Doing Business Guide 2009 Nagy Es Trocsanyi

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DOING BUSINESS

IN HUNGARY

NAGY S TRCSNYI

H-1126 Budapest, Ugocsa utca 4/B.Tel. (36-1) 487-8700 Fax (36-1) 487-8701www.nt.hu


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THE COUNTRY AT A GLANCE

GENERAL CONSIDERATION....................................................................................................6

INVESTMENT INCENTIVES.....................................................................................................11

BANKING/FINANCIAL FACILITIES.........................................................................................13

EXCHANGE CONTROLS........................................................................................................15

IMPORT/EXPORT REGULATIONS..........................................................................................16

BUSINESS ENTITIES.............................................................................................................18

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1. INVESTMENT POLICIES2. DIPLOMATIC RELATIONS

3. GOVERNMENT

3.1 Election system

3.2 A short poli t ical h istory of Hungarys last decade

3.3 Judicial system

3.4 The legislat ive system

4. ENVIRONMENTAL CONSIDERATIONS

5. LAW ON INTELLECTUAL PROPERTIES

2. GOVERNMENTAL AND REGIONAL INCENTIVES3. TAX INCENTIVES

2.1 Tax incentives of smal l and medium sized businesses2.2 Investment tax incentives2.3 Local business tax incentives

4. EXPORT FINANCING AND EXPORT INSURANCE3.1 Eximbank3.2 Mehib

1. STRUCTURE OF THE BANKING SYSTEM

2. FINANCIAL INSTITUTIONS

3. THE INVESTORS BANK ACCOUNT4. REQUIREMENTS FOR OPENING A BANK ACCOUNT

5. RESTRICTIONS ON THE INVESTORS USE OF THE ACCOUNT

6. STOCK MARKET

1. HUNGARY'S GATT AND EU MEMBERSHIP

2. EXPORT/IMPORT

2.1 Licensing

2.2 Procedural rules

1. IN GENERAL

2. BUSINESS ORGANIZATION FORMS

2.1 Companies Act (Act IV o f 2006)

2.2 Civ il Code (Act IV o f 1959)

2.3 Act on Co-operat ives (Act I o f 1992)

2.4 Act on European Co-operatives (Act LXIX of 2006)

2.5 Act on Branch Offices and Commercial Representative Offices (Act CXXXII o f 1997)

3. OTHER FORMS

3.1 Joint ventures


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3.2 Sole proprietorships3.3 Fiduciary enti t ies

4. RESTRICTIONS4.1 Rea l estate4.2 Money transfer

5. COSTS5.1 Registrat ion fee and publ icat ion fee5.2 Miscellaneous charges

6. TIMING OF REGISTRATION

1. FOREIGN ENTITIES AND BRANCH OFFICES2. ANTITRUST LAWS

2.1 Cartels2.2 Abuse of dominant posi t ion

2.3 Merger control2.4 Procedure of CO, Sanctions2.5 Acquisi t ion of an influencing interest in corporations2.6 EC Competi t ion Law

3. ENVIRONMENTAL REGULATIONS3.1 ENVIRONMENTAL LAW

3.2 Environmental l icenses, environmental statement and impact assessment4. GOVERNMENT APPROVAL5. INSURANCE6. PERMISSIONS AND LICENSES

1. EMPLOYER/EMPLOYEE RELATIONS2. EMPLOYMENT REGULATIONS3. HIRING AND FIRING REQUIREMENTS

3.1 Ordinary d ismissal3.2 Extraordinary dismissal3.3 Mutual agreement3.4 Prompt termination during the probation period

4. LABOR AVAILABILITY5. LABOR PERMITS

5.1 Rules for EU c it izens6. SAFETY STANDARDS

7. UNIONS

1. GENERAL1.1 Final settlement1.2 Bankruptcy proceeding1.3 Liquidation1.4 Ex Officio Cancellation Procedures

2. GOVERNMENT INTERVENTION3. INVESTORS PARTICULAR FORM

1. ADVERTISING2. ATTORNEYS3. BOOKKEEPING REQUIREMENTS4. BUSINESS ETHICS/CODES5. CONSUMER PROTECTION LAWS

REQUIREMENTS FOR THE ESTABLISHMENT OF A BUSINESS 25

LABOR LEGISLATION, RELATION AND SUPPLY....................................................................33

TERMINATION OF BUSINESS.................................................................................................40

OPERATIONS OF THE BUSINESS..........................................................................................44

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6. CONSTRUCTION7. CONTRACTS8. PRICE CONTROLS9. PRODUCT REGISTRATION10. REDUCTIONS OR RETURN ON CAPITAL11. SALE OF GOODS12. TRADE ASSOCIATIONS

AXATION IN HUNGARY

IMMIGRATION REQUIREMENTS...........................................................................................58

EXPATRIATE EMPLOYEES...................................................................................................61

........................................................................................................481. INTRODUCTION2. DIRECT TAXES

2.1 Persona l income tax regulated by Act CXVII o f 1995 ( Persona l Income Tax Act)2 .3 Corpora te tax regulated by Act LXXXI o f 1996 ( Corporate Tax Act)2 .3 Add it ional tax for bus iness associat ions according to Act L IX o f 20062.4 Simpl if ied entrepreneur tax (S.E.T.)

2.5 Other d i rect taxes3. INDIRECT TAXES

2.1 Va lue added tax regulated by Act CXXVII o f 2007 ( VAT Act )2 .2 Exc ise tax

4. DUTIES4.1 Property acquisi t ion duties4.2 Procedural duties

1. IMMIGRATION REQUIREMENTS / FORMALITIES2. PERMITS GRANTING ENTRY AND RESIDENCE

2.1 Visas2.2 Residence Permit2.3 Inter im Permanent Sett lement Permit2.4 National Permanent Sett lement Permit2.5 Special ru les regarding European Economic Area (EEA) nationals

1. COST OF LIVING AND IMMIGRATION2. DRIVING LICENSES3. EDUCATION4. HOUSING5. IMPORTING PERSONAL POSSESSIONS

6. MEDICAL CARE7. TAX LIABILITY8. WORK CONTRACTS


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THE COUNTRY AT A GLANCE

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Hungarys of fi cial name in Hungarian i s Magyar Kztrsasg ( Repub lic o f Hungary) . Hungary i s s itua ted inCentral Europe, in the Carpathian Basin with a land surface of 93 030 square kilometers. The neighboring countries

are the Slovak Republic to the north, Ukraine to the northeast, Romania to the east, Croat ia and Serbia to the southand Austr ia and S lovenia to the west. Hungary i s i n the Central European Time Zone (CET) . The c limate of thecountry is moderate.

Hungary has a populat ion o f 10.02 mi ll ion people, 2 mi ll ion o f whom l ive i n Budapest, the capi tal of Hungary. A l-though t he majority of t he populat ion consider themselves Chris tian (51,9% are Roman Catholic, 18.9% areProtestant), there are no rel igious influences or prohibitions on the way business is conducted. Hungarian is the onlyo ff ic ia l l anguage, bu t many people speak e ither Engl ish o r German as a second language. These two foreignlanguages are widely spoken in business, legal , tourist related and academic f ie lds. Some French is a lso spoken,

mainly in western Hungary.

