About HKTDC | Media Room | Contact HKTDC | Wish List Wish List () | My HKTDC |
繁體 简体
Save As PDF Print this page
Qzone

Hungary: Market Profile

Picture: Hungary market factsheet
Graph: Hungary market factsheet

1. Overview

Since transitioning from a centrally planned to a market economy, Hungary has made significant economic progress. Investment and private consumption are now among the key drivers of growth supported by the recovery of credit to the private sector, while the brightening outlook in the global and European Union (EU) economies is lending strong support to Hungary's trade.

Source: Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

April 2018
Prime Minister, Viktor Orban, was re-elected for a fourth term; his Fidesz party won a supermajority in the national assembly.

Source: BBC country profile - Timeline

3. Major Economic Indicators

Graph: Hungary real GDP and inflation
Graph: Hungary real GDP and inflation
Graph: Hungary GDP by sector (2017)
Graph: Hungary GDP by sector (2017)
Graph: Hungary unemployment rate
Graph: Hungary unemployment rate
Graph: Hungary current account balance
Graph: Hungary current account balance

e = estimate, f = forecast
Sources: IMF, World Bank, Fitch Solutions
Date last reviewed: February 11, 2019

4. External Trade

4.1 Merchandise Trade

Graph: Hungary merchandise trade
Graph: Hungary merchandise trade

Source: WTO
Date last reviewed: February 11, 2019

Graph: Hungary major export commodities (2017)
Graph: Hungary major export commodities (2017)
Graph: Hungary major export markets (2017)
Graph: Hungary major export markets (2017)
Graph: Hungary major import commodities (2017)
Graph: Hungary major import commodities (2017)
Graph: Hungary major import markets (2017)
Graph: Hungary major import markets (2017)

Sources: Trade Map, Fitch Solutions
Date last reviewed: February 11, 2019

4.2 Trade in Services

Graph: Hungary trade in services
Graph: Hungary trade in services

e = estimate
Source: WTO
Date last reviewed: February 11, 2019

5. Trade Policies

  • Hungary has been a member of the WTO since January 1, 1995 and has been a member state of the EU since May 1, 2004.

  • Hungary's main trade partners are in the EU and the absence of customs charges supports large volumes of trade. Hungary applies the EU's Common External Tariff (CET), which means goods manufactured and imported from within the EU are not subject to customs charges. The average tariff rate for EU states is just 1%, which is among the lowest globally, although goods imported from outside the EU will incur duties of between 0-17%. Most of the country's major trade partners are within the EU, hence risks are less pronounced, such that Hungary's average tariff rate stands at 1.5%.

  • In December 2016, EU states agreed on a proposal to modernise the EU's trade defence instruments, with a view to shielding EU producers from damage caused by unfair competition. The proposed regulation amends current anti-dumping and anti-subsidies regulations to better respond to unfair trade practices, and furnishes Europe's trade defence instruments with more transparency, quicker procedures and more effective enforcement. In exceptional cases, such as in the presence of distortions in the cost of raw materials, it will enable the EU to impose higher duties through the limited suspension of the lesser duty rule. This will provide some protection to Hungary's secondary and tertiary sectors.

  • In March 2016, the European Commission (EC) announced a new support package for European farmers which involves mobilising an estimated EUR500 million within the next two years. The intervention ceilings for dairy products have been nearly doubled. This will limit the ability of foreign businesses to export products such as milk, fruits and vegetables to Hungary.

  • In 2016, the EC introduced an import licensing regime for steel products exceeding 2.5 tonnes. The regulation will be active until May 15, 2020. In Q215, the EC issued regulations on trade restrictions on cattle, beef, watermelons and prepared tomatoes with Turkey. This will help to protect domestic agriculture and regional farming businesses.

  • In June 2018, the EU imposed import duties on 182 goods from the United States in reaction to the steel and aluminium import duties imposed by Washington on the EU.

Sources: WTO - Trade Policy Review, Global Trade Alert, Fitch Solutions

6. Trade Agreements

6.1 Trade Updates

The EU is Australia's second largest trade partner and has launched negotiations for a comprehensive trade agreement between the relevant parties. Bilateral trade in goods between the two partners has risen steadily in recent years, reaching almost EUR48 billion in 2017, while bilateral trade in services added an additional EUR27 billion. The negotiations aim to remove trade barriers, streamline standards and put European companies exporting to or doing business in Australia on equal footing with those from countries that have signed up to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or other trade agreements with Australia. The European Council authorised opening negotiations for a trade agreement between the EU and Australia on May 22, 2018.

