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Konzernvolkswirtschaft und Marktanalysen http://economicresearch.ba-ca.comEconomics Department http://economicresearch-e.ba-ca.com

X P L I C I T

A Member of HVB Group

Gui

deRe

port

Investment Guide Hungary2nd Edition, July 2004

In cooperation with

HVB Bank Hungary

02 Investment Guide / Hungary 2004

HVB Bank Hungary, the Hungarian banking subsidiary of

Bank Austria Creditanstalt, maintains a comprehensive

network of 37 branches with more than 1,000 employees.

HVB Bank Hungary was founded in 1990 and is today the

sixth largest bank on the Hungarian market. It looks after

about 90,000 customers and is particularly well-placed to

meet the needs of corporate customers.

Bank Austria Creditanstalt, a member of HVB Group,

operates the leading banking network in Central and Eastern

Europe with 900 offices in 11 countries. 17,000 employees

serve more than 4 million customers. Bank Austria Credit-

anstalt has received numerous awards from international

financial publications for its activities in Central and Eastern

Europe. The British magazine “The Banker” awarded Bank

Austria Creditanstalt the title “Bank of the Year in CEE” in

2003

Your contact at HVB Hungary:

Márta Szego

Akadémia u. 17, H-1054 Budapest, tel.: (+36 1) 301 1970,

e-mail: [email protected]

Contents

03Investment Guide / Hungary 2004

Preface ..................................................................................................................................................................................................................04

1. Country Profile................................................................................................................................................................................................061.1. Economic Development .........................................................................................................................................................................061.2. Economic environment for investors ....................................................................................................................................................071.3. Economic status and outlook ................................................................................................................................................................091.4. Foreign direct investment......................................................................................................................................................................101.5. Regional Economic Overview ................................................................................................................................................................11

2. Overview of Assistance Programmes and Financing Products ...................................................................................................................142.1. International Project Financing.............................................................................................................................................................142.2. Financial Support from the European Union.......................................................................................................................................152.3. Austrian Financing Products ..................................................................................................................................................................182.4. International Export Financing (Austria)..............................................................................................................................................222.5. Structured Trade Finance and Commodity Trade Finance ..................................................................................................................232.6. Investment Incentives Available in Hungary........................................................................................................................................24

3. Legal Principles and Investment Environment .............................................................................................................................................263.1. Commercial Law, Company Law............................................................................................................................................................263.2. Accounting Law ......................................................................................................................................................................................313.3. Labour Law..............................................................................................................................................................................................363.4. Legislation regarding Aliens .................................................................................................................................................................383.5. Social Insurance Law...............................................................................................................................................................................393.6. Tax Law ...................................................................................................................................................................................................403.7. Special Provisions (Obstacles, Tips) for Imports, Customs and Land Acquisition..............................................................................483.8. Double Taxation Conventions ...............................................................................................................................................................50

4. Annex................................................................................................................................................................................................................524.1. Standard Format of Accounts................................................................................................................................................................524.2. Balance Sheet and Income Statement ..................................................................................................................................................52

Imprint:

Published by: Bank Austria Creditanstalt Aktiengesellschaft, http: / /www.ba-ca.com, e-mail: [email protected]

Edited by: Kurt Fesselhofer (Bank Austria Creditanstalt Economics Department), Patrizia Reidl (Public Relations)Chapters 2.6., 3. and 4. were kindly made available by CONSULTATIO.

Information: +43 (0) 505 05, ext. 41953 (contents), e-mail: [email protected]; +43 (0) 505 05, ext. 56137 (production).No part of this publication may be reproduced without the prior permission of the authors.

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Graphics: Horvath Grafik Design

Publications Service: tel.: +43 (0) 505 05, ext. 56148 (answering machine), fax: +43 (0) 505 05, ext. 56945, e-mail: [email protected]

July 2004

Disclaimer:

Despite careful research and the use of reliable sources, Bank Austria Creditanstalt cannot assume liability for the completeness or accuracy of the informationgiven herein. This publication does not constitute an offer or solicitation of an offer.

Preface


became a member of the OECD and in 1999 a full member

of NATO. The country’s accession to the EU on 1st May 2004

underscores Hungary’s successful transition to a market

economy.

The country has attracted no less than EUR 31 billion in

foreign direct investment since the beginning of the transition

process until 2003. In per capita terms, this corresponds to

almost EUR 3,100 per inhabitant, placing Hungary second

after the Czech Republic in a comparison with the other

countries in CEE.

Austrian companies made substantial investments in

Hungary in the first 14 years. With an 11.7 % share of total

FDI since 1990, Austria comes in third place after Germany

and the Netherlands.

The EU supported Hungary’s transition process at an early

stage through pre-accession aid (Phare, SAPARD, ISPA) prior

to the country’s membership of the EU. EU membership now

makes Hungary eligible for all assistance provided by the EU

to member countries. The EU’s Structural Funds make some

EUR 2 billion available for the period 2004 to 2006 (at 2003

prices), and the Cohesion Fund a further EUR 1.1 billion.