Hungary is connected to all seven of i ts neighboring countries by road and rai l. The motorway-network is the seconddensest among the new members of the European Union. Volnbusz runs regular bus transport services to about 18different countries. The rai lway system is also well developed: Magyar l lamvasutak (MV) has express rai l services ( the InterCi ty network) that run as far as London, Stockholm, St Petersburg, Istanbul and Rome. As a destination o fmost international air lines, Budapest has two airports. Besides these there are two other international airports, oneo f them i s c lose to Lake Balaton (Srmellk A irport ); the o ther one i s l ocated in Debrecen, the 3 rd l argest c ity i nHungary. There a re three metro l ines in the capi ta l and a t fourth i s cur rent ly under construction .

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This Guide to Doing Business reflects the laws of Hungary effective as at January 1, 2009

GEOGRAPHY

PEOPLE

TRANSPORTATION

The International Country Cal ling Code is 36. Public telephones are e ither coin-operated or accept pre-purchasedtelephone cards. Due to good coverage mobile communication is possible all over the country. Roaming agreementsexist with international cel l phone service providers. Hungary is one of the leading countries when i t comes to cel lphone coverage.

The internet is becoming gradual ly more available throughout the country through ADSL, cable or mobile internetconnection. Internet cafes are also operated in larger towns.

Public services (water, electricity and gas) are mostly privately owned in Hungary.

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COMMUNICATIONS

PUBLIC SERVICES


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GENERAL CONSIDERATION

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1. INVESTMENT POLICIES

favorable geographical location in the European Union;bridge towards Southeast Europe and the Balkan states;relatively well developed infrastructure;modern market economy;political and financial stability;low rate of inflation;highly skil led and talented workforcefavorable investment incentive system.

The attraction of the quite favorable Hungarian investment climate l ies mainly in the following factors:

In order to encourage investments the Hungarian government founded ITD Hungary (www. itdh.hu) , an agencyrespons ib le for fac il itat ing domestic as wel l as foreign investments. ITD Hungary informs foreign investors on

tender possibi li ties and s ta te subsidies. S ta te subsidies inc lude tax benefi ts , di rect f inanc ial subvent ions andmany other methods for increasing the profitability of the investment.

I n the past decade the rate o f i nf la tion has decreased con tinuous ly, i n 1999 i t was s ti ll a round 10% but i n 2005 i twas only about 3.6% and in 2006 it was 3.9%. The expansion of the Hungarian GDP is twice that of the EU-average, f rom 1999 to 2005, consecutive ly : 4.2%, 5 .2%, 3 .8%, 3 .5%, 2.9%, 4 .7%, 4 .1%. The expans ion o f theHungarian GDP was 3.9% in 2006, while t he average GDP expansion within t he Euro-zone was 2.7%. I n 2007the expansion was only 1 .6% in Hungary. In 2008 there has been a persistent considerable decline, as accordingto the data o f the Hungar ian Centra l S ta tist ics Off ice, the per fo rmance o f the Hungar ian economy rose by 0,5%in 2008.

The corpora te tax rate i s 16%, one o f the lowest i n Europe. Other than these, there a re addi tional tax i ncentivesrelated to investments. A couple o f them are subject to cer ta in employment-encouraging condi tions. The currentunemployment data show a rate of 8.4%.

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In 2006, Hungarys GDP at current prices amounted to HUF 23,785 b il lion. In per capita terms, the amount o f GDPwas HUF 2 363 000 which cor responds to 8 937 a t the average annua l exchange rate o f the Hungar ian Nat iona lBank ( 1 = HUF 266). According to the calculations of Hungarian Central Statist ics Off ice, the GDP at purchasingpower parity (PPP) amounted to 15 281, which was 64% of the EU- average in 2006.

In general , the s ize of the Hungarian market is rather moderate, but many companies have their Central Europeanheadquarters in Budapest.

Foreign Direct Investments have been operating in the sectors with a need for cheap and unskil led labor. Nowadays,however, there i s a c lear ly percept ib le tendency to move towards the ski lled sector, such as tha t o f i nformationtechnology (IT) or car manufacturing.

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www.nt.huGENERAL CONSIDERATION

2. DIPLOMATIC RELATIONS

The l ist of embassies and consulates is available on the fol lowing website:http://www.kulugyminiszterium.hu/kum/en/bal/missions/missions_in_hungary/

Hungary has established d iplomatic relat ions with a lmost a ll the countries in the world and nearly every country is re-presented in Budapest either with an embassy or a consulate.

On December 21, 2007 Hungary became ful l-member of the Schengen Area. (The members of the Schengen Area are22 s tates of the EU and Norway and Iceland.) The most important change by v ir tue of the ful l membership of Hungaryi s that the v isas and res idence permi ts i ssued by o ther Schengen countr ies a re va lid i n Hungary and the v isas andresidence permits issued by Hungary are val id in the other Schengen countries. The cit izens of the European EconomicArea (EEA) can enter Hungary w ithout a vi sa, and they a re a llowed to s tay wi thout a res idence permi t for up to andinc luding 90 days. Should they wish to extend their s tay they are obl iged to apply for a so-called European EconomicArea (EEA) residence permit.

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Cit izens of the fol lowing European Economic Area (EEA) member countries can enter Hungary with a val id

identity card: Austria, Belgium, Cyprus, Czech Republic, Estonia, Finland, France, Greece, The Netherlands,

Poland, Lichtenstein, Lithuania, Luxembourg, Malta, Germany, Italy, Portugal, Spain, Slovakia, and Slovenia.

Foreigners p lanning to v is it Hungary for a period not longer than 90 days with a purpose other than that of employmentor earning income shall check the list of agreements on abolishment of visa requirements first.

Foreigners p lanning to v is it Hungary for a period longer than 90 days, or with the purpose of employment or earningi ncome-must apply for a v isa. For t rave l i nformation, especial ly the requi rements o f a v isa, p lease contac t.

For travel information, especially the requirements of a v isa, please contact

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The l ist of the agreements is available on the following website:http://www.kulugyminiszterium.hu/kum/hu/bal/Konzuli_informaciok/Kulfoldiek_beutazasa/Vizummentesseg/.

Magyar Kztrsasg Klgyminisztriuma

Ministry of Foreign Affairs1027 Budapest, Bem rakpart 47.Phone: +36 1 458 1000Fax: +36 1 212 5918www.kulugyminiszterium.hu

Some European Economic Area (EEA) member states, such as Denmark, The United Kingdom, Iceland, Ireland,Latvia and Norway do not issue ident ity cards, so the c it izens o f these countries can enter Hungary with a val idpassport. .


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3. GOVERNMENT

3.1 ELECTION SYSTEM The Constitution the active and passive right to vote among the fundamental rights. Elections are held

every four years: the par liamentary e lect ions are held in Apr il or in May,

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the municipal elections are held in October. The last parliamentary election was held on April 9 and 23, 2006.

The number o f Members o f Par liament is 386. Members are e lected by popular vote with a system of proport ionaland direct representation to serve a four year term. They can obtain a seat in three ways:

If a party does not reach the t hreshold, it loses all the votes it obtained. The advantage of t his system is that pol it ical parties are not allowed to get into the Parliament.

The f irst e lect ion fol lowing the democratic t ransformation in 1990 was won by a conservat ive party, the HungarianDemocra tic Forum (Magyar Demokrata Frum - MDF). The government o f Mr. Jzsef Antal l had to make severalunpopular decisions while the l iving standard of the population was continuously decreasing. Thus, after the electionsin 1994, the Hungar ian Soc ia li st Par ty (Magyar Szocial is ta Pr t - MSZP), which was founded on the ruins of theformer communist party in 1990, obtained a majority in the Parliament and established the cabinet of Prime MinisterMr. Gyula Horn. They continued the economic transformation of Hungary but in 1998 they lost the elections.

