SPEECH FOR “HUNGARY AS A BUSINESS PARTNER”
I thank you for this opportunity extended to speak to you about Hungary at this. Through this, I am sure to reactivate traditional cooperation and open up new business channels for the Indian partners in Hungary.
Before I proceed further, let me brief you about the Hungarian economy – Hungary has historically been a country of agriculture and small-scale manufacturing and has for a long time belonged to the upper-middle income group of countries. In an effort to encourage a self-sufficient economy, the former socialist government forced rapid industrialization in the beginning of the 1950s. In 1968 this policy was abolished in favor of the “New Economic Mechanism.” Foreign trade once again became an essential part of the economy. Some freedom was given to the workings of the market, and a limited amount of profit-oriented behavior was allowed in the official economy.
Economic liberalization in Hungary preceded full political liberalization. The basic institutions of a market economy were already being established before complete liberalization took place in 1989.
As in most Central European countries, privatization in Hungary started slowly, but the pace has picked up considerably.
Even though Hungary started earlier than some of its neighbors in making the transition to market economy, the changeover was not without some economic pain. In 1990, Hungary was faced with the collapse of the Council for Mutual Economic Assistance (CMEA), which was made up of former East-Bloc nations. The country experienced an almost over-night disappearance of most of its Central and Eastern European markets. Just one year later, a worldwide recession started which also affected the Hungarian economy. Now trade with Central and Eastern European countries is on the rise again, but more significant trade relations are being established with the EU-member states furthering Hungary along the road towards European integration.
Hungary made an important step toward European integration with the conclusion of the Europe Agreement in 1991. One part of this agreement, often appealed to as the Association Agreement, deals with the breakdown of trade barriers.
Around 90% of all goods, products and raw materials can be imported into Hungary without a license. The Ministry of Economic Affairs maintains a list of all products, which do require certification. Neither a customs clearance nor a statistical fee will be put on imports from the EU, EFTA, GSP, and CEFTA countries.
Concerning the export of industrial products, no further liberalization was done in 1998 relative to 1997. Without altering the product range, the description and customs tariffs numbers of a few chemical materials were more accurately defined.
As of January 1, 1998, export licenses for products of the food economy are issued by the Ministry of Agriculture.
Hungary implemented liberalization concerning industrial products pursuant to the Europe Agreement concluded with the European Community with effect from January 1, 1998. Hungary’s obligations were met by liberalizing new cars of more than 1500 cc, transmitter and reception devices, baby food, human nutritional additives and non-woven coated textile products not manufactured in Hungary.
In the Europe Agreement concluded with the European Community, Hungary and the Community undertook the obligation to mutually liberalize the full range of trading in textile and clothing products by December 31, 1997. In order to apply quantitative restrictions free of any discrimination, the Hungarian government terminated the import licensing obligation maintained on textile and clothing products and the global quota for consumer articles with respect to all WTO member countries from January 1, 1998. For non-member countries, however, the licensing obligation as well as the consumer articles global quota continue to remain in force. With respect to textile and clothing products, second-hand clothing and of the textile piece goods, base materials procured primarily with a view to further processing were liberalized. The licensing obligation for garments, other clothing and ready-made products, small wares and carpets was eliminated for WTO member countries but the restriction is maintained with respect to non-WTO members.
In import, as in export, in order to reduce parallel licensing, the distribution licensing of coca leaves, Indian hemp and poppy capsules was eliminated, as these are already licensed as drugs by the Ministry of Welfare.
In export regulation, the extend of liberalization is around 94 percent. Foreign Exchange rules Revenue transaction foreigners employed in Hungary are allowed to convert their net forint income into foreign currency without limitation
the use of a forint-based bank card is allowed abroad. Use of forint-based credit cars in Hungary has already been possible for some years.
foreigners may keep a hard currency account, forint accounts and specifically stated convertible forint accounts in Hungary.
Hungary has concluded bilateral treaties on investment protection with many countries.
