In 2022 the Government issued the Government Decree 561/2022 (XII. 23.) on the different application of certain provisions necessary for the economic protection of business companies in Hungary during the state of emergency („Decree”) under which it imposed restrictions on foreign investors acquiring ownership in strategically important companies owned by domestic investors, citing the crisis caused by the Covid pandemic. At the end of June, Government Decree 163/2025 (VI. 23) (“Amendment“) was published in the Hungarian Gazette No. 75, further tightening the rules on foreign direct investments.
A significant change in the regulations will be brought about by Act L of 2025 on the elevation to the status of acts of the emergency decrees issued in view of the armed conflict in Ukraine (“Act“), which will repeal the Decree with effect from August 19, 2025. It’s worth noting that at the same time, the general parts of the current regulations will be regulated at a statutory level, with some changes and additions. In addition to the currently effective Decree, our article summarizes the most important provisions of the Act applicable from mid-August and the related changes.
Scope of the regulation
In accordance with the regulations, all transactions involving limited liability companies, private share companies and public limited companies registered in Hungary and operating in strategic sectors must be reported to the Minister of National Economy, as the minister responsible for the domestic economy (“Minister”) if it would result in the acquisition of ownership or a certain degree of influence by third-country nationals or, in certain cases, by nationals of other Member States of the European Union, other states party to the EEA Agreement or the Swiss Confederation, where the value of the legal transaction reaches or exceeds HUF 350 million.
In addition, notification to the Minister and acknowledgement thereof are also required for foreign investors or companies over which foreign investors have direct or indirect majority influence to acquire operational rights necessary for the continuation of activities in strategic sectors. Strategic companies include, among others, pharmaceutical manufacturing, retail and wholesale trade, motion picture production, tobacco product manufacturing, temporary employment agencies, construction of residential and non-residential buildings within the construction industry, manufacturing of machinery and equipment, computer programming, consultancy and related activities.
The notification must be submitted to the Minister within 10 days of the conclusion of the legal transaction concerned.
Legal transactions include not only the sale of shares or stocks, but also any acquisition of ownership rights by way of transfer, including contributions in kind, transfer of ownership without any consideration, capital increase, transformation, merger, division and even the establishment of rights (e.g. convertible bonds, beneficial interest).
Natural person or companies that fail to comply with their reporting obligation may be subject to an administrative fine of up to twice the value of the transaction, provided that they are not subject to criminal liability.
After examining the notification, the Minister shall prohibit or acknowledge the legal transaction concerned. A prohibitive decision may be taken in the following cases:
- if the acquisition of ownership, the acquisition of the bond, the acquisition of the right to usufruct, or the acquisition of the right to operate by the notifying party would harm or endanger the national interests, public security, or public order of Hungary, or if there is a possibility that this could occur;
- the notifying party is directly or indirectly not controlled by the government of a Member State of the European Union, including state bodies or armed forces, either through its ownership structure or through significant financing;
- the reporting entity has been involved in activities threatening security or public order in any Member State of the European Union,
- or there is a serious risk that the reporting entity will engage in activities constituting a criminal offense.
Any legal transaction or corporate resolution that is contrary to a prohibitive decision shall be deemed null and void. The party affected by the prohibition decision may not be listed in the company register or share register, nor may it exercise any rights based on the legal transaction.
Rules applicable from 24 June 2025
- Longer administrative time limits
As a result of the Amendment, the Minister must decide within 45 working days of the notification whether the circumstances for the prohibition continue to exist. In order to clarify the circumstances, the Minister may extend the period available for the investigation by a further three occasions, each time by 30 working days, thus extending the total period by up to four to five months.
- Extension of the State’s right of pre-emption
With this amendment, the Government has significantly expanded its preemptive rights. The State may exercise its right of pre-emption through MNV Zrt. or another organization designated by it, under the same conditions as those specified in the relevant legal transaction, within 90 days of the date of the prohibitive decision. This right applies not only to strategic companies engaged in solar power generation activities, but to all companies in sectors of strategic importance.
Rules applicable from 19 August 2025
As mentioned in the introduction, pursuant to the decision of the legislator, the Decree will cease to be effective on August 18, 2025, and certain provisions will be regulated at the statutory level. The differences between the Decree and the Act are summarized below.
- Shorter administrative time limits
Under the Act, the Minister must decide within 30 working days of the notification whether the circumstances for prohibition exist. An important element of statutory regulation is that the Minister has no opportunity to extend the deadline for investigation. With these changes, the legislator returns to the regulation that was in force prior to the June amendment.
- Restriction of the state’s right of pre-emption
The extension of the right of pre-emption is also excluded from the provisions of the Act, meaning that, going forward, the State will not have a right of pre-emption, except in the case of strategic companies engaged in activities related to solar power plants.
- Extended deadline for pre-emptive rights in the qualified sector
Under the Act, in the qualified energy sector, the time limit related to the State’s pre-emption right exercised through MNV Zrt. is increased – in deviation from the regulatory provisions – from 60 working days to 90 working days, counted from the date of receipt of the notification sent to the notifying party. At the same time, the response period of the minister responsible for energy policy in this matter is also doubled, i.e., increased from 15 working days to 30 working days.
- Possibility of contesting the decision
From August 19, 2025, prohibitive decisions may be challenged in administrative court proceedings in numerous cases. For example, the prohibitive decision concerned may be contested if the Minister assessed incorrectly that the conditions establishing the notification obligation specified in the Act were fulfilled. This right can still only be exercised at the Budapest-Capital Regional Court. Another new feature is that immediate legal protection is now also available in the event of an appeal. However, it is questionable whether the provision of further legal remedies in itself influences foreign investors during the stage of considering the structure of their investments.
Summary
Given that, according to our current knowledge, the provisions of the Act – will be applicable until December 31, 2026, foreign investors and Hungarian companies should take into account that the State will continue to have very widespread rights during transactions related to company acquisitions (M&A). It can be considered a positive step forward that, on the one hand, the scope of the State’s right of pre-emption is being narrowed and, on the other hand, the possibility of legal remedy against prohibitive decisions is being introduced. However, in overall, Hungarian regulations remain strict compared to international standards. It is therefore advisable to carry out a classification at the planning stage of the transaction, and to consider the possibility of state intervention in the letter of intent and the contract.
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