

Becoming an EU Member state brought a free trade system, the free movement of goods, services and la-bour, as well as capital.

In addition to all these advantages, another of Hungary’s strengths is its well-qualified labour force. Due to the high standards of its education system, the country has a highly-skilled and talented workforce, with professional foreign language skills and relatively low wage requirements.

The country’s economy, mainly focussed on the manu-facturing industry, was hit hard by the economic crisis. The international situation became disadvantageous and debt increased. Since 2010 the economy has been recover-ing, and this appears likely to continue for the next couple of years.

What should you know about Hungary?

The country’s favourable

geographical location places it at the

crossroads of main commercial routes.

From Hungary, a market of some 250

million people can be reached within 600 miles (about 1,000

kilometres).

Partner letter

Investing in Hungary continues to provide foreign investors with a number of

opportunities for achieving growth and realizing their business potentials. Even in challenging times, Hungary remains a main target for expanding companies due to its many resources, including our country’s favourable geographical characteristics and infrastructure as well as its highly trained and cost-effective labour force that provide a reliable pool for satisfying the investors’ business needs. It is important to note that the Hungarian Government is keen to boost and ease doing business and

creating jobs in Hungary by offering a wide range of available incentives.

It is my pleasure to present you the new edition of Investing Guide Hungary, a publi-cation prepared by PwC in cooperation with the Hungarian Investment and Trade Agen-cy year by year. Our booklet sheds light on the most important issues to consider when establishing your business, from incorporat-ing your company through recruitment to accounting, tax and subsidy issues.

I hope that our publication will provide you with invaluable insight and useful guidance.

Sincerely yours,

Tamás LőcseiPartner, PwC

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Infrastructure in Hungary

Road transportation

Hungary has a central loca-tion in Europe and is located at the crossroads of four main European transportation cor-ridors, including:

No. IV. from Northern Germa-ny/North Sea to the Black Sea,

No. V. from the Adriatic ports to Kiev-Moscow,

No. VII. – the Danube river and Rhine-Main canal, from the North-Sea,

No. X. the North-South corridor from the Baltic states to Turkey and Greece.

The largest Hungarian cit-ies – Debrecen, Nyíregyháza, Miskolc, Kecskemét, Szeged, Pécs, Győr, Székesfehérvár – are all connected to the capital city, Budapest, by motorways (motorway total: 1099 km).

Logistics centers

Airport, with permanent pub-lic, international and com-mercial border crossings

Airport with temporary pub-lic, international and com-mercial border crossings

Airport development opportunities

Ports

Railwayconnections

Containerterminal

Western EuropeARA portsHamburg, Bremerhaven

Slovakia,Czech Republic

Slovakia, Poland

UkraineCIS

Constanta

Koper,Trieste

Záhony

Corridor IV runs from west to east, linking Berlin, Vienna, Bu-dapest, Constanta and Istanbul, following the route of the M1 and M5 motorways in Hungary.

Corridor V runs south-west to north-east, through Venice, Trieste, Ljubljana, Budapest, Uzhgorod and Lvov to Kiev, utilizing the M2 and M3 motorways in Hungary.

Corridor V/B runs from Budapest to Rijeka via Zagreb.

Corridor V/C runs from Budapest to Ploce via Osijek and Sarajevo.

Corridor VII is the Danube waterway

X/B Corridor

Source: HITA, 2012

Road network of Hungary

Existing20122013After 2013Broadened by 2013

SLOVAKIAUKRAINE

ROMANIA

SERBIACROATIA

SLOVENIA

AUSTRIA

Existing20122013After 2013Broadened by 2013

SLOVAKIAUKRAINE

ROMANIA

SERBIACROATIA

SLOVENIA

AUSTRIA

M1

M1

ZÁHONY

BEREGDARÓC

CSENGER

VÁSÁROS-NAMÉNY

NYÍREGYHÁZA

DEBRECEN

NAGYKEREKI

GÖRBE-HÁZA

TORNYOS-NÉMETI

MISKOLC

EGER

SALGÓTARJÁN

SZOLNOK

BÉKÉSCSABA GYULA

NAGYLAKMAKÓSZEGED

KECSKEMÉT

VÁC

PARASSA-PUSZTA

BUDAPEST

TATABÁNYA

SZÉKES-FEHÉRVÁR

DUNAÚJVÁROS

SZEKSZÁRD

BÓLY

IVÁNDÁRDA

PÉCS

KAPOSVÁR

LETENYE

BECSE-HELY

TORONY-SZENTMIKLÓS

ZALAEGERSZEG

RÁBAFÜZES

SZOMBATHELY

SOPRON

SOPRON-KŐHIDA

HEGYES-HALOM

RAJKA

GYŐR

BALATON-KERESZTÚR

ORDACSEHI

BALATONSZÁRSZÓ

BALATONALMÁDI

ZAMÁRDI

VESZPRÉM

LEPSÉNY

NAGY-KANIZSA

RÖSZKE

M15

M2

M31

M0

M0

M0

M7

M7

M7

M70

M10

M86

M9

M9

M9

M9

M8

M8

M6

M6

M60

M5

M5M43

M8

M44

M4M4

M3

M25

M30

M49

M3

M3

M35

Highway system of Hungary

Source: HITA, 2012

economic data and outlook1:

General informationLocation: East-Central EuropeTime zone: GMT+ 1 hourPopulation: 9.99 million (2011); 9.98 million (2012 forecast) Participation in international organisations: United Nations, NATO, European Union, OECD, IMF, Visegrad Group, Organization for Security and Co-operation in Europe (OSCE), Conseil Européenne pour la Recherche Nucléaire (CERN), Duna Committee, Schengen Agreement, World Meteorological Organization, Bank for International Settlements, International Atomic Energy Agency, Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and TechnologiesMain industries: automotive, electronics, pharmaceuticals, ICT, foodCurrency: HUF (forint)2

Economic dataLabour force: 4.284 million (2011)Employment: 3.82 million (2011); 3.86 million (2012 forecast)Unemployment rate: 11% (2011); 11% (2012 forecast)Gross domestic product (mil USD, PPP): 195,100 (2011)Consumer Price Index: 3.9% (2011); 4.9% (2012 forecast)FDI – Inward direct investment: USD 2 billion (2011); USD 2 billion (2012 forecast)Export growth: 9.1% (2011); 6% (2012 forecast)Current account balance (% of GDP): 1.5% (2011); 1.1% (2012 forecast)

1 Source: Economist Intelligence Unit, Hungarian Central Statistical Offi ce, European Commission, Ministry for National Economy

2 Exchange rate used: 300 HUF/EUR.

Regions of Hungary (motorway total: 1099 km).

1 Source: Economist Intelligence Unit, Hungarian Central Statistical Offi ce,

Regions of Hungary

NORTHERN GREAT PLAIN

NORTHERN HUNGARY

SOUTHERN GREAT PLAINSOUTHERN

TRANSDANUBIA

WESTERN TRANSDANUBIA

CENTRAL TRANSDANUBIA CENTRAL

HUNGARY

Győr

Székes-fehérvár

Budapest

Miskolc

Debrecen

Szeged

Pécs

Source: HITA, 2012

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Railway transportation

Due to its central location, Hungary has an extensive railway network. Rail trans-port carries over 20% of total freight, which is well above the EU average.

Several main train lines connect Hungary with the main ports of Western Europe (e.g. Hamburg, Bremerhaven, Rotterdam)

and the Adriatic (Koper, Trieste) with regular services.

The total length of the Hungarian railway system is 7,729 km, of which double-track is 1,335 km (17.3%) and the electrifi ed railway network is 2,628 km (34%).

Air transportation

Hungary has a number of inter-national airports: Budapest Liszt

Railway line modernisation (MÁV)

SZOLNOK

Financed partly by Cohesion Fund, Phase I. (2005–2008)Financed partly by Cohesion Fund, Phase II. (2007–2015)Financed partly by ISPA/Cohesion Fund (2001–2007)Financed partly by Structural Funds (2005–2007)Financed partly by EIB Ioan, Project IV (2005–2009)Major railway station reconstruction

TEN-T network

Railway line modernisation(GySEV) – 2007-2013

KIMLEGYŐR

KOMÁROM

TATA-BÁNYA

PILISCSABA

ÉRD

SZÉKES-FEHÉRVÁR

VESZPRÉM

PÁPACELLDÖMÖLK

BOBA

SZOMBAT-HELY

BAJÁNSENYE

ZALALÖVŐ

ZALA-EGERSZEG

NAGYKANIZSA

GYÉKÉNYESKAPOSVÁR

DOMBÓVÁR

PÉCS

RÁKOSPALOTA-ÚJPEST

BUDAPEST

VECSÉS

CEGLÉD

TISZATENYŐSZOLNOK

MEZŐTÚR

DEBRECEN

NYÍREGYHÁZA

MISKOLC

HATVAN

ZÁHONY

BÉKÉSCSABA

LŐKÖSHÁZA

SZAJOL

DUNA-ÚJVÁROS KECSKEMÉT

SZEGED

SZEKSZÁRD

EGER

SALGÓ-TARJÁN

RO

UA

SKA

SLO

HR SCG

Source: HITA, 2012

Ferenc International Airport, Debrecen, and Balaton – Sármel-lék. There are also airports that cater for commercial and seasonal public fl ights in Győr and Pécs.

Water transportation

Hungary has excellent waterway connections, as the Danube crosses through the whole country from North to South. The Danube-Rhine-

Main canal in Europe links the North Sea and the Black Sea.

Industrial & logistics market

Hungary’s geographical ad-vantages make it a popular lo-gistics location. The country is already a strategic location for many international distribu-tion centres, and offers many advantages for companies that

wish to develop their logistics centres here in the future.

Due to its infrastructure and central position, large-volume development activity and transactions are concentrated in the vicinity of Budapest. Within the greater Budapest area, the majority of modern warehouse space is located in the southern and western outskirts of the capital because of their excellent road and rail connections. The

development activity currently is limited, especially in the countryside, where the North-Western part of the country and certain large cities used to be the most active areas. Outside the capital, most development has taken place in industrial parks.