Paris Industrial Property Convention
World Intellectual Property Organization Conventions
Madrid and Nice Agreement for the Registration and Classification of Trademarks
Hague and Locarno Agreement on Industrial Design
International Court for the Settlement of Investment Disputes
By the end of the 1980s, the Hungarian financial system was probably the most developed of all Central and Eastern European countries. In 1987, Hungary was the first country in the socialist world to establish a two-tier banking system. The Budapest Stock Exchange was the first Western-style exchange to operate in Central and Eastern Europe. It was re-opened in 1990 after its closure in 1948.
In 1989, Hungary initiated a new national clearing system to regulate the businesses and individuals pay each other through bank transfers. Overall, there are more cash transactions in Hungary then are usually in Western Europe. Automatic teller machines can now be found all around Budapest and in other cities in Hungary. The most widely accepted systems are Cirrus, Plus and Eurocard/Mastercard. Visa-machine can be found as well.
Checks are less convenient. For larger amounts, however, it may be better to use a bank wire transfer, which is suppose to take three days, but may take longer in practice.
Legal forms that a business in Hungary can assume include Joint stock limited company is a company limited by shares (Rt). It is the only company form where the company issues securities (shares) in return for the capital contribution provided by its members.
Limited Liability company – By far most common legal form for business entities established by foreigners in Hungary is the limited liability company, a company limited by equity or (Kft)
General partnership and limited partnership A general partner may be a limited liability company.
The new law on the Hungarian Branch Offices and Commercial Representative Offices of Business Entities Domiciled Abroad came into force on the 1st January 1998. Foreign businesses are allowed to settle and operate in Hungary by opening a branch office.
The commercial representation of a foreign company is entitled to intermediate foreign trade businesses, participate in preparing contracts and may be involved in publicity and advertising matters. It cannot perform, however, any business activities and may not provide any legal services either. Accounting and auditing Limited liability companies such as Rt.’s and Kft.’s are generally required to have their annual accounts audited. Audits will be required of double book keeping entities starting in 1998 if the average annual net revenues in the past two years exceeded HUF 50 million. The accounting year is the calendar year.
Hungary has a comprehensive tax system, with income, corporate and value-added taxes, to accommodate the relatively large private sector.
The corporate tax rate is 18. A withholding tax of 20% is payable on dividends.
Probably the most important fiscal incentive Hungary offers to foreigner investors is the way it handles withholding taxes. For foreign owned companies, this may result in a low effective corporate income tax rate of 18% plus dividend tax up to the amount provided for in the respective tax treaties.
Hungary has developed an extensive network of tax treaties. Currently it has concluded treaties with 47 countries (including India). Personal income tax Hungarian residents are subject to personal income tax on their worldwide income. They may be exempted from taxation on foreign source income by domestic law and tax treaties. Non-residents are only liable for tax on their Hungarian-source income. This includes income from employment performed within Hungary. Individuals are considered to have a habitual abode in Hungary if they stay for more than 183 days of a calendar year in the country. Benefits in kind are gene-rally taxable at the rate between 20% – 40%.
Hungarian employees must make healthcare contributions equal to 3% and pension contributions of 8% of their gross salary, with a ceiling of altogether HUF 2,220,320 (aprox. USD 7.400 per year). From 1st January 1998, employees may choose to pay a part of their pension contribution (6% of their gross salary) to a private pension plan and 1.5% unemployment fund contributions.
Value added tax Called the general turnover tax in Hungarian, this is a conventional value added tax (VAT), based upon the framework of European Union directives.
In addition to VAT, consumption tax is levied on certain goods. These goods include coffee, jewelry, passenger cars and certain types of wine. Persons not subject to VAT cannot be liable to consumption tax.
In general, foreign citizens who want to work either on the basis of a labour contract or other legal relationships in Hungary need a work permit. This are issued by the Hungarian Labour Center. In certain cases no work permit is needed.
Foreigners who want to enter Hungary to work, as an employee must apply for a work visa in advance. Those foreign citizens who would like to work but not as an employee must obtain an income visa.
Once a foreign has obtained a work or income visa, he or she must apply for a residence permit within at least 15 days before exceeding the legal residence period. Thanking you all for your patience.