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Anotherconservative party, The All iance of Young Democrats, (Fiatal Demokratk Szvetsge - FIDESZ) won and Mr. ViktorOrbn established the government. During those 4 years the expansion of the Hungarian economy reached i ts peak. However, in 2002 Fidesz lost the e lect ion and the Socia lists won with a min imal major ity, a lthough Mr. Medgyessyand his Cabinet resigned in 2004. P rime Minister, Mr. Ferenc Gyurcsny entered into office in October 2004,fol lowing the res ignat ion of Mr. Pter Medgyessy and h is Cab ine t. This was the f irs t t ime a government had no tfi ll i ts 4-year-mandate since the democratic transformation in 1990. .

candidates are voted for and the candidate who obtains the most votes becomes the Member ofParliament;parties are voted for and they obtain seats according to the percentage of votes;there is a national party l ist which is set by parties that pass the e lectoral threshold l imit (at present

5% of a ll the votes cast) . From this l ist votes are d ivided automatical ly.

3.2 A SHORT POLITICAL HISTORY OF HUNGARYS LAST DECADE

The ord inary jur isdict ion is exercised on four levels:

Labor d isputes are judged by the 20 labor courts, which operate a t the seat o f the county courts and in the capital .

Labor courts have jur isdict ion o f a court o f f irst and second instance.

.3.3 JUDICIAL SYSTEM

105 local and - in the capital - 6 d istr ict courts (111 court in total) functioning as courts o f f irst instancewith general jurisdiction (local court);19 county courts and - in the capital - the Metropolitan Court of Budapest funct ioning as courts o f f irstand second instance, 5 o f them are speci fied by law to deal with mil itary cases (country court)5 regional Courts of Appeal a re only appel late courts;1 Supreme Court of the Republic of Hungary which is the highest tr ibunal with double jurisdiction: judgment and harmonization of the judicial practice.

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The independence of the judges is supported by const itut ional guarantees. Pursuant to the Const itut ion judges areindependent and subordinate on ly to law. Judges must no t be members of polit ica l par ties and must no t engage i n

pol it ical activit ies. They can only be removed on the grounds of and in accordance with the procedures specified by law. I n the Republic o f Hungary everyone is equal before the court. Everyone has the r ight to legal p roceedings if anyaccusations are brought against him. Rights and duties are judged in a fair, public trial by an independent and impartial court established by law.

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Legal d isputes have to be judged by a reasonable deadl ine, which is determined by the speci fics of the proceeding.

Arbitration i s the a lternative method of d ispute resolut ion. I t i s permi tted only in commercial cases. Instead of courtproceedings arbit ration may take p lace, i f

The resolut ion of foreign courts and foreign arbit ration t ribunals can be executed on the basis of law, internationalconventions or reciprocity.

In the hierarchy of legislation there are 4 stages: the Consti tution, the acts, the governmental and ministerial decrees,

and the local government ordinances. Acts can only be enacted by the Parl iament. The Consti tution specifies variousexclusive legis lative subjects - in general , the regulat ions pertaining to fundamental r ights and dut ies can only bedetermined in acts with the provision not to restr ic t the basic meaning and contents of fundamental r ights. There aremany important acts - e .g . the Const itut ion o f Hungary (Ac t XX o f 1949) - , which can only be amended by a major ityof two-thirds of the votes of the Members of the Parliament.

The most important environmental goals unt il 2008 are determined in the second Nat ional Environmental Program( NKP-II . ). Through the implementat ion o f the p rogram, the Min is try o f Env ironmental A ffai rs p lans to ach ieveimprovement in the s tatement of the environment. The various measures a im at the d iminut ion of pol lution of the a ir,

water and ground. These s teps s tr ive to reduce the damage caused by noise and v ibration as wel l. The Ministry a lso

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p lans to i nc rease the usage o f renewable energy sources. In the f ie ld o f waste t reatment it i s a par ticular goa l toreduce waste bui ld-up and increase recycle act iv ity. Hungary is working towards the reduction of greenhouse gasemission.

In 2004 the Ministry of Environmental Affairs implemented six special programs designed, among other things, for the protect ion of the a ir, water and ground. In the course of their implementat ion the Ministrys greatest ambit ion was tocooperate with the main participants of the economic, pol it ical , governmental and social sectors (pr incipally with theNGOs, business associations, corporate system, and scientific institutions.)

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at least one of the parties is a person dealing professionally with economic act ivity, and the legal d ispute isin connection with this activity, furthermorethe parties may d ispose freely o f the subject matter o f the proceedings, andthe arbitration was stipulated in an arbitration agreement.

3.4 THE LEGISLATIVE SYSTEM

4. ENVIRONMENTAL CONSIDERATIONS

1Programs are Vsrhelyi Plan, Versatile Balaton, Green Chain, Program Patria, Clear Future, Clear Profit, Unlimited Environmental Protection.


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The National Development Agency (NF) created the Action plans of the Environment and Energy Operative Program2008-2013. The Act ion p lan prescribes the goals for which the resources g iven by the EU to Hungary are to be used

and what form these goals should take.

During the fol lowing decade environmental considerations wil l be just as important as the economic aspects.

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Hungary i s a member o f many i nternational t reat ies related to i ntel lectua l p roperty; consequently the l aw for theprotection of intellectual property is in accordance with the European regulations:

L iterary and art is tic works are automatical ly protected the moment they are created, but industr ial propert ies have tobe registered for their protection: the registration of trademarks, commercial names, patents or intellectual property isnecessary for protection.

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Berne Convention for the Protection of Literary and Artistic Works;Rome Convention for the Protection of Performers, Producers of Phonograms and BroadcastingOrganizations;Paris Convention for the Protection of Industrial Properties;Madrid Agreement Concerning the International Registration of Marks;Lisbon Agreement for the Protection of Appellations of Origin and their International Registration;TRIPS Agreement (Trade Related Aspects of Intellectual Property); Etc.

5. LAW ON INTELLECTUAL PROPERTIES


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1. GOVERNMENTAL AND REGIONAL INCENTIVES Governmental and regional incentives are available in a very wide range. However, this range has been diminished as a result of Hungarys accession to the European Union.

General ly incentives as a whole are regulated by Decree no. 1 /2001 ( I.5) o f the Min ister o f Economy. According tot his dec ree incentives can only be i ssued within a f inancial aid program or as an i ndiv idual incentive.

The decree contains var ious types o f incentives, which are being o ffered to promote cer ta in economical or socia lgoals that directly or indirectly serve investments in Hungary. Among others these goals are:

According to t he decree incentives t hat qualif y as incentives under Subsec tion (1) of A rtic le 87 of t he TreatyEstablishing the European Community shall qualify as incentives under the decree. The decree p rovides that the form of the incent ives are as fol lows: any refundab le o r non-re fundab le f inanc ia lassets, interest free credit, credit with discounted interest, incentive provided to the payment of interests, suretyship g iven w ith favorab le condi tions, s ta te guaran tee , s tate cap ital i njec tion , tax i ncentives, tax base incentives,d iscounted leasing, services provided f ree o f charge or with favorable condi tions, service o f real estates, waiver o freceivables, assumption of dept and lease with discounted conditions.

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research and development,training,employment,environment protection,

investments.