Offi ce market

Existing offi ce space on the Budapest offi ce market cur-

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rently comes to around three million square metres, includ-ing owner-occupied buildings. The volume of modern owner-occupied buildings – properties built or renovated after 1989, excluding government-owned buildings – is estimated at 500,000 square metres. The modern speculatively-built offi ce space in Budapest comes to about 2.6 million square me-tres. The majority of this (75%) is Class A quality.

The Hungarian offi ce market is focused predominantly on the capital, although some modern offi ce space has been constructed in the biggest regional cities as well.

The overall vacancy rate on the market of leased offi ces

was about 25% at the end of 2010, which was the highest-ever fi gure. The vacancy rate did not change signifi cantly in 2011. (At the end of 2007 the all-Budapest vacancy rate was around 12%.)

The new supply on the market, the high vacancy rate and, of course, current market conditions have resulted in decreasing rental levels in the Budapest offi ce market since the second half of 2008. Rents have probably reached their lowest level and are not expected to decrease further in the new developments, but landlords in older projects may have to offer even more attractive rental packages.

Hungarian Automotive Players

GödöllőEmt, Lear,

NiefPlasticAlbert Weber,

Diamond Electric,Kirchoff, Suzuki

TatabányaAsahi Glass,Bridgestone,

Euro-Exedy, Otto Fuchs, Wescast

Emt, Lear, Nief

PlasticAlbert Weber,Diamond Electric,Kirchoff, Suzuki

SZEGED

PÉCS

SZEKSZÁRDKAPOSVÁR

ZALAEGERSZEG

SZOMBATHELY

VESZPRÉMSZÉKESFEHÉRVÁR

GYŐRTATABÁNYA

BUDAPEST

KECSKEMÉT

SZOLNOK

BÉKÉSCSABA

DEBRECEN

NYÍREGYHÁZAMISKOLC

EGER

SALGÓTARJÁN

SzékesfehérvárAlcoa, Denso, General Plastics,

Karsai Holding, Loranger, Videoton, Visteon

DunaharasztiSchwarzmüller

GyőrAudi, Rába,

Lear, Nemak,Dana Hatvan

Bosch,Saia-

BurgessEger

Bosch-Rexroth,Firth Rixson, ZF

SzolnokEagle Ottawa,

Euroszol, Isringhausen,Le Bélier

BékéscsabaCsaba Metál

KecskemétThyssenkrupp,

Knorr-Brems, Daimler

OrosházaLinamar

KiskőrösEckerle

GyöngyösStanley Electric

BudapestArmafi lt, Autokut

Avvc, Bíró Kft., Bosch,Eltec, Fémalk

Kmgy, Michelin-TaurusMikropakk, Porsche Hungaria,

Siemens VdoTauril, Temic Telefunken

TÜV-Nord, Webasto

VeszprémBakony, Continental

Teves, Valeo

SzekszárdBhg, Mmg,

Pfannenschwarz KalocsaEmika, Kaloplasztik

KiskunfélegyházaKunplast-Karsai

Source: HITA, 2012

MiskolcShinwa, BoschOroszlány

Borg Warner NyíregyházaMichelin

SzegedAutofer

DebrecenFAG (Schaeffl er Group)

TéglásHajdú

SopronkövesdAutoliv

SiófokKongsbers

SzombathelyLUK (Schaeffl er Group),

BPW, Delphi Packard

SzentgotthárdOpel Szentgotthárd,

Arcelor

KörnyeAGC

SzentendreFord

ÚjszászNabi

DunavarsányIbiden

MosonszolnokBOS,

SMR Motherson

main industries

Automotive

The automotive sector is one of Hungary’s core industries and contributes almost 20% of total exports. Over 600 companies employing a total of 100,000 people are active in the sector. Three large auto-motive Original Equipment Manufacturers (“OEMs”) have production facilities in the country: Suzuki, Audi and GM. In 2008, Daimler AG chose Hungary for a new investment and will produce 100,000 class A and B cars in Kecskemét from 2012.

Due to the fact that some large multinational compa-nies chose Hungary to locate their investments, they have attracted a lot of equipment manufacturers and other sup-pliers. Small and medium-sized local automotive companies have also become stable and strategic partners of both locally-based and Western-European car manufacturers.

The Hungarian automotive sector’s cooperation with the local education system is strong and focuses on R&D. Numer-ous multinationals have set up R&D centres in Hungary, including Audi, Bosch, Knorr-Bremse, Magna-Steyr, Thyssen-Krupp, Arvin Meritor, Denso, Continental, Visteon, WET, Draxlmaier, Edag and Temic Telefunken, ZF, etc.

The automotive sector is one of Hungary’s core industries and

contributes almost 20% of total

exports.

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Auto industry players opt for HungaryIn recent years, Hungary has become a popular investment destination for auto industry companies. mercedes’s new plant in Kecskemét will be inaugurated in march, while vehicle and parts makers that have been operating here for a longer time are expanding capacities and launching new product lines.

Győr-based Audi is planning the topping ceremony for the building that will

house its new vehicle factory, expected to be held in late spring. This is a result of the de-cision by the German company that in the future they will not just assemble the cars from the parts brought here, but create a complete automotive produc-tion line in Hungary. According to plans, by 2013, in addition to the current engine production and assembly line, the Győr company will expand into a car factory covering the complete automotive production line: in addition to the body shop, paint shop and assembly line, a new press shop will also be built. The company is planning an overall investment of EUR 900 million in the city located on the Rába river, where Audi has spent more than EUR 4 billion on developments since the local firm was established in 1993.

The plant expansion is an important element of Audi’s growth strategy and with this investment, the company ensures its international com-petitiveness and secures jobs for the long term, said Rupert Stadler, chairman of the board of Audi AG. As the biggest employer of the Győr region,

the company is creating 2,100 new jobs in the long term in addition to the current 7,000. Audi Hungaria Motor Kft will provide jobs, directly or indirectly, to more than 15,000 people in the future.

Audi Hungaria Motor Kft pro-duced a total of more than 1.8 million engines in 2011, 14.3% more than in the previous year. Last year, 14 new engine vari-ants were introduced and two anniversaries were celebrated: the 20 millionth engine was completed, and within this, the 10 millionth R4 Otto model. A total of 39,480 cars rolled off the production line, 2.4% more than one year earlier. According to Thomas Faustmann, managing director of Audi Hungaria Mo-tor, last year’s growth is the re-sult of the company’s innovative and attractive products, as well as the flexibility of its workers.

There was great anticipa-tion leading up to the decision of Mercedes, which eventu-ally favored Kecskemét, where serial production is set to begin in March. The company is carrying out an EUR 800 million auto industry invest-ment in the city located on the Great Hungarian Plain, where the successors of Mercedes’s current A and B-class models will be assembled; up to more

than 100,000 cars a year. The factory, easily accessible via the M5 motorway, is expected to provide jobs for 2,500 people initially. The supply of ad-equately trained workers seems to be secure; this was aided by the strategic cooperation signed with Kecskemét College and the

agreement on introducing dual vocational training that was signed by the local government of Kecskemét, the chamber of industry and commerce of Bács- Kiskun County and ten local companies.

Suzuki, which was more exposed to the economic crisis,

Investing Guide Hungary 2012Investments by multinationals also lend suppliers momentum

Investors, in addition to investing significant sums in a given region, also generate further investments indirectly, through their suppliers. For example, in the case of produc-tion raw materials needed for the future Mercedes models to be produced in Kecskemét, dozens of Hungarian suppli-ers have won orders worth hundreds of millions of euros. Audi Hungaria Motor Kft is associated with 1,400 parts suppliers, of which some 50 are Hungarian firms. Besides them, the Győr company also does business with firms that supply not parts for production, but services or machinery needed for the company’s operations. The fact that Audi is planning to multiply its annual vehicle production within a few years presents a huge development opportunity for the company’s partners. This could lend significant momentum to the supplier industry and it is also likely that parallel to the gearing up of production, new interna-tional and domestic suppliers will appear in Hungary. The Volkswagen concern is also planning to increase the share of its Hungarian suppliers, which is among others why they set up a central supplier office in Budapest, thanks in part to which today more than 70 Hungarian companies supply various parts to the VW group.

most recently has carried out investments into the produc-tion of the Swift Sport model. The new model has been under serial production in Esztergom for a few months now. In addition to its 3,500 workers, the supplier network provides jobs to a further sev-eral thousand people.

Parts manufacturers have also carried out significant investments. The capac-ity of Opel’s engine plant in Szentgotthárd will grow by almost 500,000 units from the current 630,000 a year as a result of a EUR 500 million investment. Production is planned to gear up gradu-ally: the units of the first two engine families are expected

to roll off the assembly line at the end of the year, while the third is expected for 2013. The current headcount of 600 is planned to grow by a total of 800 by 2015, and a further 2,500-3,000 new jobs could be created in the supplier chain. In addition to engines, the Szentgotthárd factory currently also manufactures cylinder heads, while the plant also deals with the overhaul of Opel gear shifts and gear sys-tems for trucks are assembled here as well. IGH

Parts manufacturers

have also carried out significant investments.

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Electronics

The electronics industry is one of the largest industrial sectors in Hungary, accounting for 25 % of total Hungarian manufacturing production. The country is the largest electronics producer in the CEE region, providing 26% of total regional production.

About 3,300 companies focus on electronics-related activ-ity, employing around 100,000 people. In addition to several prestigious OEMs, 6 out of the top 10 Electronic Manufacturing Services (“EMS”) providers in Europe are present in Hungary (Jabil, Flextronics, Foxconn, Sanmina, Zollner and Videoton). Some of the companies, such as National Instruments and Jabil, also conduct R&D activities.