6.2 Multinational Trade Agreements

Active

  1. Hungary is a member of the EU effective from May 1, 2004, adopting the EU’s common external trade policy and measures.

  2. The EU is a political and economic union of 28 member states that are located primarily in Europe. As an EU member, Hungary applies the EU Common External Tariff and enjoys tariff-free trade within the EU. Within the Schengen Area, passport controls have been abolished. A monetary union was established in 1999 and came into full force in 2002, and is composed of 19 EU member states that use the euro currency. However, Hungary maintains its own currency – the forint.

  3. EU-Canada Comprehensive Economic and Trade Agreement (CETA): This was provisionally applied as of September 21, 2017, having been signed in October 2016. The agreement is expected to boost trade between partners as CETA removes all tariffs on industrial products traded between the EU and Canada. CETA also opens up government procurement. Canadian companies will be able to bid on opportunities at all levels of the EU government procurement market and vice-versa, though some sectors are restricted. The agreement will only enter into force fully and definitively when all EU member states have ratified the agreement.

  4. Europe Free Trade Association (EFTA): Includes Switzerland, Norway, Liechtenstein and Iceland. The European Economic Area (EEA) unites the EU member states and the three EEA EFTA states (Iceland, Liechtenstein and Norway) into an Internal Market governed by the same basic rules. These rules aim to enable goods, services, capital and persons to move freely about the EEA in an open and competitive environment, a concept referred to as the four freedoms.

  5. EU-Turkey: The customs union within the EU provides tariff-free access to the European market for Turkey, benefitting both exporters and importers.

  6. EU-Japan Economic Partnership Agreement (EPA): In July 2018, the EU and Japan signed a trade deal that promises to eliminate 99% of tariffs that cost businesses in the EU and Japan nearly EUR1 billion annually. According to the EC, the EU-Japan EPA will create a trade zone covering 600 million people and nearly a third of global GDP. The result of four years of negotiation, the EPA was finalised in late 2017 and came into force on February 1, 2019 after the EU Parliament ratified the agreement in December 2018. The total trade volume of goods and services between the EU and Japan is an estimated EUR86 billion. The key parts of the agreement will cut duties on a wide range of agricultural products and it seeks to open up services markets, particularly financial services, e-commerce, telecommunications and transport. Japan is the EU's second biggest trading partner in Asia after mainland China. EU exports to Japan are dominated by motor vehicles, machinery, pharmaceuticals, optical and medical instruments, and electrical machinery.

  7. EU-SADC Economic Partnership Agreement (Botswana, Lesotho, Mozambique, Namibia, South Africa and Swaziland): An agreement between EU and SADC delegations was reached in 2016 and is fully operational for SADC members following the ratification of the agreement by Mozambique. The remaining six member of SADC no included in the deal (the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Zambia and Zimbabwe) are seeking economic partnership agreements with the EU as part of other trading blocs – such as with East or Central African communities.

Signed, Awaiting Ratification

EU-Central America Association Agreement (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Belize and the Dominican Republic): An agreement between the parties was reached in 2012 and is awaiting ratification (29 of the 34 parties have ratified the agreement as of October 2018). The agreement has been provisionally applied since 2013.

Under Negotiation

  1. EU-Australia: The EU, Australia's second largest trade partner, has launched negotiations for a comprehensive trade agreement with Australia. Bilateral trade in goods between the two partners has risen steadily in recent years, reaching almost EUR48 billion in 2017, and bilateral trade in services added an additional EUR27 billion. The negotiations aim to remove trade barriers, streamline standards and put European companies exporting to or doing business in Australia on equal footing with those from countries that have signed up to the Trans-Pacific Partnership or other trade agreements with Australia. The Council of the EU authorised opening negotiations for a trade agreement between the EU and Australia on May 22, 2018.

  2. EU-United States (Trans-Atlantic Trade and Investment Partnership): This agreement was expected to increase trade and services, but it is unlikely to pass under the Trump administration in the United States against the backdrop of rising global trade tensions.

  3. EU-Vietnam Free Trade Agreement (FTA): In July 2018, the EU and Vietnam agreed on final texts for the EU-Vietnam FTA and the EU-Vietnam Investment Protection Agreement (IPA). As of January 2019, the final text of the agreement has been finalised and is awaiting signature and conclusion.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Hungary FDI stock
Graph: Hungary FDI stock
Graph: Hungary FDI flow
Graph: Hungary FDI flow

Source: UNCTAD
Date last reviewed: February 11, 2019

7.2 Foreign Direct Investment Policy

  1. Hungary's accession to the EU was accompanied by the tightening of legal protection for foreign investment and the government has attempted to guide capital inflows towards targeted sectors such as manufacturing facilities, research and development, IT, automobiles and tourism. The property rights of foreign investors are also guaranteed against expropriation or nationalisation, except in cases of national security, in which the private owner is entitled to fair compensation.