Act LXXXI of 1996 on Corporate Tax and Dividend Tax ("Corporate Tax Act") provides on the possible tax incentives.

Taxpayers who qualify as small and medium-sized enterprises pursuant to Act XXXIV of 2004 on Small and Medium-sized Enterpr ises and the Support o f Development shall be e ligible for tax a llowances for the ent ire year when therelevant loan contract (or f inancial leasing contract) is s igned regarding the purchase or creation - f inanced by af inancial inst itut ion - of a tangible asset , based on the interest on the loan. The amount of tax allowance i s 40percent of t he interest paid during the t ax year. The amount of tax allowance received shall not exceed HUF 6

million per year.

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2.1 TAX INCENTIVES OF SMALL AND MEDIUM SIZED BUSINESSES

2. TAX INCENTIVES


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The taxpayer sha ll be el igible for the tax a llowance f irst i n the tax year on the las t day of which the tangible assetin quest ion is shown in i ts records, but not later than the year in which the loan is to be paid o ff in ful l as contracted.

Investment tax incentives are available i f the value o f the investment exceeds HUF 3 b il lion. In case o f d isadvant-ageous towns or v il lages the min imum amount o f investment shall be HUF 1 b il lion. Whi le in case o f food product ionenvironmental protection, internet service, workplace establishment related investments, f i lm and video production, research or development related investments the min imum amount shall be HUF 100 mil lion. A fur ther requirement is t hat the investment shall prov ide at new workplaces. The number of new workplaces t o be provided variesaccording to the type of i nvestments, the s ize o f the bus iness assoc ia tion and the locat ion of the investment i nquestion. There are further conditions to be fulfilled.

The Min istry o f F inance determines the level o f the tax a llowance in a resolut ion. Investment tax incentives shouldnot las t longer t han nine years from the conc lus ion of the investment, or fourteen years f rom the request f ori n c e n t i v e s .

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2.2 INVESTMENT TAX INCENTIVES

2.3 LOCAL BUSINESS TAX INCENTIVES

3. EXPORT FINANCING AND EXPORT INSURANCE

3.1 EXIMBANK

According to Act C of 1990 on Local Taxes local business tax incentives are only available to business enterpr iseswhose tax base does not exceed HUF 2 .5 mil lion . The incentives were only ava ilab le unt il December 31, 2007according to Annex X o f the Accession Treaty to the European Union.

According to Act XLI I o f 1994 on the Hungarian Expor t- Import Bank ( Eximbank) and on the Hungarian Expor tCredi t Insurance Company ( Mehib) the purpose o f these insti tut ions i s the support o f Hungarian p roducts andservices and the interest of the Republic of Hungary with regard to export activities.

Eximbank is a solely state owned company l imited by shares. Except as mentioned in the introduction Eximbank ismeant to support Hungarian products and services in export and import matters. Furthermore Eximbank supportsHungarian investments abroad. Thus Eximbank provides f inancial and investment services such as granting creditand loans or providing surety bonds, bank guarantees and credit reporting services.

The services on o ffer to cer ta in type o f p roducts a re not l imited, but on ly the expor t o f Hungar ian p roducts o r ser -vices can be f inanced. Hungarian products or services shall be understood to mean products or services manufact-ured or provided by Hungarian business ent it ies. Business ent it ies that have their headquarters in Hungary shallqualify as Hungarian.

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Mehib is a solely state owned company l imited by shares. Mehib insures mainly non-marketable r isks arising out o fexport and provides information related to crediting, suretyship and financial losses.

Except as previously mentioned the above activities of Mehib are mainly related to the export of Hungarian products

and services. Hungarian products or services shall be understood to mean products or services manufactured or

provided by Hungarian business entities. Business entities that have their headquarters in Hungary shall qualify as

Hungarian.

The insurance fee depends on the deductible r isk, the scope of insurance method of payment, condi tions of repay-

ment , the targeted country ( the c lassi fi ca tion of country- risks) and on the qual if icat ions of the debtor and o f the

guarantor. The fee shall not be less than the minimum fee determined by the OECD Convention.

The fol lowing targeted countries do not qua li fy w ithin the scope of non-marketab le r isk: member s ta tes o f theEuropean Union, Australia, Canada, Japan, New-Zealand, Norway, Switzerland, United States of America.

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3.2 MEHIB

Mehib is obl iged by law to contract only in cases where the fol lowing conditions are ful fi lled:

the r isk qualifies as a non-marketable r isk (see footnote No. 1.),in case of insur ing export credi ting, the credi t contract shall be in accordance with the requirements of theOECD Convention on Off icia lly Subsidized Export Credi ts and with the OECD determined provisions on

project financing,the contracting par ty o r par ties sha ll revea l in a wri tten s ta tement tha t they d id not par ticipate in b riberyand are not aware of any corruption related to the t ransaction,according to the s ta tement i ssued by OECD on the common v iew o f the env ironment of s ta te subsidizedexport credi ts the business act ivity concerned with the proposed insurance contract shall not quali fy asharmful to the environment.

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2Non-marketable r isks shall have the meaning of any r isk that cannot be insured or reinsured on the insurance market.

BANKING / FINANCIAL FACILITIES

1. STRUCTURE OF THE BANKING SYSTEMHungary has a two-level banking system. The f irst l evel i s the Nat iona l Bank o f Hungary which, being the centralbank, def ines and implements t he monetary policy cons istent wi th the protec ti on of t he value of t he nat ionalcur rency and has the exc lus ive r ight to i ssue banknotes and coins. The nat iona l bank i s i n d irect connect ion only

with the commercial banks that are on the second level o f the system, but not with individuals and business ent it ies.Commercial banks may maintain bank accounts for individuals and business ent it ies, accept deposits f rom, andextend credi t to them, and may p rov ide o ther f inancial services and aux il ia ry f inancial services as wel l. .


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2. FINANCIAL INSTITUTIONS

3. THE INVESTORS BANK ACCOUNT

In Hungary credit institutions and f inancial enterprises shall be construed as f inancial institutions. Credit institutionsmay be banks, special ized credi t insti tutions or cooperative credi t insti tutions (savings-, or credi t cooperatives).

Financial enterprises are ( i) f inancial institutions l icensed to perform one or more f inancial service with the exceptiono f cer ta in act iv it ies, ( ii ) f inancial holding companies, and ( ii i) c lear ing houses for credi t insti tutions. All f inancialinst it ut ions are subject t o t he superv ision of the Hungarian Financ ial Supervisory Authorit y.

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Investors may operate businesses in Hungary in several forms. Any foreign ent ity may establish a branch off ice orcommercial representative off ice in Hungary. I t is also possible to found a registered Hungarian business associationor to become a shareholder/quotaholder in exist ing Hungarian business ent it ies. According to the legal regulat ionsbusiness associations (including branch off ices and representative off ices of foreign companies) are obl iged to keepa ll their monetary assets in a current bank account, with the exception of currency kept on hand for cash t ransactions,

execute their f inancial transactions through such current bank account, and enter into a bank account contract for this purpose. .

4. REQUIREMENTS FOR OPENING A BANK ACCOUNT

5. RESTRICTIONS ON THE INVESTORS USE OF THE ACCOUNT

Banks a re obl iged to open a cur rent bank account for pe rsons sub ject to the s tatutory requi rements o f open ing acurrent bank account under the following conditions:

A bank is only a llowed to debit a bank account without or in contradiction with the instruction o f the account holder todischarge an executable court or administ rat ive ruling that involves the payment of money, or to satis fy a billp resented to a credi t insti tution designated upon i ts matur ity by the drawee of the b il l, and in o ther cases speci fiedby legal regulat ion. The banks may provide speci fic rules on the usage o f the bank accounts opened a t the ir o ff ices.