Major electronics manufacturing companies in HungaryMajor electronics manufacturing companies in Hungary

Budapest

Source: HITA, 2012


15

bosch continues unabated with investments

The Bosch Group, which currently already has 11 Hungarian sub-

sidiaries, has been present in the country for more than one hundred years, since 1899 precisely, and the regional trading company re-established in 1991 has since become Hungary’s second-largest foreign employer in industry. The group of companies operating under

the aegis of Robert Bosch Kft is active, in addition to automotive technology, in the fi elds of industrial equip-ment, power tools, household appliances and heating and security systems. The trading and service network related to the production, trade and development units covers the entire country and the commercial divisions here also coordinate the opera-tions of other countries in the Adriatic region in addition to Hungary.

Bosch registered a 27% increase in revenues in Hun-gary in 2010 compared to the previous year, with the group’s turnover thus totalling nearly EUR 1.5 billion. The group’s Hungarian revenues – which

does not include commercial activities among the group’s member companies – was EUR 430 million, which rep-resents an increase of 8% on an annual level.

The company has car-ried out investments total-ling some EUR 75 million in Hungary, with most of this going toward expanding the production capacities of the plants in Miskolc and Hatvan, and the development of the

R&D centre in Budapest; in addition, the group also spent just under EUR 40 million on research and development in Hungary, which is EUR 3.33 million more than in 2009. The new automotive produc-tion hall of the Miskolc factory was built in one year from EUR 18.33 million, and the group is expanding the Bosch Engineering Center Budapest in an EUR 20 million invest-ment in the fi rst phase.

The Bosch group’s compa-nies, in addition to several production sites in Budapest, operate in Szigetszentmiklós near the capital and in cities in the north-eastern part of the country: Hatvan, Miskolc and Eger. For 2011, Bosch had expected growth of more than 10% on an annual level – fi nal data are not yet known –, and the total headcount which stood at 6,300 on January 1 last year was 8,000 this year. IGH

Hungary’s second largest

foreign employer in industry

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The pharmaceuticals

industry has a century-old

tradition in Hungary, with

an international reputation for attracting and

conducting clinical trials.

Pharmaceuticals

The pharmaceutical industry has a century-old tradition in Hungary, with an international reputation for attracting and conducting clinical trials. As one of the largest and most developed drug markets, with above average per capita spending on drugs, Hungary has the best track record in the CEE region for FDI in the phar-maceuticals sector, with all major pharmaceutical com-panies having an established presence in the country.

Pharmaceuticals produc-tion in Hungary reached a value of USD 3 billion in 2010. Exports account for 82.6% of production, with an export value of USD 2.5 billion.

There were 116 registered pharma companies in 2010,

employing over 15 000 staff. The majority of the com-panies are located around four life-sciences clusters: Budapest, Debrecen, Szeged and Pécs.

ICT sector

Covering telecommu-nications, IT outsourcing, IT services, software and hardware production, the Hungarian ICT market has grown fast in the last couple of years and leads the region in computer assembly and communications equipment manufacturing.

The ICT sector accounts for 10% of total Hungarian gross

domestic product and it employs over 100,000 people.

The major global software developers and hardware producers are present in the country. Hardware production is centred in Central Trans-danubia, including NOKIA

The major global software developers

and hardware producers are present in the

country.

Major pharmaceutical players in Hungary

Major pharmaceutical Major pharmaceutical companies withmanufacturing companies representative offices or distribution

Richter Gedeon Nyrt. Bayer Hungária Ltd.

EGIS Nyrt Lilly Hungária Kft.

TEVA Magyarország Zrt. Bristol-Myers Squibb Zrt. (Pharmavit)

Chinoin-Sanofi Aventis Zrt. MSD Magyarország Kft. (Merck - Schering-Plough)

Amgen Kft.

GlaxoSmithKline Servier Hungária Kft.

Source: HITA, 2012

major ICT companies in Hungary

Producers Service providers

IBM IBM

Samsung HP

Flextronics TATA

Albacomp Ericsson

GE Oracle

Nokia SAP

Source: HITA, 2012

in Komárom, and Central Hun-gary, including IBM in Vác. The majority of large software companies are located in Budapest.

Several IT companies operate technology service centres and many of them have relocated their R&D activities here. ICT-related R&D drives more than a quarter of total R&D expen-diture. Hungary has become a

regional incubator for soft-ware development, including process control software, game programmes and geographi-cal information technology, focusing on car positioning (“sat-nav”) systems. Hungar-ian software developers have achieved international success in several fields, such as virus protection, bioinformatics, and IT security.

Food industry

Although its share in the output of Hungarian indus-try has decreased over the past eight-to-ten years, the food processing industry still remains one of the most important sub-sectors of the economy. The food industry employed 97,400 in 2010.

Its export revenues are vital to Hungary’s overall trade balance. Hungary is the only net exporter of agricultural and food products in the CEE region. The industry provides 7.3% of the country’s exports.

Most food industry companies (more than 85%) are micro-en-terprises that employ fewer than

10 people. The share of foreign capital in the industry is 47%.

The sector is dominated by multinational companies involved in vegetable oil pro-cessing, and confectionary and snacks, for example. There are about 200 large food producers altogether, two-thirds of which are owned by investors from abroad. Large producers primar-ily use Hungarian raw materials.

Although industrial play-ers can be found all over the country, the abundance of raw material resources determines certain concentrations in the regions of Central Hungary, the Northern and Southern Great Plain and Central Trans-danubia. IGH

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Why invest in Hungary?Cash subsidies

One of the competitive advantages Hungary has compared to other countries in the region is the govern-ment’s strong commitment to easing business processes and to increasing the competitive-ness of both SMEs and large enterprises in Hungary based on the wide range of available incentives.

Both refundable and non-refundable incentives are available to investors coming to or expanding in Hungary. The main types of incentives related to investments are

cash subsidies either from the Hungarian Government or from EU Funds, tax incen-tives, low-interest loans, or land available free or at re-duced prices. The regulations on incentive opportunities are in accordance with EU rules.

Regional aid intensity map

The maximum available amounts of regional incen-tives are based on a regional aid map. All seven regions of Hungary are qualifi ed for incentives, and aid intensity varies between 10% and 50%

for large corporations, while small- and medium-sized companies can receive as much as 70%. The maximum aid intensity for the capital city, Budapest, is 10% for large corporations.

The maximum available aid intensity decreases if the investment is a large invest-ment (exceeds 50 million euro): 50% of the maximum aid intensity determined in the regional aid map is available for that part of the investment between 50 mil-lion and 100 million euros, while 34% of the maximum aid intensity for that part of

the investment beyond 100 million euros.

When calculating the maximum available amount of regional incentives, all re-gional incentives – including cash subsidies, development tax incentive, etc. – need to be taken into account.

50%

40%

30%

10%

Source: HITA, 2012

Regional Aid Intensity Map*

both refundable and non-refundable

incentives are available to

investors coming to or expanding in

Hungary.

50%

40%

30%

10%

Source: HITA, 2012

Regional Aid Intensity Map*

NORTHERN GREAT PLAIN

NORTHERN HUNGARY

SOUTHERN GREAT PLAIN

SOUTHERN TRANSDANUBIA

WESTERN TRANSDANUBIA

CENTRAL TRANSDANUBIA CENTRAL

HUNGARY

Győr

Székes-fehérvár

Budapest

Miskolc

Debrecen

Szeged

Pécs

10%

30%

40%

50% 50%

50%50%

30%

*Please note that the indicated intensities can be increased by 10% in case of medium-

sized enterprises and by 20% in case of micro- and small-sized enterprises.

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Non-refundable cash subsidies from the Hungarian budget: “VIP” negotiation process

The main types of cash incen-tives related to investments are focused on implementing the in-vestment (e.g. purchasing assets, construction work, etc.), creating new jobs and training employees.

“VIP” investment subsidy3

The Hungarian Government provides a negotiation-based “VIP” subsidy opportunity for investments greater than EUR 10 million with a certain number of newly created jobs, depending on the purpose and location of the investment. If the investment is between EUR 10 and 25 million, the Hun-garian authorities investigate the possibility of subsidising the project from available EU Funds.

The main areas that attract support are investments in manufacturing (greenfield, brownfield or capacity exten-sion), shared service centres (“SSCs”), research and de-velopment (“R&D”), logistics projects and tourism projects.

Subsidy applications can be submitted to HITA in either Hungarian or English. The terms and conditions of the VIP subsidy are determined in the negotiation procedure between the investor and the Hungarian authorities.

Manufacturing investments

State aid is highly impor-tant for implementing manu-facturing investments in Hun-gary. Since the introduction of the VIP subsidy opportunity in 2004, 80 companies have

already received Hungarian Government support. These companies had decided to carry out investments with a value of over HUF 1,906 billion (cca. EUR 6.35 billion) and to create, altogether, ap-proximately 35 thousand new jobs. The Hungarian Govern-ment decided to grant a total of HUF 160.5 billion (cca. EUR 535 million), paid in tranches, as the projects progress. A large number of projects have been located in Budapest, Central Transdanubia, North-ern Hungary and the North-ern Great Plain. Furthermore,

investment volume has been especially high in Central Transdanubia and the South-ern Great Plain due to some very large investments.

Based on the negotiations initiated within the last two years (2010 and 2011), there is significant interest in the VIP negotiation process, as 28 companies have submit-ted subsidy applications for a combined investment value of HUF 1,113 billion (cca. EUR 3.71 billion). The most domi-nant sectors are car manu-facturing, green energy and shared service centers.

The Hungarian Government provides

a negotiation-based “VIP” subsidy

opportunity for investments greater than eur 10 million

with a certain number of newly created jobs,

depending on the purpose and location of

the investment.

21


3 Further details and information or more news about recently available op-portunities can be found in the Subsidy Alerts published on PwC’s website at www.pwc.com/hu/subsidyalert.

“VIP” training subsidy

The Hungarian Government offers what’s known as the VIP subsidy opportunity also for training employees for new po-sitions. The subsidy is available to investors creating at least 50 new jobs.