  2. There are no legal restrictions on foreign ownership in any sector, and under the Foreign Investment Act of 1988, international companies are guaranteed equal treatment alongside Hungarian businesses, with full freedom with regard to repatriation of profits.

  3. Currently, foreign firms control 66% of the manufacturing sector, 90% of the telecommunications sector, and 35% of the energy sector. The private sector currently produces about 80% of Hungary’s economic output. Foreign investors interested in financial institutions and insurance companies must officially notify the government of their intentions, but do not need advance authorisation.

  4. Under the Investment Act, companies incorporated in Hungary are permitted to purchase and own real estate to support their economic activities. Nevertheless, only private Hungarian or EU citizens resident in Hungary with a minimum of three years of experience working in agriculture or holding degree in an agricultural discipline can purchase farmland, according to the 2014 Land Law. All others may only lease farmland.

  5. The Hungarian government regulates the prices of certain goods, setting upper and lower limits to which the private sector must adhere. Price-regulated sectors include energy and pharmaceuticals, and companies operating in these fields have suffered losses in cases where the government has been too slow to adjust upper limits or failed to meet subsidy obligations, as in the case of medicinal goods and electricity.

  6. The Hungarian government has publicly declared that reducing foreign bank market share in the Hungarian financial sector and tightening regulations governing NGOs are key priority areas. Accordingly, several state-led initiatives over the past several years targeted the banking sector and reduced foreign participation.

  7. Regulations in 2015 obligated banks to retroactively compensate borrowers for interest rate increases on certain consumer loans. Increasing entry barriers in certain sectors could have undermined previous sunk-cost investments, contributing to a general sense of policy-induced uncertainty regarding the protection of intangible assets.

  8. Performance requirements, such as job creation or investment minimums, can be imposed as a condition for establishing, maintaining, or expanding an investment. Hungary's rules and regulations regarding labour mobility are broadly in line with EU directives. Most non-EU citizens require a work visa and permit in order to go and work in Hungary, which generally takes about a month to obtain. Indeed, there is large amount of bureaucracy that businesses must contend with when trying to bring in foreign workers from non-EU states.

Sources: WTO - Trade Policy Review, ITA, US Department of Commerce

7.3 Free Trade Zones And Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
As part of the country’s EU accession, Hungary eliminated foreign trade zones.

Though the Ministry of National Economy had plans to nominate customs free zones, there currently seems to be little demand.

Nevertheless, Hungary offers a well-developed incentive system for investors, which is anchored by a special incentive package for investments over a certain value, which is typically over USD11 million. Administered by the Hungarian Investment Promotion Agency (HIPA) and managed by the Ministry of National Development (MND), the incentive system is compliant with EU regulations on competition and state aid.
Investors who establish one of the following centres or facilities stand to benefit from the incentive packages:

- Regional service centres
- Manufacturing facilities
- Logistics facilities
- Research and development facilities
- Bioenergy facilities

Investors who make tourism industry investments in any area also stand to benefit from incentive packages. These may consist of cash, training or job creation subsidies or tax allowances.

Sources: Hungarian Government websites, Fitch Solutions

8. Taxation – 2019

  • Value Added Tax: 27%
  • Corporate Income Tax: 9%

Sources: Hungary National Tax and Customs Administration

8.1 Important Updates to Taxation Information

  • Social security contributions made by employers have been reduced to 19.5% of an employee's gross wages (from 22% previously). The reduced rate decreases the burden of tax payments on business, increasing competitiveness. Furthermore, income derived from real estate rentals is no longer subject to the national 14% healthcare tax, benefiting employers and investors. 

  • As of January 1, 2018, the employer social charge rate has been further reduced from 22% to 19.5%. Consequently, the employers’ payroll expenses has been reduced by 2%. Also, the rate of healthcare tax has been reduced from 22% to 19.5% as of 2018, in line with the reduction of the employer social charge rate. As a result, public dues payable for business meals, corporate events and certain fringe benefits has been reduced from 43.66% to 40.71% in total.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax9%
Dividends5% on net earnings (except distribution by companies in the oil and gas sector)
Capital Gains Tax9%
Mines, energy producers and energy distribution system operators are subject to energy suppliers’ income tax31%
Innovation contribution0.3%
Value Added Tax27%; for some goods and services, reduced rates of 18% and 5% are applicable

Sources: National sources, Hungary National Tax and Customs Administration
Date last reviewed: February 11, 2019

9. Foreign Worker Requirements

9.1 Localisation Requirements

Hungary's rules and regulations regarding labour mobility are broadly in line with EU directives. Most non-EU citizens require a work visa and permit in order to go and work in Hungary, which generally takes about a month to obtain.