The Budapest Stock Exchange Ltd. is the official trading platform for publicly emitted securities. The widening rangeo f products available on the market can be categor ized as equit ies, debt secur it ies and der ivat ives sections. TheBudapest Commodities Exchange also exists.

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for dul y regis tered business ent it ies, if t hey produce a document t hat was i ssued by t he regis trat ionauthori ty within 30 days to date in evidence of such registrat ion, and i f they d isclose their tax number andstatistical code; for business associations, whose registration is in progress, i f they produce an official copy of their articles of association to the bank, and i f they produce a copy of the certi ficate issued bythe Court o f Registry uponsubmiss ion of t he applicati on for regis trat ion if opening a current bank account i s not mandatory inconnection with the registration requirement at the t ime of submission of the application.

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6. STOCK MARKET


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www.nt.huEXCHANGE CONTROLS

Pursuant to Act XXIV of 1988 on the Investments of Foreigners in Hungary, non-resident companies may engage onlyin the following business activities without settling in Hungary:

S ince the accession of Hungary to the EU the companies res iding in the European Economic Area (EEA) may performcross-border services without having to be settled on the territory of Hungary.

According to Act XCIII o f 2001 on the Terminat ion of Foreign Exchange Restr ic tions a company quali fies as nat ional,i f i t has i ts seat in Hungary except for f ree zone companies and nat ional unions. Offshore companies and a Hungarianbranch off ice of a company with i ts seat abroad also qual ify as national. The following entit ies quali fy as non-resident:( i) a company with its seat abroad, (ii) a non -resident branch office o f a r esiden t company, ( iii) a commercialrepresentat ion of a non-resident company, ( iv) f ree zone company, (v) Hungarian branch of a foreign company i f the

branch was established in a free zone or if it operates there, (vi) national unions.

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education, artistic performances,expert activities (with the exception of auditing, accountancy and legal counseling services), professional sports activities,construction, instal lation and business management performed as part of a foreign trade contract,act iv it ies l imited to the provision o f services and the sale o f p roducts acquired in Hungary, provided thatthey are accompl ished without personal presence, by the use o f a commercia l card issued abroad by theforeign national in question, ut il izat ion of rea l es ta te and natural sources of energy for payment of considerat ion; del ivery, sale andcont ribution of valuable rights connec ted to real estate and natural source of energy f or payment of

consideration, other business activit ies permitted by an act or governmental decree without having to settle in Hungary.

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By v ir tue of i ts accession to the EU, Hungary is required to l if t a ll restr ic tions relat ive to d irect or indirect investments,except interim measures in respect of the acquisi tion of secondary res idence and of agricul tural land, provided bythe Accession Treaty.

S ince 2001, foreign exchange controls have been a lmost completely abandoned. However, for s tatist ical purposesinternat ional payment transactions w it h t heir cause should be repor ted to the credit institu tions. The customsauthori ties should be not if ied o f the t rans fer o f currency exceeding 3 .6 mil li on HUF across the border o f Hungaryin accordance with the rules of prevent ion and combating of money laundering. Repatriat ion of profi t i s not restr ic ted,nei ther is i ts conver tibi li ty. The rate o f exchange i s f reely determined by the authorized exchangers; however the

Nat iona l Bank should adopt i ntervening measures on the money markets , i n the cases o f cer ta in changes i n thea c t u a l r a t e s .

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www.nt.huIMPORT/EXPORT REGULATIONS

1. HUNGARY'S GATT AND EU MEMBERSHIP

2. EXPORT/IMPORT

Hungary concluded the Accession Agreement with the GATT on August 10, 1973 (Decree no. 23/1973 of Counsel o fMinisters). Hungary, the EEC and the Member States of the EEC concluded the European Agreement on the partnership

establ ished among them (Act I o f 1994) . Hungary has been an EU Member S ta te w ith ful l power as o f May 1 , 2004(DAccession Day). Today Hungary is a party in several free trade agreements.

Concerning the c learance of products s ince Hungary has s igned the European Agreement and is a ful l- fledgedEU Member State as of May 1, 2004 the relevant EU custom rules are in force. The characteristics of a custom union aret he use of common ex ternal customs tariff s and the abrogation of cus toms regarding the internal commercebetween the member states.

The Member States of the EU use the TARIC system (TARIC = "TARif Intgr de la Communaut") which includes the

Combined Nomenclature, the applicable tariffs and custom, and the commercial and agricultural measures regarding eachtariff. Due to its structure, the TARIC enables the national custom administrations to execute the emerging tasks in a unifiedway in theEUMemberStates. In Hungary the issuance of export and import l icenses used to fal l within the scope of authori ty o f the L icense andAdministration Authority which was established within the Ministry of Economic and Transport. The name of this bodychanged to Hungarian Commercial Licensing Authority on Accession day.

A newactenteredintoforceonMay1,2004:ActCXXVIof2003ontheEnforcementoftheCommunityCustomRules.Thisactprovides the basis of the use of the Community custom system in Hungary. The details are provided in Decree no.15/2004

(IV.5.) ofMinisterofFinancialAffairs,aboutthedetailedenforcementofCommunityCustomRules.

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2.1 LICENSING

Governmenta l Decree no. 110/2004 ( IV. 28. ) on the Cross-Border Commerce o f Goods, Services andValuable Rights. This decree applies for export and import between EU and non-EU countries as wel l. I tprov ides that the export , import and t rans it of goods - according to internati onal contrac ts - can berestr icted particularly in the fol lowing ways: ( i) l icensing, ( ii ) suspension for def in ite or indefin ite t ime, and

(iii) prohibition. Governmental Decree no. 16/2004 ( II . 6 .) on the Export, Import, Transfer and Transi t L icensing of Mil itaryEquipments and also Services also provides separate rules on l icensing.

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organization, and several other issues. .

2.2 PROCEDURAL RULES

The EU licensingrules apply to Hungary. For some special product - however - special Hungarian legislation is also in force, obviouslynotcontradictinganyEUregulations.Thesespeciallegislationsare:


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BUSINESS ENTITIES www.nt.hu

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Anyone may establish a business organization under Hungarian law: Hungarian and foreign natural persons, as wellas Hungarian and foreign legal ent it ies or organizations without legal status. There are no restr ictions regarding

the number of nat ionals to participate, or on the nat ionali ty o f CEOs, d irectors, supervisory board members, e tc.Moreover, i t i s possible for a bus iness o rgan izat ion reg is tered in Hungary to be founded exc lusive ly by foreignpersons.

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1. IN GENERAL

The state may participate in a business organization without any restrictions through i ts ( legally or organizationally)distinct units with the capacity to establish business organizations set forth by law.

The permitted forms of business organizations are laid down in the fol lowing main acts: Act IV of 2006 on BusinessAssocia tion , Act IV o f 1959 on the C iv il Code o f the Republic o f Hungary, Act XLV o f 2004 on European CompanyL imited by Shares, Act XLIX o f 2003 on European Economic Interest Group ing, Act I o f 1992 on Co-operat ives,fur thermore Act LXIX of 2006 on European co-operatives, Act CXXXII o f 1997 on Branch Off ices and Commercial

Representative Offices.