The maximum amount of the training subsidy for creating 50 to 500 new jobs is 1 million euros and 2 million euros for creating more than 500 new jobs. It is provided for both general and targeted training. The maximum aid intensity is 60% in the case of general training and 25% for targeted training. The aid intensity can be increased further in the case of small- and medium-sized enterprises and for training disabled or disadvantaged workers. The training subsidy is not a regional incentive, thus it is provided beyond the regional aid and it can be granted on top of the regional maximum aid intensity.

“VIP” job creation subsidy

The Hungarian Government provides a job creation subsi-dy for those investments enti-tled to VIP investment subsidy and that create at least 500 new jobs in disadvantaged- or in the least-developed micro-regions (at least 50% of the jobs created filled by registered unemployed). The maximum available subsidy is HUF 340 million (cca. EUR 1.13 million), depending on the location and the number of new positions.

The eligible costs for a manu-facturing investment can be the purchase of the plot, construc-tion costs or rental fee for the building, infrastructural costs, the purchase of new equipment and machines, intangible as-sets, etc. The investment period is determined by the investor, and usually does not exceed five years. The commitment period, starting after the completion of the investment, is five years.

R&D investments

The Hungarian Government places special importance on

the development and support of R&D activity, both in terms of supporting R&D investments (R&D property and asset costs or R&D-related salary costs), and R&D project-based costs (e.g. project-related salary costs, materials costs, etc.). Because of the world-class scientific knowledge available in Hungary, it is an attractive environment for multinationals (e.g. telecommunications com-panies, the automotive sector, etc.), which often collaborate with Hungarian universities on R&D projects and expand their R&D capacities here.

Shared Service Centres

Hungary is also a preferred location for shared service centres. A total of 80 SSCs have operations here, mostly in Budapest. Their main reasons for choosing Hungary are: the availability of highly skilled workforce, the low-cost operating environment and a high standard of local infrastructure. The Hungar-ian Government has provided state aid for 24 months’ salary for new employees employed within a three-year-period at many SSCs.

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23


everybody plays with LeGo duPLo made in Hungary

The LEGO group brought capacities to Hungary when it outsourced produc-

tion in 2004: initially, produc-tion was carried out in the Transdanubian town of Sárvár, but since 2008, the company has manufacturing capacities

only in the eastern Hungarian county seat.

LEGO Manufacturing Kft, the Hungarian unit of Denmark’s LEGO Group, has been producing toys in Nyíregyháza since December 2008. Besides this plant, only three other units make

LEGO products worldwide. The launch of production here was made possible by the Danish parent company striking an agreement with Flextronics Kft on taking over the latter’s operations in Nyíregyháza and on renting its plant. The company’s 2010

sales revenues of HUF 10.8 billion (cca. EUR 36 million) came almost entirely from exports (to the Danish parent company), with the value of domestic sales totalling just HUF 131.2 million (cca.

EUR 0.43 million). One year earlier, the Nyíregyháza plant had sales of HUF 8.6 billion (cca. EUR 28.66 million), and it employed an average of more than 1,200 workers in these two years.

According to the company’s announcement in Janu-ary 2012, the number of its workers will be increased by around 250 in Nyíregyháza, as it is setting up its fully owned manufacturing base in a EUR 100 million greenfield investment. This unit, with its new ownership structure, is expected to take over all of the production in the second half of 2014. The Nyíregyháza factory currently operates on 38,000 square meters and manufactured almost 9 billion LEGO bricks in 2010 – this is one-fourth of global produc-tion. The products falling under DUPLO brand name are manufactured only by the company in Hungary. IGH

The nyíregyháza factory manufactured almost 9 billion LeGo bricks in 2010 – this

is one-fourth of global production.

4 The tenders are published by the National Development Agency (“Nemzeti Fejlesz-tési Ügynökség”, “NFÜ”), only in Hungarian: http://ujszechenyiterv.gov.hu or http://nfu.gov.hu. All applications have to be submitted in Hungarian and the Subsidy Contract is also in Hungarian.

Non-refundable cash subsidies from EU funds: tendering process4

There is a wide range of tender opportunities avail-able from EU Funds, for which investments of less than EUR 10 million can also qualify. The conditions for EU tender appli-cation, the timing, and the total amount of the subsidy available vary from tender to tender. The tenders reflect the importance given to supporting research and development activities, the creation of new workplaces, en-vironmental investments, and technological investments (with preference given to small and medium-sized enterprises).

Cash subsidies from EU Funds for 2011-2013 are

available through the New Széchenyi Plan (“Új Széchenyi Terv”, “ÚSZT”), which was an-nounced in January 2011. The Plan focuses on the following areas:

• Health industry• Green economy• Enterprise development• Science – innovation• Employment• Transportation

The aim of Hungary is to utilize the EU tender opportunities as much as possible due to the fact that the current programming period of the EU is valid un-til 2013. R&D activities and investment activities (e.g.

technology investments, property investments) are also subsidized for large corporations; the available subsidy amount and condi-tions are specified in the tender calls.

Based on the number of foreign direct investments undertaken in the last couple of years in Hungary, it has become more important to subsidize suppliers; there-fore, a special tender call for suppliers will be launched in 2012. The available subsidy is expected to be a maxi-mum of HUF 500 million (cca. EUR 1.66 million) per project.

The aim of Hungary is

to utilize the eu tender

opportunities as much as possible

due to the fact that the current programming

period of the eu is valid until 2013.

24


25


Over the past year, the National De-velopment Agency (Nemzeti Fejlesztési

Ügynökség, NFÜ) – the agency that allocates EU funding – has carried out several changes: the application process, the award-ing of grants, and actual pay-ments have all been expedited. The government hopes that funding totalling HUF 1,500 billion (cca. EUR 5 billion) will be successfully committed un-der application programs of the New Széchenyi Plan (Új Széche-nyi Terv, ÚSZT) in 2012, and that HUF 1,400 billion (cca. EUR 4.66 billion) will actually be paid out to recipients.

As a result of the eco-nomic crisis, the utilization of funds has slowed down, so the NFÜ has regrouped several items in order to salvage financial support: for example, of the amount originally earmarked for transport development, HUF 160 billion (cca. EUR 533 million) was channelled into the green economy development program, to support investments in energy efficiency and renew-able energy. There is also significant unused funding under the enterprise devel-opment programs: HUF 27 billion (cca. EUR 90 million) will be available this year alone under ten application programs aimed at improv-ing competitiveness.

These include programs aimed at technology develop-

ment – supporting both new technologies and employment – at micro- and small enter-prises, as well as programs aimed at developing logistics centres and services.

In addition to businesses’ market-oriented research and development activities, the ÚSZT is also support-ing the innovation and R&D plans of clusters and their member companies. A total of HUF 15 billion (cca. EUR 50 million) has been set aside for grant programs

to support innovation and technology parks, and some HUF 14 billion (cca. EUR 46.6 million) will be avail-able to support health tour-ism development projects through 2013. According to the Science and Innovation program, the main goals include increasing competi-tiveness; the creation of jobs securing higher intellectual added value; securing sus-tainable development; and improving the population’s quality of life. A specific goal

As a result of the economic crisis, the utilization of funds has slowed down,

so the nFÜ has regrouped several items in order to salvage financial

support.

Hungary makes use of european union development fundsis that Hungary’s spending on R&D&I increase gradu-ally and reach 1.5% of GDP by the middle of the decade, and approach 2% by the end of the decade. Innovation performance, measured on the basis of the summary in-novation index, should reach

the EU average and Hungary should be among the top third of EU countries in this respect in the next decade. Economic policymakers hope that Hungarian play-ers will be able to success-fully compete for available European R&D&I resources, which will increase signifi-cantly after 2014.

This is also aided by the reorganization of the institutional system: the National Innovation Office – in addition to working out and implementing science, technology and innovation policy – will act as a kind of agency, cooperating with do-mestic and foreign players, incubating SMEs and young innovative companies, while also supporting network and research partnerships. IGH

A total of HuF 15 billion (cca. eur

50 million) has been set aside for

grant programs to support innovation

and technology parks.

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27


Tax incentives

Tax incentives are available for companies’ future transac-tions. Applications have to be submitted to the competent Authority in Hungary or to the competent EU institution before projects start.

Development tax incentives

Each development tax incentive may be claimed for a 10-year period (beginning after the completion of the develop-ment) in the Corporate Income Tax (“CIT”) returns within a maximum period of 14 years from the original application for the incentive.

In any given tax year, the tax incentive is available for up to 80% of the tax payable, but in total up to the state aid intensity ceiling. Applications for tax incentives have to be submitted to the Ministry for National Economy, and the Hungarian Government has the right to grant the permission if the aggregate eligible costs of the invest-ment exceed EUR 100 million. If the investment is below this threshold, taxpayers only need to notify the Ministry for National Economy before starting the investment.

Tax incentives are available for investments if, among other conditions:• The current value of the invest-

ment is at least HUF 3 billion (cca. EUR 10 million); or

• The current value of the investment is at least HUF 1 billion (cca. EUR 3.33 mil-lion) in certain designated areas; and provided that: • The investment results

in the creation of new

facilities or the extension of existing facilities; or

• The investment results in substantially changed products or production processes (excluding investments in basic re-search, applied research and experimental devel-opment); and

• In the four years follow-ing the year in which the tax incentive is first used against the tax base: • The annual average

number of employees has increased by at least 150 (excluding the number of employ-ees who are employed by a foreign branch) compared with either the year before the investment was made or the average number of employees for the three years preceding the investment (by 75 in certain designated areas); or

• Annual wage costs have increased by 600 times the minimum wage (excluding the wage costs of the employees who are employed by a foreign branch) effective on the first day of the tax year (by a multiple of 300 in certain desig-nated areas) compared with either the annual wage costs of the year before the investment was commenced or the average annual wage cost for the three years preceding the invest-ment.

