Five critical remarks about Hungary’s FDI screening regime

Barna Fazekas

Oppenheim, Budapest

barna.fazekas@oppenheimlegal.com

When speaking with investors and company owners in Hungary about the Hungarian legal system, most mention their concern regarding Hungary’s regimes on the screening of foreign investments, including Hungary’s general foreign direct investment (FDI) screening regime, currently governed by Act L of 2025 and the national security screening regime governed by Act LVII of 2018.

In their view, said FDI screening regimes cause unnecessary legal uncertainty, an additional administrative burden and delays in M&A transactions, thereby making Hungarian investment targets less attractive to foreign investors. Based on investors’ and business owners’ feedback, and since the general FDI screening regime has been in place for five years, this article addresses five peculiarities of Hungary’s FDI screening regimes that are the main drivers of concern within the business community.

Overly broad scope of the general FDI screening regime

While, on a European Union level, FDI screening was initially purported to safeguard the supply of critical goods and critical infrastructure against undue interference by third-country investors, national FDI screening regimes such as the Hungarian general FDI screening regime have extended the scope of regulatory screening far beyond this.

Under the general FDI screening regime, the acquisition of a broad range of economic players – ranging from industrial manufacturing companies, wholesalers and retailers, and food producers through to financial service providers and hotel operators (to name only a few) – fall within the scope of FDI screening under Hungarian law. Coupled with a very low materiality threshold of only HUF 350m, virtually all meaningful M&A transactions on the Hungarian market may fall under the scope of the FDI screening regime regardless of whether they may indeed be relevant in terms of security of supply or the security of access to critical infrastructure. A review and overhaul of the relevant industries may be warranted in order to ensure that only those industries are covered that warrant regulatory interference on grounds of security of supply and access to critical infrastructure.

Intra-EU transactions also fall within the scope of Hungarian FDI screening

The acquisition of a direct or indirect majority shareholding by a foreign investor registered within the EU in a relevant Hungarian company is likely to fall within the scope of Hungarian FDI screening regardless of whether there are third-country players within the ownership structure of the EU-registered foreign investor.

Accordingly, even though it can be safely assumed that the blocking of most intra-EU M&A transactions by the Hungarian state would be contrary to the freedom of establishment enshrined in the Treaty on the Functioning of the European Union if tested against the applicable principles of EU law, such intra-EU transactions still have to be notified to the Hungarian authorities. In addition, the lengthy procedure and uncertain outcome of the FDI screening has to be factored into the transaction’s timeline and risk profile. It is necessary for the Hungarian legislator to limit the scope of intra-EU FDI screening to cases where the blocking of a transaction can potentially be warranted also under EU law.

No general exemption for intragroup transactions

Although certain intragroup transactions are exempted from FDI screening requirements, neither Hungarian FDI screening regime contains a general exemption for intragroup transactions. FDI screening may be required even if the ultimate owner of the Hungarian target company does not change, such as in case of the reorganisation of an international holding structure (which happens rather frequently in the life of multinational groups).

The requirement of a lengthy FDI screening procedure, the outcome of which is uncertain, causes irritation in particular within the Euro-Atlantic business community, which is used to a status quo where the reorganisation of company holdings is a rather straightforward internal group matter and state interference is limited to tax matters. In order to ease this frustration, the Hungarian legislator could find ways to broaden the intragroup exemption while at the same time ensuring that such intragroup transactions are not used to circumvent FDI screening requirements.

Lengthy procedural timeline

As transactions are usually cleared by the competent authorities, FDI screening under Hungarian law proves to be only a bureaucratic formality rather than a real obstacle to the transaction in most cases. Nevertheless, the procedural timeline leaves investors frustrated, especially in case of smaller transactions where a fast transaction timeline is of the essence and where the requirement of FDI screening comes as a surprise anyway. Under the general FDI screening regime, the competent ministry generally has 30 business days to render its decision: this can be extended by an additional 15 calendar days if the ministry requests additional documents or information. In case of national security screening, the general procedural deadline for making a decision is 60 calendar days, which may be extended by an additional 60 calendar days. In small-scale transactions, these timelines tend to significantly exceed the timeline necessary for obtaining merger clearance – the other regulatory approval which may generally be required for the completion of a transaction in Hungary. Expedited procedures could be introduced by the Hungarian legislator in order to align the timelines of FDI screening and merger clearance procedures, especially in the case of small transactions.

Uncertainty and lack of transparency

While business players tend to adapt to different legislative solutions flexibly and quickly, an uncertain, ambiguous or frequently changing legislative landscape and an untransparent regulatory practice is outright poison to a risk-sensitive business activity such as M&A. The uncertainty of the Hungarian FDI screening regime is manyfold:

• several parts of the applicable laws are ambiguous and leave room for interpretation, such as, for example, the provisions on the exemption of certain intragroup transactions, the calculation of the value of the investment relevant in terms of the materiality threshold or the interpretation of the scope of the notification obligation in case of asset deals;
• the regulatory practice of the competent authorities is not transparent: there is no detailed reasoning of blocking decisions nor are decisions published. Also, the competent authorities do not publish generally applicable guidelines on the application of the relevant laws;
• the relevant laws change frequently without ample time for preparation and sometimes on an ad hoc basis. Such changes tend to be significant in nature, essentially blocking transactional activity on certain markets. For example, a change to the national screening regime in 2021 saw the scope of the regime be extended to insurance companies, essentially smothering deal activity in the insurance sector for years. Another example is the temporary amendment to the general FDI screening regime, which introduced longer waiting periods and a general pre-emption right for the Hungarian state for a period of time in summer 2025, thereby causing considerable irritation among market players.

The above uncertainties could be overcome if the Hungarian legislator and authorities treated the business community as equal partners in an endeavour to attract foreign investment to Hungary and protect the value of such investment by maintaining an unambiguous, stable and transparent FDI screening regime. This would be in both the Hungarian business community’s and in foreign investors’ interest.