These funds are designed to provide a substantial additional

incentive for investment.

This investment guide was prepared by Bank Austria

Creditanstalt in cooperation with CONSULTATIO and is aimed

at supporting investors who are planning and carrying out

investment projects in Hungary. CONSULTATIO are public

1st May 2004 will undoubtedly be one of the most

important milestones in the history of Hungary and the

European Union. This date marks the accession of Hungary

and nine other new members to the European Union. The

continent’s division into West and East has finally been

overcome after many years. For the first time in its history,

Europe has the unique opportunity for almost all the

countries of this continent to grow together peacefully into

an economic and political unity, a unity in which democratic

rights are respected and the economy operates in accordance

with the principles of a market economy.

Hungary, like the other “new” countries from Central

and Eastern Europe, had to undergo the transition to a

market economy, a process which involved hardship and

privation. However, the conditions for Hungary were more

favourable from the outset since the country had the region’s

most liberal economy before the collapse of the Iron Curtain.

Many steps toward a market economy had already been

taken before the political turnaround. These included

membership of the International Monetary Fund and the

World Bank in 1982, and the introduction of a two-tier

banking system in 1987.

A rapid alignment with the countries in the West

immediately after the turnaround was therefore a logical

consequence. Hungary was the first country in Central and

Eastern Europe (CEE) to submit an application for

membership of the European Union. In 1996 Hungary

Preface

Preface


accountants with over 15 years of experience in advising on

and otherwise assisting with investments in the CEE region.

The company in particular offers investors valuable support in

acquisitions and participations in these markets. Building on

its experience, CONSULTATIO in the legal section of the

investment guide focuses on company law, fiscal law, labour

law and other legislation, which are at present of particular

significance for investors.

The legal information is rounded off by a country

overview and a chapter on assistance and financing

opportunities. In the first chapter, Bank Austria Creditanstalt’s

experts provide an insight into Hungary’s economic situation

and evaluate the country’s future development. Another

section contains information on additional financing

opportunities and assistance, which are available over and

beyond those offered by Bank Austria Creditanstalt and

HVB Group for investment financing.

The markets of Central and Eastern Europe have

traditionally played a key role for the companies of

HVB Group. Within HVB Group, Bank Austria Creditanstalt

is responsible for the markets of this region, where it has

one of the most comprehensive networks of banking

subsidiaries and other financial service providers.

Bank Austria Creditanstalt founded a banking subsidiary in

Hungary in 1990, and HVB set up a banking subsidiary in

1993. The two banks were merged to form HVB Hungary in

2001, which was assigned to Bank Austria Creditanstalt’s area

of responsibilities. With total assets of EUR 2.8 billion (as of

31st December 2003), HVB Hungary numbers among the

country’s sixth largest banks and has a strong position in the

areas of retail and corporate banking, capital market activities

and real estate.

Customers of HVB Group, and particularly investors and

companies active in foreign trade have access to the full

range of products offered by an international banking group

with many years of experience in this region. Regardless of

what kind of business you do, you’ll find a competent partner

to meet your investment and financing needs. We invite you

to use the opportunities outlined in this booklet to optimise

your investment objectives.

Regina Prehofer Marianne Kager

Member of the Managing Board Chief EconomistBank Austria Creditanstalt Bank Austria Creditanstalt

Country Profile

06

1.1. Economic Development

Unlike neighbouring countries, Hungary began free

enterprise reforms in the economy prior to the political

turning point in 1989. In fact János Kádár first launched a

reform policy back in the 1960s which appears in the annals

of history as “Goulash Communism”. Hungary created a

consumer-oriented Communist economic system which made

it the most economically liberal country in the region. Many

of the pillars of a free market economy were already in place

when the first free elections were held in 1990. Hungary has

been a member of the International Monetary Fund and the

World Bank since1982, and set up a two-tiered banking

system in 1987.

When the political turning point came, Hungary

immediately set about forging closer ties to Europe. By

December 1991 it had signed an Association Agreement with

the European Community which went into force on 1 February

1994. In March 1994, Hungary became the first of the Central

and Eastern European countries to apply for membership of

the European Union. Hungary, which has been a member of

the OECD (Organisation for Economic Cooperation and

Development) since 1996 and a full member of NATO since

1999, joined the European Union on 1 May 2004.