Provided that the invest-ment results in the creation of new facilities or the extension

of existing facilities, or sub-stantially changed products or production processes, the gov-ernment may also grant tax incentives to companies that invest in, e.g., environmental protection projects, broad-band Internet services, R&D projects, etc. if the amount of the eligible costs is at least HUF 100 million (cca. EUR 0.33 million). Furthermore, in the case of job creation, there is no limitation on the amount of the eligible costs.

Other tax incentives

Tax incentive related to R&D

A CIT base allowance, and Local Business Tax (“LBT”) base allowance, apply to R&D activities if the taxpayer carries out R&D activities itself.

The direct costs of an entity’s own R&D, and also the value of purchased R&D services – if it was not

incurred in connection with R&D services purchased from a Hungarian-resident taxpayer, a private entrepreneur or a Hungarian permanent establishment of a foreign company – are deductible from the tax base.

Tax advantages for Shared Service Centres

Jobs created by SSCs may entitle the companies to obtain CIT and LBT

incentives. For CIT purposes, SSCs may obtain a tax allowance for job creation and in this case, depending on the location of the SSC, the amount of the allowance may be up to 12 months’ total salary expenses and contributions for newly hired employees.

The LBT base may also be reduced by HUF 1 million (cca. EUR 3,333) per each additional employee in the year they are hired.

Film, performing arts and spectator sports incentives

In Hungary companies are encouraged to subsidize film production, performing arts and spectator sports through the high rate of tax savings available. As sponsors, compa-nies are able to achieve tax sav-ings up to 119% of the financial support they provide for film makers, performing artists or sport clubs. IGH

each development tax incentive may be claimed for a 10-year period

(beginning after the completion of the

development) in the Corporate Income

Tax (“CIT”) returns within a maximum period of 14 years from the original

application for the incentive.

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29


How does one invest in Hungary?

establishing your business

In Hungary the same rules for establishing a business ap-ply to foreign individuals and

legal entities as to Hungarian citizens and Hungarian entities. In the following table we have summarised the four main types of business associations which are the most commonly

established in Hungary. Foreign businesses may also conduct their business ac-tivities in the form of a branch office or representative office established in Hungary.

Limited Limited liability Private company Public company partnership company limited by shares limited by shares (Betéti (Korlátolt (Zártkörűen működő (Nyilvánosan működő társaság) felelősségű társaság) részvénytársaság) részvénytársaság)

Main · Business association · Business association · Business association · Business association

characteristics without legal with legal personality; with legal personality; with legal personality;

personality; · Established with an · Established with share · Established with a share

· At least one initial capital contribution, capital consisting of capital consisting of shares

member with the amount of which is shares of a pre-determined of a pre-determined

unlimited liability; predetermined by law; number and face value. number and face value.

· At least one other · The members are only · Invitations to the public · The shares can only

member is only liable up to the amount to subscribe for shares be subscribed publicly.

obliged to provide of their capital contribution are prohibited.

a capital (limited liability).

contribution

(limited liability).

For whom Founders who Generally recommended Founders who have the Founders who do not

recommended do not have the because of required minimum capital have the required

minimum capital limited liability. and intend to provide minimum capital or if the

required different rights to the company’s activity

for a limited liability members of the company will be costly.

company. in the form of preference

shares (i.e. preferred

dividends, preference

related to voting rights, etc).

Minimum numberof founders Two One One Two

Minimum amount of initial capital HUF 1/member HUF 500,000 HUF 5,000,000 HUF 20,000,000

(cca. EUR 1,670) (cca. EUR 16,670) (cca. EUR 66,670)

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31


What constitutes statutory accounting records in Hungary?

Type of Required GAAP Specific Currency Language Frequency Required accounting by local to be format to be to be of update for tax record law used used used purposes

Nominal ledger

Nominal Yes Local Yes (specific Hungarian Hungarian Monthly/quarterly Yes – for

ledger chart of forint, (depending on CIT

accounts) Euro or frequency of VAT

functional return)

Journal book Yes Local No Hungarian Hungarian Monthly/quarterly No

forint, (depending on

Euro or frequency of VAT

functional return)

Trial balance Yes Local Yes (specific Hungarian Hungarian Annually Yes – for

chart of forint, CIT

accounts) Euro or

functional

Prime Books/

Fixed asset Yes Local No Hungarian Hungarian Annually Yes – for

Subledgers

register forint, Euro or CIT and

functional VAT

Cash book Yes Local No Hungarian Hungarian Continuous (to Yes – for

forint, Euro or reflect all events CIT

functional affecting liquid

assets immediately)

Purchase Yes Local No Hungarian Hungarian Monthly/quarterly Yes – for

day book forint, Euro or (depending on CIT

functional frequency of VAT

return)

Sales day Yes Local No Hungarian Hungarian Monthly/quarterly Yes – for

book forint, Euro or (depending on CIT

functional frequency of VAT

return)

Other - VAT Yes Local No (to be Hungarian Hungarian Monthly/quarterly Yes – for

subledger based on forint (depending on VAT

performance frequency of VAT

date) return)

Accounting requirements

The statutory accounting records must be maintained in accordance with local GAAP. Bookkeeping has to be coor-dinated and reviewed, and SFS has to be prepared by an accountant certified and reg-istered as auditor or chartered accountant at the Hungarian Ministry for National Econo-

my. They are responsible for the Hungarian bookkeeping and for compiling and supply-ing true and reliable informa-tion, for maintaining and en-suring that the data disclosed in the SFS conforms to legal provisions, provide a true and fair view and are sufficiently documented in compliance with Hungarian accounting principles; furthermore their name and individual licence

number are included in the SFS.

Documents can be stored outside of Hungary. However, in case of a tax inspection by tax authorities original documents and records must be made available within a minimum of three working days. Documents must be stored in a readable format for a minimum of 10 years in hard copy.

Hungarian companies must file their local GAAP SFS and founder’s resolu-tion (in relation to profit distribution) annually within five months of their financial year end. They must be filed electroni-cally (not XBRL) using the mandatory pre-defined special format of pdf files that are uploaded on to the website. Printed documents

converted into an image file format (scanned) shall not be accepted. A special file received from the Ministry of Justice must also be filed in order to support the payment of the publica-tion fee.

Non-compliance with the above-mentioned account-ing requirements can trigger penalties and criminal law punishment.

Foreign currency bookkeeping

A company can prepare its annual financial statements in the convertible foreign currency specified in its founding document, provided that at least 25% of its (i) income, costs and expenditures; and (ii) financial assets and financial liabilities were earned or incurred, as applicable, in that convertible currency in both the current year and the previous year.

A company is in compliance with the conditions if the total amount of items listed in both points (i) and (ii) is at least 25%. Point (ii) does not include off-balance-sheet items.

Additionally, from 2010 all companies can prepare their annual financial statements in Euros (without the above limitation) if this is specified in their accounting policies. However, the accounting currency cannot be changed for five years after that.

Audit cycle

A company’s supreme body is obliged to elect an auditor for a fixed term of not more than

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33


five years. Audits of annual financial statements are not compulsory if both of the fol-lowing conditions are satisfied:

• The company’s annual net sales revenue (cal-culated for the financial year) does not exceed an average HUF 200 million (cca. EUR 0.66 million) for the two financial years preceding the financial year under review; and

• The average number of the company’s employees for the two financial years preceding the financial

year under review did not exceed 50 persons.

One-stop shop

Companies automatically receive tax identification and social security numbers at the time they file their registra-tion documents with the Court of Registration. The Court of Registration also for-wards their requests for VAT and statistical registration to the relevant authorities, at the company’s request (thus steps 3 and 4 may be combined).

STEP 1 Preparation of corporate documents by a Hungarian attorney-at-law (certain documents must be countersigned by a Hungarian attorney). Time to complete: minimum one day. Costs: Attorney fees range widely.

STEP 2 Opening of a bank account Time to complete: one day. Costs: depending on the bank.

STEP 3 Registering the company at the Hungarian Court of Registration and obtaining a tax identification number. Time to complete: in the case of companies established using standard format constituting documents – one working hour from the issue of the company’s tax identification number (NB: this simplified registration procedure is not available for public companies limited by shares), otherwise the registration procedure takes 15 working days. It should be noted that the process can be more time-consuming if the procedure is suspended because the tax authority needs more than one day to provide the Court with the tax identification number. Costs: Registration fees:

• for limited partnerships: HUF 50,000 (cca: EUR 167); • for limited liability companies and for private companies limited

by shares: HUF 100,000 (cca. EUR 334)• for public companies limited by shares: HUF 600,000 (cca: EUR 2,000)

Simplified registration procedure: • for limited liability companies and for private companies limited by

shares HUF 50,000 (cca. EUR 167); • for limited partnerships: HUF 25,000 (cca. EUR 83)

Publication fees: uniformly HUF 5,000 (cca. EUR 17). In the case of the simplified registration procedure, publication is free of charge.

STEP 4 Registration with the Hungarian tax authority and the Hungarian statistical office. Time to complete: one day. Costs: free of charge.

Establishing a business in Hungary step-by-step Hiring and employment

Unemployment

The global economic crisis deeply affected the Hungarian labour market: due to the fall in export orders and companies’ cost cutting measures, many employees lost their jobs. The unemployment rate in September 2011 was 10.7%, a slight decrease compared with the previous quarter’s data (10.8%).

One of the most important goals announced by the Hungarian Government is to encourage companies to create jobs.

Labour costs

Compared with other EU countries, labour costs in Hungary are in the lower third, as shown in the following table:

Source: Eurostat – Hourly labour costs 2010

9,7%8,9% 9,1% 7,2%

12,5%

16,1%13,9%

10,0% 10,7%

Unemployment rate (in Q3 2011)

Total

Budapes

t

Central

Hungary

Central

Transd

anubia

Western

Transd

anubia

Souther

n Tran

sdanub

ia

Northern

Hungary

Northern

Great P

lain

Souther

n Grea

t Plain

Source: KSH, 2011

0 5 10 15 20 25 30 35

RomaniaHungary

PolandSlovakia

Czech RepublicUnited Kingdom

SpainAustria

GermanyFrance

Hourly labour costs (EUR)

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35


Labour law

An employment relation-ship can only be established through a written employ-ment contract, regardless of the anticipated duration of the employment. The employ-ment contract must specify the employee’s base salary, the employee’s position, and the specific place of employ-ment. After the employment contract has been signed, the employer must provide the employee with a written description of his or her most important rights and obliga-tions.