The investor as contracting party may have l iabi li ty to i ts partners, o ther investors and thi rd parties under the CivilCode. A lso, their l iabi li ty to o ther members of the business association may be established under the CompaniesAct as wel l. Control ling members may have unl imited and ful l l iabi li ty under the Company Act in case of l iquidationp rocedures, i f the assets do not cover the debts o f the bus iness associat ion due to a cause the control ling par tyis liable for.

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2. BUSINESS ORGANIZATION FORMS

2.1 COMPANIES ACT (ACT IV OF 2006 ON BUSINESS ASSOCIATIONS)Business associa tions a re separate ent it ies, w ith d is tinct assets. The contr ibut ions p rovided by the members/shareholders (together members) constitute the property of the business association. The business associations must be registered at the Court of Registry. However, the business associations exist as of the date of theregi st rati on and may operate as a pre-company f rom the day of s igning the art icl es of associat ion. .

General (unlimited) partnership (kkt)

Limited partnership (bt)

Under the Company Act the following forms of business associations exist:

General partnership has no legal personality. The partners have secondary, joint, several and unlimited l iabil ity forthe obligations of the company. There is no minimum capital subscribed.

L imited par tnersh ip has no legal persona li ty e ither. The company must have a t l east one member w ith l imited( limited partner) and one member with unl imited l iabi li ty (general partner) for the obl igations of the company. Thegeneral partner has secondary, joint, several and unl imited l iabi li ty for the obl igations of the company, the l imitedpartner has l iabil ity l imited to his contribution to the capital of the company. There is no minimum capital subscribed.

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Limited partnership (bt)

Limited liability company (Kft)

L imited par tnersh ip has no legal personal ity e ither. The company must have a t l east one member w ith l imited( limited partner) and one member with unl imited l iabi li ty (general partner) for the obl igations of the company. Thegeneral partner has secondary, joint, several and unl imited l iabi li ty for the obl igations of the company, the l imitedpartner has l iabil ity l imited to his contribution to the capital of the company. There is no minimum capital subscribed.

A l imited l iabi li ty company has a legal persona li ty. The l iabi li ty o f the members towards the company i s l imited totheir capital contr ibutions. The members are (wi th certain very speci fic exceptions) not l iable for the obl igations ofthe company. The art icles of associations may set for th the obl igation of accessory contr ibution and/or addit ionalpayment. The minimal subscribed capital is HUF 500,000. The capital contr ibution may be provided in cash or may

be contribution in kind.

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Private company l imited by shares (Zrt.)

Public company l imited by shares (Nyrt.)

There are two forms o f the company l im ited by shares: p riva te company l im ited by shares and publ ic companyl imited by shares. The main d if ference is that the shares o f the public company are l is ted in the stock exchange.

A private company l imited by shares is a lso a legal ent ity. The shareholders are not l iable for the obl igat ions o f thecompany. The shareholders l iabi li ty towards the company, as i n case o f the l im ited l iab il ity companies, coversmerely their capital contr ibut ions. The subscribed amount o f capital must be a t least HUF 5,000,000. The capitalcontributions may be provided in cash or may be contribution in kind.

I t i s to be noted tha t only the cap ital con tr ibut ions to the company (shares) l im ited by shares may be embod ied ins e c u r i t i e s .

A public company l imited by shares is a lso a legal ent ity. The shareholders are not l iable for the obl igat ions o f thecompany. The shareholders l iabi li ty towards the company, just l ike in case of the l imited l iabi l ity companies, coversmerely their capital contr ibut ions. The subscribed amount o f capital must be a t least HUF 20,000,000. The capitalcontributions may be provided in cash or may be contribution in kind.

I t i s to be noted that only the capital contr ibut ions o f the company l imited by shares may be embodied in secur it ies.

The Company Act p rovides for a so-ca lled co-operat ive assoc ia tion . The a im of this assoc iat ion i s to susta in thep ro fi tabi li ty o f the members bus iness through the co-ord inat ion o f the ir bus iness act iv ity. The assoc iat ion mayrepresent the members professional interests, i t i s a non-profi t company, i t i s not intended to make i ts own profi t.The members are l iable for the debts o f the co-operat ive association; exceeding the assets thereof in this respecttheir liability is secondary, unlimited, joint and several.

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Co-operative association (egyesls)


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European Economic Interest Grouping (EGE)

European Company Limited by Shares (SE)

The European Economic Interest Group ing (EGE) i s regulated by Act XLIX o f 2003. EGE has legal persona li ty.According to the Council Regulat ion (EEC) No 2137/85 of 25 July 1985 the purpose of a grouping is to facil itate ordevelop the economic act ivit ies of i ts members and to improve or increase the resul ts o f those act ivit ies; i ts purposei s not to make p ro fi t for i tsel f. I ts act iv ity i s related to the economic act iv it ies o f i ts members and must not be morethan ancil lary to those activities. If the obligations of the Grouping arent covered by i ts assets the members l iabil ityis unlimited and joint.

The European Company L imited by Shares (SE) is regulated by Act XLV of 2004. The regulat ion for the establish-ment and the operation of SE can be found in Council Regulat ion (EEC) No 2157/2001 of 8 October 2001 in addit i-on to the above mentioned Act XLV of 2004. SE has legal personali ty. According to the Council Regulat ion (EC) No2157/2001 o f 8 October 2001 the cap ital o f SE i s d iv ided into shares. No shareho lder i s l iable for more than theamount he has been subscribed.

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2.2 CIVIL CODE (ACT IV OF 1959)

Civil law association (pjt)

The a im o f this bus iness o rgan izat ion i s the co-operat ion o f the members in o rder to ach ieve the ir common a imrequiring economic act ivity. The members have personal, joint and several l iabi li ty for the obl igations arising f romthe association's activity. There is no minimum amount of contribution required; the association may even be formed

without any contribution. The possible contributions wil l be the common property of members. This form shall not beregistered at the Court of Registry. .

2.3 ACT ON CO-OPERATIVES (ACT I OF 1992)

2.4 ACT ON EUROPEAN CO-OPERATIVES (ACT LXIX OF 2006)

Another, nowadays rarely used, form is the co-operat ive, governed by the Act on Co-operat ives. I t i s mainly used inthe agricultural sector. The co-operatives must be registered in the Company Registration.

European co-operat ive is regulated by Act LXIX o f 2006 on European co-operat ives. The purpose o f this new act is

to enable national co-operatives to form European co-operatives, which operate in accordance with the provisions ofEuropean Council Regulat ion (EEC) No. 1435/2003. The European co-operat ive may be established to ful fi ll theneeds of i ts members and to improve their economic and social activit ies. They are legal entities, must be registeredin the Company Registration, and must have at least EUR 30.000 registered capital.

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Branch offices

2.5 ACT ON BRANCH OFFICES AND COMMERCIAL REPRESENTATIVE OFFICES(ACT CXXXII OF 1997)

A foreign investor has the possibi li ty to establish a branch office or a commercial representative office in Hungary.

A branch o ff ice is the Hungarian registered part o f a foreign undertaking that operates in Hungary with economicindependence but without legal personali ty. A branch o ff ice may carry out business act iv ity, may acquire property,and exercise cer ta in r igh ts and assume l iabi li ties i n i ts own name. A b ranch of fi ce must not , i n any case, act as arepresenta tive o r agent o f the foreign undertak ing o r o f o ther b ranches o f the foreign under taking . The paren tcompany shall be subject to corporate taxat ion calculated upon the resul ts emerging f rom the business act iv ity o fthe branch office.