9.2 Obtaining Foreign worker permits for skilled workers

There are certain requirements that businesses must meet when trying to bring in foreign workers from non-EU states. Firstly, a workforce demand is required. The hiring company must advertise the job at the Hungarian Labour Office for a fixed period (around 15 days). This is to give a chance for unemployed Hungarian citizens to apply for the position. Thereafter, a work permit may begin to be processed. Most work permits and working visas are issued for two years only. Both of these documents can be renewed if the employee wishes to extend his/her stay in Hungary and continues to fulfil the application requirements. Generally, the highest number of foreign workers employed with a work permit at the same time in the whole territory of Hungary cannot exceed the number of announced applications in an average month in the year before the year in question.

9.3 Blue Card

The Blue Card is intended for the stay of a highly qualified employee. A foreigner holding a Blue Card may reside in Hungary and work in the job for which the Blue Card was issued or change that job under the conditions defined. High qualification means a duly completed university education or higher professional education which lasted for at least three years. The Blue Card is issued with a term of validity three months longer than the term for which the employment contract has been concluded; however, this is for a maximum period of two years. The Blue Card can be extended. One of the conditions for issuing the Blue Card is a wage criterion – the employment contract must contain gross monthly or yearly wage at least 1.5 times the gross average annual wage.

9.4 Visa/Travel Restrictions

Nationals of Canada, Australia and the United States intending to stay in Hungary for more than 90 days need to apply for a long-term stay visa, whereas EU nationals staying for longer than 90 days need only register with the immigration department. In addition, citizens of many other countries may travel to Hungary without a visa and may stay there for a maximum period of 90 days. For Hong Kong, this exemption applies only to Hong Kong passport holders.

9.5 Schengen Visa

Hungary is also part of the Schengen Agreement as of December 7, 2017, which has made traveling between member countries much easier and less bureaucratic. The Schengen visa and entry regulations are only applicable for a stay not exceeding 90 days. In the wake of the migrant crisis in Europe, the Schengen states have tightened controls at their common external borders to ensure the security of those living or travelling in the Schengen area.

Sources: Hungarian Government websites, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody'sBaa3 (Stable)23/11/2018
Standard & Poor'sBBB- (Positive)16/09/2016
Fitch RatingsBBB- (Positive)31/08/2018

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201720182019
Ease of Doing Business Index
41/19048/19053/190
Ease of Paying Taxes Index
77/19093/19086/190
Logistics Performance Index
N/A31/160N/A
Corruption Perception Index
66/180N/AN/A
IMD World Competitiveness52/6347/63N/A

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201720182019
Economic Risk Index
N/A36/20235/202
Short-Term Economic Risk Score69.471.568.3
Long-Term Economic Risk Score69.269.871.0
Political Risk Index
N/A69/20171/202
Short-Term Political Risk Score7173.573.5
Long-Term Political Risk Score71.470.270.2
Operational Risk IndexN/A
 39/20143/201
Operational Risk Score63.164.364.0

Source: Fitch Solutions
Date last reviewed: February 11, 2019

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
Economic growth rates in Hungary will ease in the coming years, but remain comfortably higher than in more developed EU states. Emerging from a protracted period of private deleveraging, the economy will be boosted by stronger consumer demand. The increasingly tight labour market and subdued foreign direct investment inflows will weigh on output. Gross external debt will remain high by regional standards, although the downward trajectory will ensure that it is sustainable in the medium term.

OPERATIONAL RISK
Investors in Hungary benefit from the country's relatively stable operating environment and a highly urbanised labour force with a strong skills base. As a member of the EU, Hungary offers open markets, and an increasingly competitive corporate tax regime, while its geographic location and strong overland transport links consolidate its position as a major sub-regional trade hub within Central and Eastern Europe.