Effective as of 1 January 2012, the mandatory mini-mum gross monthly wage is HUF 93,000 (cca. EUR 310), but for workers employed in positions requiring a secondary school diploma or advanced vocational train-ing (or higher education) it is HUF 108,000 (cca. EUR 360) per month. Employers must pay additional premi-ums for evening and night shifts, weekend work and overtime.

Standard working hours for full-time employment are eight hours a day, or forty hours per week. Employers may not order more than 200 hours of overtime a year, or more than 300 hours if a collective bargaining agree-ment or a separate written agreement with the respec-tive employee to that effect is in place.

The minimum amount of paid leave is twenty days, which increases with the employee’s age (the first in-crease is when the employee reaches the age of 25). The

maximum amount of paid leave is thirty days, which applies to employees over 45. Minors and employees with children are entitled to additional days. The paid leave days must be granted in the year in which they are due.

Employment may be terminated by mutual agreement, or by ordinary or extraordinary termina-tion. The employees cannot be dismissed (except during the probationary period) by the employer without sufficient justification that clearly describes the reasons for the termination. The option of extraordinary ter-mination may be exercised if the other party violates an employment obligation substantially and wilfully or by gross negligence, or acts in a way that renders the continuation of the employment impossible. The reasons for ordinary termi-nation can be related to the employee’s performance or to the employer’s opera-tions. Special rules apply to layoffs in which numerous employees are dismissed at the same time. There are specific situations in which employment cannot be terminated by the employer (i.e. during sick leave or maternity leave). There are certain consequences if the employer unlawfully terminates employment (i.e. the employee may claim compensation).

In the case of ordinary termination of employment, the termination period is at least thirty days, but the length of the termination

period increases in propor-tion to the number of years the employee has spent at the employer, with 90 days as the maximum termination period.

Employees are entitled to a severance payment if

(a) the employer terminates the employment by ordi-nary termination; or

(b) the employer is termi-nated without a legal successor; or

(c) the employee terminates the employment by ex-traordinary termination.

Depending on the number of years the employee has spent at the employer, the amount of the severance payment can be between one month’s and six months’ average salary (in specific cases, e.g. when the employ-ee would reach the relevant age for retirement within five years, it can be up to nine months’ average salary). However, the employee is only entitled to a sever-ance payment if he/she has worked for the employer for at least three years.

Finally, it should be noted that a new labour code was adopted by the Hungarian Parliament, the rules of which are to be applied from 1 July 2012.

An employment relationship can

only be established through a written

employment contract.

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37


2012 will be a year of transi-tion, as the new Labour Code comes into effect from 1 July. Similar to its predecessor, the new law also declares that employment is only legal if it is based on a written work contract which includes the employee’s salary and job de-scription. However, as of July, the location where the work is carried out does not have to be included in the work contract. Invalidity due to a lack of a written contract may only be claimed by the employee, within 30 days of taking up employment.

The new act allows more room for individual and collec-tive bargaining. For example, it allows the collective contract to depart from the act’s provi-sions (except in cases in which the act expressly prohibits such departure) but changes detrimental to the employee may only be made in the specific points listed in the act (e.g. regarding the date of sal-ary payment). A new element is that either party may cancel the contract during the period between the date of signing and the day on which the employment begins if during this period significant changes occur at either party that would make the establishment of employment impossible or would cause disproportionate harm to the party concerned.

Employers must give a reason for termination under the new rules as well, but layoffs will be

easier. In general, women on maternity leave and workers close to retirement age will be protected from termination, but they may also be terminated in the event of a material breach of their employment-related obligations through wilfulness or gross negligence, or any behaviour that would make it impossible to maintain the employment relationship. In the case of collective redundancy, the new act requires employers to conduct negotiations with the works council. If there is no such institution at the company, the employer has no obligation to consult with the employees’ representatives. In the event of wrongful termination, the em-ployee may turn to the courts for legal remedy. The new act, however, reduces the amount of damages that can be awarded, as the basis for calculating lost wages will be the absentee fee rather than the average salary. The absentee fee is also the basis of severance pay: depending on the length of service at the employer, this can amount to one-to-six months’ worth of fees.

From July, stricter rules will apply to employees concern-ing payments of damages: the concepts of slight and gross negligence will be introduced—in the case of the latter, the worker is liable for all of the damages, as in the case of causing intentional damage. At the same time, the employer’s liability in cases involving damages will be limited.

The new Labour Code

Full-time working hours will generally remain at eight hours a day, and there will still be extra pay for afternoon, night and Sunday shifts, as well as remuneration for overtime. At the same time, the number of extraordinary working hours that can be ordered in a calen-dar year has been raised from 200 to 250, but the maximum number that can be set in col-lective contracts will remain 300 hours. The regulation of working time has also become employer-friendlier.

The rules on annual leave will remain unchanged in that workers are granted at least 20 working days off per year, which will increase from age 25 up to a maximum of 30 days that is granted as of age 45. Based on an agree-ment between the parties, the employer may grant one-third of unused vacation days until the end of the following year. Under the relevant provisions of the collective contract, it is also possible for employ-ers to grant one-fourth of an employee’s annual holiday entitlement until 31 March of the year following the year in question if the employer’s vital economic interests are at stake or for reasons that directly and seriously affect the employer’s business op-eration. IGH

As of July, the powers of trade unions will be re-duced; the number of trade union officials under la-bour law protection will be linked to the number of workers, while at the same time works councils will be strengthened. In certain cases, an agreement signed by the works council may, in effect, regulate rights and obligations related to employment as a collective contract – but it may not contain state-ments regarding salaries (among others).

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39


700.3

552.5

585.7583.8614.8

631.1

890.4836.0

555.0

TotalSouthern Great PlainNorthern Great Plain

Northern HungarySouthern TransdanubiaWestern TransdanubiaCentral Transdanubia

Central HungaryBudapest

Average monthly gross wage(EUR)

Source: KSH, 2011

Remuneration

The remuneration received for work should reflect the activity carried out and the qualification required for the job. The statu-tory gross minimum wage for

2012 is HUF 93,000 (cca. EUR 310) per month. Employers must pay additional wages for evening and night shifts, weekend work and overtime. Average monthly wages vary by region, as shown in the table below.

Foreign workers

Foreign nationals can work in Hungary under the terms of a Hungarian work contract or as assignees. The legal require-ments for staying and working in Hungary applicable to EEA (European Economic Area) and third country nationals are dif-ferent, as outlined below.

Demographic capital, education, language

In 2009/2010, more than 65,000 students graduated from Hungarian universities and colleges with graduate and post-graduate degrees. The most popular majors are economics, law, IT, technical sciences, engineering, health and medical sciences and hu-man sciences.

An increasing number of primary and secondary schools

teach English and German as second languages. French, Spanish and Chinese bilingual schools are also available in Hungary.

Key tax-related issues

Corporate income tax

Resident taxpayers are sub-ject to unlimited tax liability. Non-residents are subject to corporate income taxation on their income from their Hungarian branch’s business activities.

In general, Hungarian com-panies are subject to corporate income tax (“CIT”), which is based on profit before tax and is subject to certain modifications.

The most common deduc-tions from the tax base include: • Losses carried forward (see

details below);

Third country nationals

The Hungarian entity is obliged to submit a workforce demand application form

before a work permit application can be submitted.

When the workforce demand application has been accepted, the work permit ap-

plication can be submitted. The permit must be obtained before commencement

of the employment.

A Schengen visa has to be obtained for the individual to enter Hungary. The ap-

plication should be submitted with the work permit application at the Hungarian

embassy in the individual’s home country.

After receiving the visa and entering Hungary, the individual needs to go to the

Immigration Office to obtain the residence permit and register his/her Hungar-

ian address.

european economic Area (eeA) nationals

An EEA national staying in Hungary for longer than 90 days needs to obtain a

Registration Card and an Address Card from the Immigration Office.

The company where the EEA national carries out his/her activities must report

the EEA national’s position and nationality to the Labour Office.

• Reversal of provisions;• Deductions relating to

research and development (“R&D”) activity (see details below);

• Depreciation based on rates prescribed in the CDTA;

• Reversal of impairment losses;

• Capital gains from the alien-ation of registered shares;

• 50% of royalties received by Hungarian entities.

The most common ad-ditions to the tax base include:• Provisions for prospective

obligations and for future expenses;

• Depreciation based on the accounting rules;

• Penalties and fines levied by the Hungarian Tax Au-thorities;

• Costs and expenses not incurred in the interest of the company’s business activity;

• Interest expenses in excess of the allowable amount under the thin capitaliza-tion rules (see details below).

The CIT rate is 10% on the first HUF 500 million (cca. EUR 1.66 million) of the positive CIT base without any further precondi-tions and 19% on the CIT base above this limit. If a company’s CIT base or the pre-tax profit

The legal requirements for staying and

working in Hungary applicable to eeA

(european economic Area) and third

country nationals are different.

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(whichever is higher) is less than 2% of its total revenues reduced by the cost of goods sold, the value of mediated services and the income of the foreign perma-nent establishments (“minimum tax base”), the company can choose to file a declaration pre-senting its cost settlement and pay CIT in accordance with the general provisions or pay CIT on its minimum tax base.

A special regime applies to income from royalties, under which half of the general tax rate may be applicable on royalties.

Thin capitalisation rules may apply to interest on any non-banking debt and non-interest-bearing loans received from related parties in excess of three times the equity.

Tax losses can be carried forward indefinitely and their use is no longer subject to the Tax Authority’s approval. As of 2012, tax losses are deductible up to 50% of the positive tax base.