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Commercial representative offices

A commercial representative office is registered in Hungary as part of a foreign undertaking, without legal personalityand w ithout any capac ity to act i n i ts own name. I t may represent the foreign undertak ing ; car ry out p reparatoryand auxil iary activity for the benefit of the foreign undertaking. The commercial representative office may concludecontracts necessary to its operation, but only in the name of the foreign undertaking.

The mere existence of a commercial representative office does not render the parent company subject to Hungariancorporate taxation.

3.1 JOINT VENTURES

A foreign investor, as a Hungarian one, may be a sole propr ie to r. Only a company l imi ted by shares or a l imi tedl iabi li ty company may be a sole member company. There are no special provisions regarding foreign investors being sole proprietors of companies registered in Hungary.

3.2 FIDUCIARY ENTITIES There are several types of fiduciary entities, the three main types are the following:

Natural persons, legal persons, and unincorporated business associations are ent it led to create a foundation in a

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3. OTHER FORMS

Sole proprietorships

Foundation

char ter i n o rder to serve a l ong- te rm publ ic i nterest. A foundation may no t be formed for the p rinc ipa l purpose ofper forming economic act iv it ies. A foundation must have a llocated sufficient assets for achieving i ts objectives. Afoundation is a legal entity.

The foundations are registered at the competent County Court. The Court registers the foundation, i f a ll requirements

prescribed by law are fulfil led. A fter having registered t he f oundati on, the founder may not withdraw it .

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The foundation, activity and termination of non-profit companies are governed by the provisions of the Civi l Code, therelevant sec tions o f the Companies Act and Act CLVI o f 1997 on Non-Profi t Organizat ions . These ent it ies sha ll beregistered at the Court of Registry.

Non-profi t companies are legal persons, serving the common interests of society on a regular basis, without aiming toacquire profi ts or accumulate assets. Non-profi t companies may engage in business-type economic act iv it ies in thei nteres t and for the benef it o f the ir non-profi t act iv it ies. P ro fi ts generated by a company 's act iv it ies may not bedistributed among the members.

I t must be no ted that non -profit company (kh t. ) may no t be estab lished fo llowing 1st July 2007. The non-prof itcompanies a lready registered or in the process of being registered may operate unt il June 30, 2009 in accordance

with the rules relative thereto.

Societies are voluntari ly established sel f-governing organizat ions that are formed for the purposes def ined in theirs tatutes, have registered membership, and organize their members ' act iv it ies in order to achieve their objectives.Societies are legal persons. Societies are regulated in Act I I. o f 1989. Societies may not be formed with the princ ipalobjective of performing economic act iv it ies. Societies are l iable for their debts with their own assets. The members,

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Non-profit companies

Societies

4. RESTRICTIONS

4.1 REAL ESTATE

4.2 MONEY TRANSFER

above and beyond the payment o f membership dues, a re not respons ib le for the l iabi li ties o f the society w ith the ir

own assets. Societies are registered with the competent County Court, they come into existence as of their

registration.

Societies are registered with the competent County Court and , they come into existence as of their registration.

There are s tr ic t rules governing the acquisi tion of Hungarian real estate by foreign persons. Under the general rule

non-resident indiv iduals and foreign undertakings may not acquire arable land and protected natural areas (nature

conservat ion areas) in Hungary. On the other hand the rules for inland natural persons apply for those EU residents

who plan to set tle in Hungary as independent entrepreneurs for agricul tural act iv ity, and who have at least 3 years of

continual and legal seat and agricultural activi ty in Hungary. The size of the acquired land is l imited.

According to the amended Governmental Decree 7/1996 (I. 18.) all other forms of acquisit ion of real estate are subject

to a l icensing procedure carried out by the competent authori ties. The 2004 amendment of this Decree provides, that

the acquisi tion must be l icensed to a ll foreign natural persons, who p lan to set tle i n Hungary as an i ndependent

entrepreneurs, i f i t i s d irectly related to the act iv ity they want to set tle for.

There are no restrictions concerning the currency repatriation or other operations regarding currency. In accordance

with the principle of f ree movement of capital , one may f reely d ispose of h is money. Notwi thstanding, s tatist ical and

money-laundering preventive data-services shall be provided on the money transfer.

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The incorporation of a business association under the Company Act is burdened by registrat ion fee and publicationfee ( the registrat ion shall be published in the Off icia l Gazette). The fees and charges are the fol lowing in January 2009: .

Registration fee:

Publication fee:

registration of legal entities: HUF 5,000

registration of legal entities with simplified procedure: noneregistration of changes in all cases: HUF 3,000

public company l imited by shares, European Company: HUF 600,000private company l imited by shares: HUF 100,000private company limited by shares (simplified procedure): HUF 15,000limited liability company:HUF 100,000

limited liability company (simplified procedure): HUF 15,000other legal entities: HUF 100,000other legal entities (simplified procedure): HUF 15,000business associations without legal personality: HUF 50,000business associations without legal personality (simplified procedure): HUF 15,000branch office of a foreign undertaking: HUF 50,000representative office of a foreign undertaking: HUF 50,000

5. THE COSTS

5.1 REGISTRATION FEE AND PUBLICATION FEE

Fees of the procedure of licensing the issuance of shares:

request for the approval of the leaflet (public): HUF 500,000request for the approval of simplified leaflet (public): HUF 100,000request in the procedure of a private company: HUF 50,000price of ISIN code (mandatory code of securities): HUF 15,000

5.2 MISCELLANEOUS CHARGESOther charges may arise dur ing the creation of a business organization: price of the off ic ia l t ranslation of companydocuments, fee of the notary public, correspondence, etc. The amendments in the documents or changes in the datao f a bus iness associa tion must be repor ted to and f iled w ith the Court o f Regist ry. Such amendment p rocedure i ssubject to certain fees as well. .


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6.TIMING OF REGISTRATIONThe length of the registrat ion procedure depends on the type of procedure. The registrat ion is done v ia in general

electronic procedure or a simplified electronic procedure.

The general e lectronic procedure may last up to 15 business days in case of business associations f rom the t ime off il ing the documents and the request for registrat ion with the Court o f Registry provided that the Court o f Registrydoes not require fur ther documents or procedures when these deadl ines can be extended. An addit ional 1-2 weeksshall be calculated for the preparation works (preparing and signing documents, opening bank account, payment ofregistered capital etc.

In the s impl if ied e lectronic procedure the Court o f Registry shall adopt a decision on the registrat ion of a companywithin 1 business hour start ing at 9 am on the day fol lowing the f il ing day of the request. In a s impl if ied registrat ionprocedure the company must prepare i ts art ic les of association in a standard contract form. The 1-2 weeks prepara-

t ion t ime sha ll a lso be calcu la ted in this case. In this p rocedure there i s no possibi li ty for add it ional f il ing. I f thereg is trat ion request has any formal o r mater ia l p roblems the by the Court o f F irms w il l reject the request .

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REQUIREMENTS FOR THE ESTABLISHMENT

OF A BUSINESS

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General ly, the same acts must be appl ied for the Hungar ian and the fore ign compan ies bu t there a re some actswhich speci fica lly govern the business act iv ity o f foreign companies or the branch o ff ices o f foreign companies.