Source: Fitch Solutions
Date last reviewed: February 11, 2019

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: Hungary short term political risk index
Graph: Hungary short term political risk index
Graph: Hungary long term political risk index
Graph: Hungary long term political risk index
Graph: Hungary short term economic risk index
Graph: Hungary short term economic risk index
Graph: Hungary long term economic risk index
Graph: Hungary long term economic risk index

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: February 11, 2019

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Hungary Score64.055.662.066.971.3
Central and Eastern Europe Average61.855.063.566.3
62.5
Central and Eastern Europe Position (out of 8)6776
6
Emerging Europe Average57.154.1
59.158.6
56.8
Emerging Europe Position (out of 28)8
13138
8
Global average49.649.7
49.949.049.8
Global Position (out of 201)43
5755
4237

100 = Lowest risk; 0 = highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Hungary vs global and regional averages
Graph: Hungary vs global and regional averages
Country
Operational Risk IndexLabour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Security Risk Index
Estonia71.1
59.1
76.4
72.1
77.0
Czech Republic70.9
57.7
67.9
73.7
84.5
Poland
69.6
55.6
69.4
75.0
78.4
Lithuania68.4
55.2
71.5
75.6
71.5
Latvia65.8
57.5
67.5
71.5
66.6
Hungary64.0
55.6
62.0
66.9
71.3
Slovakia63.3
49.7
66.5
63.4
73.5
Belarus57.1
56.5
58.5
63.4
49.9
Russia56.5
63.6
58.6
63.0
40.9
Moldova46.6
39.8
51.1
52.2
43.4
Ukraine46.554.9
48.8
52.0
30.5
Regional Averages61.8
55.0
63.5
66.3
62.5
Emerging Markets Averages46.7
48.1
45.5
47.4
46.0
Global Markets Averages49.6
49.7
49.9
49.0
49.8

100 = Lowest risk; 0 = highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: February 11, 2019

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Hungary

Graph: Major export commodities to Hungary (2018)
Graph: Major export commodities to Hungary (2018)
Graph: Major import commodities from Hungary (2018)
Graph: Major import commodities from Hungary (2018)

Note: Graph shows the main Hong Kong exports to/imports from Hungary (by consignment)
Date last reviewed: February 11, 2019

Graph: Merchandise exports to Hungary
Graph: Merchandise exports to Hungary
Graph: Merchandise imports from Hungary
Graph: Merchandise imports from Hungary

Note: Graph shows Hong Kong exports to/imports from Hungary (by consignment)
Exchange Rate HK$/US$, average
7.76 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions


2017
Growth rate (%)
Number of Hungary residents visiting Hong Kong10,384-0.5

2017
Growth rate (%)
Number of European residents visiting Hong Kong1,929,824-0.2

Source: Hong Kong Tourism Board
Date last reviewed: February 11, 2019

11.2 Commercial Presence in Hong Kong


2016
Growth rate (%)
Number of EU companies in Hong Kong2,107N/A
- Regional headquarters442
- Regional offices717
- Local offices948

Source: Hong Kong Census and Statistics Department

11.3 Treaties and agreements between Hong Kong and Hungary

Hungary has a DTA and Investment Promotion and Protection Agreement with the Mainland China, which it concluded on June 17, 1992. This entered into force in both countries on December 31, 1994.

Source: Hong Kong Inner Revenue Department

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

Public Relations Department, office of the Ambassador of Hungary, Hong Kong
Address: Suites 1208-09, 12/F, ICBC Tower, Three Garden Road, Central, Hong Kong
Email: pr@hungary.hk
Tel:  (852) 2878 7010

Sources: Directory of Hong Kong Trade and Industrial Organisations, Hong Kong Trade and Industry Department

The European Chamber of Commerce in Hong Kong
The European Chamber of Commerce creates business opportunities via its network of Chambers, business associations and government agencies.

Address: Room 1302, 13/F, 168 Queen’s Road, Central, Hong Kong
Tel:  (852) 2511 5133
Fax: (852) 2511 6833

Source: The European Chamber of Commerce in Hong Kong

Consulate General of Hungary in Hong Kong
Address: Suites 1208-09, 12/F, ICBC Tower, Three Garden Road, Central, Hong Kong
Email: mission.hgk@mfa.gov.hu
Tel: (852) 2878 7555
Fax: (852) 2878 7010

Source: Consulate General of Hungary in Hong Kong

11.5 Visa Requirements for Hong Kong Residents

HKSAR passport holders or BNO passport holders can enjoy visa-free access to enter Hungary for the purpose of short-term visits of up to 90 days within a 180 day period. For work purposes, Hong Kong residents need a working visa in Hungary.

Source: Consulate General of Hungary in Hong Kong and Macau
Date last reviewed: February 11, 2019

Content provided by Picture: Fitch Solutions – BMI Research