Hungary has concluded double tax treaties with 70 countries, including all EU

member states, Switzerland, the USA, Canada, China, Hong Kong, Japan, South-Korea, Brazil, Mexico, etc. Double tax treaties are also being negoti-ated with several countries, e.g. Taiwan, United Arab Emirates, Qatar, Jordan, and Syria, while those with Switzerland, Austria, Belgium and Singapore are in the process of re-negotiation.

Dividends, interest and royal-ties are exempt from withhold-ing tax under the domestic rules.

Capital gains realized by for-eign persons are exempt from

From 1 January 2012, there are

further incentives available for

holding intellectual properties.

CIT in Hungary. However, this exemption does not apply to capital gains that are related to participations in Hungarian real estate companies; in these cases, transfer tax may also apply.

From 1 January 2012, there are further incentives available for holding intellectual proper-ties. Any gains on the sale (or a capital increase that is not in cash) for qualifying intellec-tual property would be exempt from corporate income tax if the seller reported the acquisi-

tion to the Tax Authority and held the property for at least one year. Alternatively, if such reporting was not made, gains realized on a sale would still be exempt if the taxable gain is used to purchase qualifying in-tellectual property within three years of the sale.

Local business tax

Entrepreneurs must pay the local business tax (“LBT”) in the municipalities where their activities are located.

LBT must be paid on the amount of adjusted annual turnover determined by law. When calculating the LBT base, the annual turnover can be reduced by the cost of goods sold, the costs of intermediated services and subcontractors’ activities, the costs of materials and the direct costs of R&D. Royalty and interest income are exempt from LBT.

The tax rate is determined by the local government within whose jurisdiction the com-pany carries out its business activities, but cannot exceed the maximum determined in the Local Tax Act (2%). If a company carries out its business activities within the jurisdiction of more than one Hungarian local municipality, its LBT base has to be allocated amongst the different munici-palities.

LBT has to be paid even if the company had a tax loss for CIT purposes.

The LBT base of a foreign permanent establishment of a Hungarian company is included in the Hungarian LBT base, how-ever the LBT base of a foreign permanent establishment of a Hungarian company is exempted from the Hungarian LBT.

Innovation contribution

Companies fitting the defini-tion in the Accounting Act are subject to this contribution, except for small and medium-sized enterprises and branches. The innovation contribution is calculated on the LBT base. The tax rate is 0.3%.

Value added tax

As a general rule, Value Added Tax (“VAT”) should be charged on the following transactions:• Supplies of goods and ser-

vices provided for consider-ation in Hungary;

• Intra-Community acquisi-tions of goods in Hungary;

• Imports of goods.

Certain services are exempt from VAT, including but not limited to medical, cultural, sporting, and educational servic-es provided as public services; and financial and insurance ser-vices. Intra-Community supplies of services and exports are also treated as exempt transactions. For the rental of real estate and for the sale of real estate and land (except building plots), VAT exemption is optional.

(In the case of the sale of residential property, the exemption does not include the sales before putting into usage and the sales within two years from the date on which the us-age permit becomes effective.).

In the case of business-to-business services, the general rule is that the place of supply is where the customer is estab-lished for financial purposes.

The standard VAT rate in Hungary is 27%. There are also two reduced rates, 18% and 5%. The 18% rate applies to certain dairy products and commer-

cial accommodation services. The 5% rate applies to certain pharmaceutical products, audio books, printed books, newspa-pers and certain live perfor-mance activities.

Related companies that have established business presences in Hungary are entitled to form a VAT group. The essence of a VAT group is that its members act under a single VAT number in their transactions (i.e. they issue invoices under a shared VAT number and submit a single, joint tax return), and product and service supplies between the members do not qualify as business transactions for VAT purposes.

The VAT act allows Hun-garian taxpayers to apply the reverse-charge mechanism to the following transactions:• Services related to immov-

able property (e.g. construc-tion, maintenance);

• Sales of waste materials; and• Sales of carbon quotas (from

January 2011).Under the general rule, VAT

returns have to be submitted quarterly. However, in some cir-cumstances monthly or annual VAT returns have to be prepared.

In the case of intra-Commu-nity transactions, the taxable person has to submit recapitu-lative statements (monthly or quarterly). These statements can be submitted to the Hungarian Tax Authority only in electronic form.

If a taxpayer has a negative VAT balance in a return period, this amount can be recovered, provided that the tax balance reaches or exceeds an absolute value of HUF 1 million (cca. EUR 3,333) for monthly filers, HUF 250,000 (cca. EUR 833) for quar-terly filers or HUF 50,000 (cca. EUR 167) for annual filers.

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43


Environmental Protection Product Fee

Businesses engaged in manufacturing, importing and intra-Community purchases of certain products must pay an environmental protection product fee. The following products are subject to the product fee in 2012:• Certain petroleum prod-

ucts;• Tyres;• Packaging materials

(included as part of the packaging);

• Batteries;• Commercial printing pa-

per; and• Electrical and electronic

products.The parties liable to pay the

product fee are the first do-mestic distributor or the end user; in the case of domesti-cally manufactured petroleum products, the first buyer from the domestic distributor; and in the case of toll manufactur-ing, the party that orders the toll manufacturing.

The product fee is calculated on the basis of the weight of the product multiplied by the fee rate.

The tax returns have to be filed quarterly, and an advance payment has to be made for the fourth quarter of the year.

In certain cases the product fee can be reclaimed if the taxpayer meets the require-ments.

Transfer Pricing

In Hungary transfer pricing rules apply. Accord-ingly, if the prices applied in related-party transactions are not arm’s-length prices, the Tax Authority is entitled

to modify a company’s CIT and special tax base by the difference between the prices applied and the arm’s-length prices.

Taxpayers are obliged to prepare transfer pricing documentation on intra-group transactions and also on transactions carried out between Hungarian companies and their foreign branches. The documenta-tion has to be prepared for every contract (transaction) between related parties (including in-kind contribu-tions made at the time enti-ties are established).

As of 1 January 2012, it will not be required to prepare transfer pricing documenta-tion for certain transactions between a branch office lo-cated in a country with which Hungary has a double tax treaty currently in force and a company in a third country if their pricing does not affect the Hungarian tax base.

Rulings

The Tax Authority and the Ministry for National Econo-my provide the following types of ruling on submission of a formal request:• Non binding rulings on the

interpretation of regula-tions, provided free of charge.

• Binding rulings may be requested by taxpay-ers and foreign entities regarding any type of tax, provided the ruling has bearing on the tax consequences of a future contract, transaction or chain of transactions, and a detailed description is provided.

Personal income tax and social security rates applicable on employment income – 2012

Employee % Employer %Personal income tax * 16 or 20.32

Pension contribution ** 10 Social tax 27

Health insurance and

unemployment contribution 8.5

Training fund

contribution 1,5

* 16% up to the annual gross income of HUF 2,424,000 (cca. EUR 8,080) and 20.32% above

** capped at HUF 7,942,200 (cca. EUR 26,474) annual gross income

• Advance Pricing Agree-ments are available for the purpose of setting a trans-fer price or price range with the Tax Authority.

Other taxes

Several new taxes have come into effect in the last few years, e.g. taxes related to the energy, telecommu-nications and retail sectors (“Austerity tax”), a bank tax, levied on financial institu-tions and insurance com-panies, and a public health product tax.

In addition to the above-listed main taxes, Hungarian taxpayer entities are subject to several smaller taxes, e.g. excise tax, customs duties, stamp duties, registration tax, community tax, tour-ism tax, sector-specific taxes (energy tax, pharma taxes), disaster management con-tribution, accident tax, etc., which are not covered in this booklet.

Personal Income Tax

Tax and social security liabilities

The aim of the Hun-garian Government is to

simplify the administrative obligations and decrease the labour costs borne by employers during the next few years.

Employers can provide their employees (and in certain cases the employee’s close relatives) with fringe benefits (e.g. meal vouchers, vacation and recreation, local travel passes, etc.). These benefits are taxed at preferential rates com-pared with the taxation of employment income. Benefits available to all employees of the employer can also be provided at preferential tax rates.

Although there is no spe-cial expatriate tax regime in Hungary for assignees, they can be provided with certain tax-free benefits.

The social security coverage of international assignees from the EEA countries is governed by EC Regulations 883/2004 or 1408/71. Third-country nationals assigned to Hungary become subject to Hungarian social secu-rity if the length of their assignment exceeds two years, unless a bilateral social security agreement stipulates otherwise. IGH

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45


HITA was founded by the Hungarian Government with

the aim of promoting foreign investment and bilateral trade, as well as helping the EU integration-oriented SME development. The Hungarian Investment and Trade Agency has representative offices in six regional centres of Hungary and a foreign network operating under Hungary’s diplomatic services and special assignments in more than fifty countries. HITA’s Investment Promotion Department’s main tasks are:

During the pre-decision stage• Preparing tailored and

comprehensive information packages on the economy,

Contact details

Hungarian Investment and Trade AgencyH-1055 Budapest, Honvéd u. 20.Telephone: +36 1 872 6520Fax: +36 1 872 6699E-mail: [email protected], [email protected]: http://hita.hu

financial incentives, business environment, tax

• Assistance in location search and evaluation, site visits organized

• Organising partner meetings

During the ramp-up stage• Project partner and project

financing advice• Supplying information on

procedures for acquiring permits

• Assistance in applications for incentives

In operations• Expansion and

reinvestment assistance • Advocacy to improve the

business climate

About the Hungarian Investment and Trade Agency (HITA)

– How many inves-tors are you currently in negotiations with and what is the value of investments they would bring?

– While HITA handled 83 projects at the end of last year, this number stood at 112 in January this year, so investor interest toward Hungary has increased

Companies have confidence in Hungarysignificantly. These include new investors as well as companies planning to expand their previous investments. These investments could create

more than 20,000 jobs directly in the next three to five years and at least as many additional jobs indirectly. If every investor makes a positive decision,

the combined value of the planned investments could reach EUR 6 billion.

– What sectors are showing interest in Hungary?