The acts concerning the business activities of foreign companies are the following:

The foreign compan ies may commence en te rprise act iv it ies by found ing a company o r by part ic ipat ion in a Hun-gar ian company o r i ts b ranch of fi ce . The b ranch of fi ce must be registered by the Court of Reg is try, as a ll o thertypes of companies in Hungary are (see above).

Foreign nat ionals may engage in gainful employment or for-profi t business act iv it ies in Hungary in their own namewithout having to set up a company, branch o ff ice or independent enterpr ise in f ie lds o f occupation such as lecturerat a school, artistic performances, professional/expert services (with the exception of auditing, accountancy and legalcounseling services) for max. 60 days/year, professional sporting activities, etc.

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1. FOREIGN ENTITIES AND BRANCH OFFICES

Act XXIV of 1988 on the Investments of Foreigners in Hungary;Act CXXXII of 1997 on Hungarian Branch Offices and Commercial Representative Offices of Foreign-Registered Companies;Act LXXII of 1998 on the Settlement of Foreigners with Business Aims as an Independent Undertaking.

3branch office: an organizational unit of a foreign company, without legal personality, vested with financial autonomy and registered

as an independent form of company in Hungarian company registration records as a branch office of a foreign company independent

4enterprises of a foreign national: shall mean activ it ies of a business nature (production or service provision), or as set forth in

legal regulations, performed by a foreign national as described in a separate legal regulation in a business-like fashion, in exchange for consideration or for the purposes of gaining profit .

Foreign nat iona ls , w ithout set tlement for business purposes, may not h ire employees for the a forement ioneda c t i v i t i e s .

From May 1, 2004 nat ionals of the European Economic Area (EEA) and the companies registered in the EuropeanEconomic Area (EEA) may perform c ross-border serv ices without set tlement for business purposes.

Foreign companies may also establish permanent, direct commercial representative offices in Hungary, which must be registered by the Court of Registry as well.

A commercial representat ive off ice is an unincorporated organizational uni t o f a foreign company not involved inentrepreneurial act ivit ies, established upon i ts entry into the company registrat ion records. I t acts in the name andon behal f o f the foreign parent company, med ia tes contracts in the name o f the foreign company, par ticipates inpreparation and conclusion of contracts, provides information to c lients and partners and performs other relatedc l i e n t s e r v i c e a c t i v i t i e s .

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2. ANTITRUST LAWS

2.1 CARTELSAct LVII o f 1996 on the Prohibi tion of Unfair and Restr ictive Market Practices ( Competi tion Act) prohibi ts verticaland hor izontal agreements and coordinated pract ices between undertakings which are a imed at the prevention,restr ic tion o r d is tort ion o f economic competi tion , o r which may d isplay o r do d isplay such an e ffect. .

5 53 of 2002 ( II I.26.) Gov. Decree on the except ion of certain groups of specializat ion agreements under the prohibit ion of restr ictive market pract ices; 54 of 2002 ( II I.26.) Gov. Decree on the except ion of certain groups of research and development agreements under the prohibit ion of restrictive market practices; 55 of 2002 ( II I.26.) Gov. Decree on the except ion of certain groups of vertical agreements under the prohibition of restr ictive

market practices; 86 of 1999 (VI. 11.) Gov. Decree on the except ion of certain groups of technology t ransfer agreements under the prohibit ion of restr ictive market practices; etc.

Agreements of minor importance and agreements concluded by related corporations are not subject to prohibition. Corporations quali fy as related i f the corporation controls another or i f they are control led by the same corporationor are cont rolled by the same corporat ions jointl y.

An agreement quali fies as o f minor importance i f the total joint share o f the parties concluding the agreement and

of the undertak ings that a re not unrelated to such part ies does not exceed ten percent i n the market i n quest ion ,except i f i t pertains to directly or indirectly f ixing purchase or sale prices between competitors or dividing the marketamong competitors.

Cer ta in groups o f such prohibi ted agreements are exempted f rom the prohibi tion4 by a governmental decree. TheGovernment may exempt an agreement or a p lanned agreement f rom the prohibi tion by focusing on the fol lowinga s p e c t s :

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fixing the purchase or sales prices, and defining other business conditions directly or indirectly;restricting or keeping manufacture, distribution, technical development or investment under control;d ivid ing the sources of purchases and restr icting the f reedom of choosing f rom among them, as wel l asexcluding a set c ircle of consumers f rom the purchase of certain goods;

dividing the market, excluding anybody from sell ing, and restricting the choice of sales opportunities;preventing anybody from entering the market;discriminating against certain partners with respect to transactions of the same character or value, etc.gearing the agreement to such undertaking which, whit respect to i ts nature and the regular contractual pract ice is not in connection with the subject o f the contract.

Prohibited terms in agreements restricting competition are i .e. the followings:

i t contr ibutes to a more reasonable organization of production or d istr ibution, or to the promotion of tech-n ical o r economic development , o r to the improvement o f the s itua tion o f env ironmental p ro tect ion o r

c o m p e t i t i v e n e s s ; .


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a fai r part o f the benefits arising f rom the agreement is channeled to the consumer;the inherent restr ic tion or exc lusion o f economic competi tion does not exceed the extent requi red for

attaining the economically justified common goals;i t does not enable the complete exclus ion o f competi tion in connect ion w ith a considerable par t o f thegoods concerned.

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6The Competition Act deals not only with cartels, but also contains provisions on unfair competition , unfair influencingof consumers decisions6, the abuse of dominant position and merger control.

The abuse o f dominant posi tion i s p roh ib ited, but the ex is tence of dominant pos it ion on i ts own i s no t subject toprohibition.

A corporation is in a dominant posit ion on the related market i f i t may perform i ts business act iv ity independentlyf rom others, i f i t can decide i ts own market behavior without having to consider the market behavior o f i ts competi -tors, suppl iers, buyers or o ther business partners. I f a corporation has s igni ficant market share, usual ly i t can bepresumed to be dominant, depending, o f course, on o ther c ircumstances, as descr ibed below.

The fol lowing shall , in par ticu lar, be examined in assessing dominant posit ion: ( i) the costs and r isks entai led by

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entry into the market concerned and exit there from, and the realization of the technical, economic or legal conditions

2.2 ABUSE OF DOMINANT POSITION

6Unfair competi tion is prohibi ted. Competi tion Act bans general conduct of economic act iv it ies in an unfair manner, v iolating or

jeopardizing lawful interest of competi tors or consumers. Competi tion Act a lso specifies some typical act iv it ies that v iolate the

prohibition of unfair competition.

7I t is a lso prohibi ted to unfairly inf luence consumers decisions. Competi tion Act prohibi ts misleading consumers in an unfair

manner and consequently influencing consumers decisions. It is prohibited to employ business methods unjustifiably restricting

the consumers freedom of choice or misrepresent a purchase as a highly advantageous bargain.

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that i t requires; ( ii ) the assets, f inancial strength and revenue situation of the undertaking and group of undertakings, and/or the development thereof; ( ii i) the structure of the market concerned, the ratios of market shares, the conduct o f the participants o f the market, and the economic inf luence exercised by the undertaking over the development o f

the market.

A s ing le undertak ing o r group o f undertak ings o r several under takings together can be in a dominant pos it ion . The Compet it ion Act contains a non-exhaustive l is t of practices tha t consti tu te an abuse, i .e . establ ishment o fpurchase or sales prices unfairly or stipulation of unjustif ied advantages in another manner, restr iction of production,distribution or technical development to the detriment of the consumers, refusal of establishment or maintenance ofbusiness relations adequate for the nature of the transact

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