– The SSC industry remains popular, with investments in this sector now also appearing in countryside cities in addition to Budapest; especially university towns are attractive destinations. Besides service centers, investments in production continue to be popular as well: in line with the trend of previous years, in addition to the high number of projects in the electronics and auto industries, there is definite interest toward Hungary in the food sector. Different countries dominate investments in different sectors: German companies have the biggest share in auto industry investments in the country, the Far East dominates in electronics, while U.S. and Western European companies do so with regard to service centers.

– Why could Hungary be important to investors?

– Investors are showing strong interest toward op-portunities in Hungary and as I have mentioned, there are several among them considering repeat invest-ments, with an expansion of production and the creation of new jobs planned. This indicates that these com-panies see their Hungarian investments secured for the long term. The reduction of the lower corporate tax rate has increased Hungary's competitiveness greatly within the region. Compa-nies continue to be satis-fied with the quality of the Hungarian workforce, the regulatory environment and the infrastructure.

– What kind of support can the government provide to potential investors?

– There are both EU co-financed and subsidies based on governmental decision to support investments in Hungary. For investments of special importance exceeding EUR 10 million in value, the Hungarian state provides grants, development tax breaks and other employment related support via individual government decisions.

Investments receiving EU co-financing could be interesting for investors because there are still significant available resources for these projects until the end of 2013. IGH

“Companies see their Hungarian

investments secured for the long term

and many of them are planning further

investments,” said erzsébet dobos,

the president of the Hungarian Investment

and Trade Agency (HITA).

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47


About PwCPwC in Hungary

PwC firms provide in-dustry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC net-work share their thinking, experience and solutions to develop fresh perspectives and practical advice. Please go to pwc.com for more information.

PwC has been present on the Hungarian market for more than two decades now, during which we have directed our efforts toward building strong, trust-based relationships with our cli-ents, being reliable partners for them in their day-to-day management decisions and assisting them with defin-ing and implementing their long-term goals. Our staff of more than 600 experts draw on the experience and outstanding professional know-how we have built up over 20 years, and their main goal is to develop the best solutions for you in the course of auditing and consultancy work.

In 2011, among the BIG 4 international assurance, tax and legal, and advisory practices, PwC was the first to set up an office outside of Budapest, in Győr, as a re-sult of which the firm’s staff members will be delivering PwC’s outstanding standard services directly to business in that region.

our services

Advisory Services

Business Consulting• Deals• Forensic Services• Business Recovery and • Restructuring

Tax and Legal Services

Corporate Tax• Mergers & Acquisitions• Transfer Pricing• Tax Controversy & Dis-• pute Resolution ServicesIndirect Tax• Human Resource Ser-• vicesInternational Assignment • SolutionsImmigration Services• Bookkeeping, payroll, • financial statement preparation and tax compliance servicesLegal Services (in coop-• eration with Réti, Antall & Partners correspon-dent law firm)State Aid and Incentives•

Audit/Assurance

Audit• Financial Regulatory • ServicesAccounting including • IFRS and US GAAPSystem and Process As-• suranceInternal Audit•

PwC’s Academy

Professional education • and qualifications

We focus on the following industry groups

Automotive• Retail&Consumer• Telecommunications, Info-• communicationsPharma&Healthcare• Financial Services• Transportation&Logistics•

Industrial products• Private Company Services•

Automotive

In the global automo-tive industry, opportunities and risks are everywhere, in emerging and mature markets alike. But while opportunities are plentiful, profitable growth

We make your industry our own

If a consulting and auditing firm wants to work successfully for its clients, it needs to understand much more about them than their balance sheets and numbers. An in-depth knowledge and under-standing of your industry, its competitive environment and the national and international regulatory requirements are vital factors in PwC’s success – and in yours.This is why we continuously develop and expand our industry expertise. Technical experts in each business area work together across all industries. This is how we can offer our clients tailored services as one firm.

maintain profit margins as a result of a deflationary oper-ating environment, market saturation, slowing popula-tion growth, and more dis-cerning but less loyal con-sumers. In addition, there are the immediate concerns of growing competitive pressures, an increase in the number of alternative sales channels, a blurring of roles between suppliers and retailers, and — particu-larly for consumer product manufacturers — a shift in the balance of power to the retailers. Due to stakeholder demands and the resultant Sarbanes-Oxley legisla-tion, the retail & consumer industry is also experienc-ing heightened regulatory pressures. These pressures will require greater ac-countability and accuracy in the reporting of financial results, increased levels of corporate governance and Board involvement, stronger internal control documenta-tion and a greater need for more robust risk manage-ment practices throughout the enterprise.

Financial Services

PwC’s Financial Services Industry Group in Hungary is a focused business advisory, audit and tax practice that can help your organisation turn challenges into opportunities.

Without doubt, the finan-cial sector in Hungary has seen dramatic changes over the last 15 years. However, the current post-EU Ac-cession environment and extremely competitive mar-

is becoming more difficult to achieve and challenges – from the supply chain to the retail environment – can upset even the best-laid plans. Automotive organisations must conduct their business in this environ-ment, while at the same time adapting to new regulations, reducing costs, managing capacity and inventory, and controlling healthcare and compensation costs. In PwC’s Global Automotive practice, we bring together experts in these and more areas to help you ad-dress these important issues.

Pharmaceuticals

PwC and its correspon-dent law firm, Réti, Antall &

Partners, have been providing services to pharmaceutical companies for many years.

Our services cover the en-tire spectrum of issues related to corporate management. We operate with specialist teams that focus on services within their area of expertise.

Our specialists have a deep knowledge of the specific features of the pharmaceuti-cal industry.

Infocommunication

Infocommunication companies are experienc-ing what many analysts and industry insiders would term the perfect storm - a sluggish economy, depressed revenues

and a lingering capacity glut, coupled with a cash crunch, heavy debt and eroding franchise. Add to these woes fierce competition, trans-formational innovation and complex new regulations. The industry is undergoing a sea-change as retrenchment and consolidation speed up.

Retail and Consumer Services

Due to a combination of market forces, today’s busi-ness environment presents retail and consumer product (R&C) companies with many challenges. R&C Sector companies are constrained in their ability to grow and

48


ket continue to pro vide new demands and challenges.

Staying on top of market processes, complying with regulations, manoeuvering through the complex tax and fi nancial regulatory frame-work, improving effi ciency and productivity, and fi nding new ways to optimize cus-tomer relationships, are all now permanent features of the Hungarian marketplace.

Transportation and Logistics

Thanks to globalisation and workforce mobility,

the transportation market is still expected to f lourish above the average. Logistics companies are trying to take control of their whole supply network by vertically expanding their range of services. Acquisitions, joint ventures and allies are largely contributing to the restructuring of the industry.

PwC’s transportation and logistics experts help their clients with professional advisory services in every fi eld, enabling the establishment of effi ciently operating world-wide

networks and supporting the development of new business relationships.

Hungary’s EU accession resulted in many changes in the VAT rules on trans-portation services. Our tax experts can help you avoid VAT risks.

Our work-group, which specialises in freight-trans-portation tax issues, has been operating successfully for several years, and has al-ready completed a consider-able number of tax reviews. Our advisers are actively in-volved in the implementation of EU practices in Hungary.

Private Company Services

Privately owned small and medium-sized businesses are at the heart of the Hungar-ian economy. Recent diffi cult market conditions as well as their own dynamic growth have brought many new chal-lenges and opportunities.

Our dedicated Private Company Services (PCS) team provides full practical and commercial assistance, tailored to the needs of pri-vate businesses, family busi-nesses, entrepreneurs and high net wealth individuals.

Contacts

Please visit our website at www.pwc.com/hu

The Investing Guide was prepared by PricewaterhouseCoopers Hungary Ltd. in cooperation with the Hungarian Investment and Trade Agency. Additional content was provided by Napi Gazdaság as publisher.

Neither PricewaterhouseCoopers Hungary Ltd. nor the co-authors accept any responsibility for losses arising from any action taken or not taken by anyone using this publication. It should not be regarded as a basis for ascertaining tax liability in specifi c circumstances. Professional advice should always be sought before acting on any information contained in this booklet.

© 2012 PwC. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Auditing Ltd., PricewaterhouseCoopers Hungary Ltd. and PricewaterhouseCoopers Advisory Services Ltd. which are member fi rms of PricewaterhouseCoopers International Limited, each member fi rm of which is a separate legal entity.

Tamás LőcseiPartner – Tax and Incentive ServicesDirect: + 36 (1) 461 9358E-mail: [email protected]

Tünde KisSenior Manager – State Aid and Incentive ServicesDirect: + 49 (89) 5790 5724E-mail: [email protected]

Éva FaragóManager – State Aid and Incentive ServicesDirect: + 36 (1) 461 9180E-mail: [email protected]

Norbert IzerManager – Tax Services Direct: + 36 (1) 461 9433E-mail: [email protected]

Armin KrugPartner – Assurance ServicesDirect: + 36 (1) 461 9552E-mail: [email protected]

Kornélia LettLeader of the Győr Offi ce – Assurance ServicesDirect: + 36 (96) 547 660E-mail: [email protected]

PwC Offi ces

Contacts at PwC Budapest Offi ce Contacts at PwC Győr Offi ce

GyőrH-9024 GyőrHunyadi Street 14. (Leier City Center)Telephone: +36 (96) 547 660Fax: + 36 (96) 547 661

BudapestH-1077 BudapestWesselényi Street 16.Telephone: +36 (1) 461 9100Fax: + 36 (1) 461 9101

Ideas driveopportunities

www.pwc.com/hu

© 2012 PwC. All rights reserved. In this document, �PwC� refers to PricewaterhouseCoopers Auditing Ltd., PricewaterhouseCoopers Hungary Ltd. andPricewaterhouseCoopers Advisory Services Ltd. which are member �rms of PricewaterhouseCoopers International Limited, each member �rm of which isa separate legal entity.

We help to find the opportunities for investors.PwC is the Trusted Business Advisor of investors in Hungary.

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