The liberalisation of the economy proceeded at a

determined pace in Hungary. With all the economic

adaptations, a serious recession set in after the political

turning point in 1989 and lasted until the end of 1993. A

little later, an overly aggressive budgetary policy created

1. Country Profile

Form of government: Republic

Capital: Budapest (1.8 million inhabitants)

Administrative division: 7 regions, 19 counties, capital city

district, 3,135 municipalities

Area: 93,030 sq km, shares a 2,246 km

long border with Austria, Slovakia,

Ukraine, Romania, Serbia and

Montenegro, Croatia and Slovenia

Population: 10.1 million

President: Ferenc Mádl

Prime Minister: Péter Medgyessy

GDP (2003): EUR 73.1 billion

Per capita GDP (2003): EUR 7,300

Currency: 1 forint (= 100 fillér)

average exchange rate in 2003:

EUR 1.0 = HUF 253.5

The last parliamentary elections in April 2002 resulted in

changes in the political arena. Since then, the Socialists, who

captured 178 seats, have been ruling the country as a

coalition government with the Alliance of Free Democrats

(SZDSZ – 20 seats). The Young Democrats headed by the

former prime minister Viktor Orbán ran on a joint list with the

Democratic Forum (MDF) and again emerged as the strongest

faction with 188 seats. This leaves the current coalition

government with a relatively slim majority.

The next parliamentary elections are scheduled to take

place as usual in four years, i. e. in 2006.

Investment Guide / Hungary 2004

Table 1: Distribution of seats in parliament after the elections of 7 and 21 April 2002

Party % of votes Seats

Socialist Party (MSZP) 46.1 178

Young Democrats (Fidesz) 42.5 164

Democratic Forum (MDF) 6.2 24

Alliance of Free Democrats (SZDSZ) 5.2 20

Total 100.0 386

Sources: Bank Austria Creditanstalt Economics Department

Country Profile


problems with the balance of payments for the Hungarian

economy. The then minister of finance Lajos Bokros

responded in 1995 with a set of restrictive stabilisation

measures which included not only fiscal measures but also a

change in the exchange rate policy. The clear-cut “crawling

peg” system was introduced, i. e. a policy involving the pre-

announced gradual devaluation of the currency in relation to

a basket of currencies. These stabilising measures yielded

fruit, putting the Hungarian economy back onto a stable

course of growth. In the process, it began a dynamic phase of

catching up to the Western European countries. By 2003,

Hungary had built up its nominal gross domestic product

(GDP) to some EUR 73.1 billion. Per capita GDP at purchasing

power parities amounts to some EUR 13,400, which

corresponds to 60 % of the average for the EU 25. Slovenia

and the Czech Republic are the only countries in the region

that are outperforming Hungary in this regard.

This development was accompanied by a major structural

change within the Hungarian economy. Agriculture as a

percentage of gross domestic product has more than halved

to less than 4 % since the turnaround in 1989. On account of

a relatively liberal economic system at the beginning of the

political turnaround, the services sector is playing an

important role within the economy compared to the other

CEE economies as it already accounts for almost 70 % of total

output. The economic upturn in Hungary is closely linked to

the successes of Hungarian industry. Supported by foreign

investors, this sector underwent strong expansion and now

accounts for almost 30 % of GDP.

1.2. Economic environment for investors

Hungary offers very favourable conditions for foreign

direct investment, and these have been extensively used by

international investors. This is reflected in the high inflows of

capital in the last decade (see the chapter “Foreign Direct

Investment”).

Geopolitical position

An active trading policy, which resulted in a number of

cooperation and trade agreements, have transformed the

country into a very open economy with dynamic foreign trade

and strong global trade links (see charts 1 and 2). Exports

account for almost 65 % of GDP.

Hungary joined the European Union on 1 May 2004 and

participates in the Single Market. The close ties with the EU

15, which account for almost 75 % of Hungary’s exports and

about 55 % of its imports, could consequently strengthen

through the country’s accession to the EU. Hungary’s central

location makes it a useful bridgehead for transit trade

between East and West, and a convenient initial basis for

working the markets in the new EU states and in the

countries included in the next round of enlargement

(Bulgaria, Romania, Croatia).

Transport and infrastructure

By virtue of its position in Central Europe, Hungary is an

important crossroads – a function it wants to exploit to become

the most significant hub in Central and Eastern Europe. The

infrastructure in the western part of the country and in the

Chart 1: Exports by countries(2003, in %)

Sources: Bank Austria Creditanstalt Economics Department, KSH

Chart 2: Imports by countries(2003, in %)


Germany 34.1%

Austria 8.0%Italy 5.8%

France 5.7%UK 4.5%Netherlands 4.1%

Sweden 3.3%

Others 34.5% Germany 24.5%

Italy 7.1%

China 6.9%

Austria 6.3%

Russia 6.2%France 4.8%Japan 4.2%

Others 40.0%

Country Profile


of Deutsche Telekom. About 40 of 100 inhabitants have a

landline phone. More than 50 % of the population are already

using the mobile phone network; the market is covered by three

providers (Pannon GSM, Westel and Vodafone). Internet

penetration in Hungary is growing strongly. 1 million users can

currently choose from 30 providers.

Human resources

Hungary offers investors a well-qualified workforce.

Workers and employees in the country are more familiar with

the conditions of a market economy than those of other

reform countries, and they consequently have much more

highly-developed management skills. Hungarians are at the

forefront of international activity in some areas of research

and development, such as the development of software.

Computing and foreign-language skills are very good.

With an average monthly salary of about EUR 540 (gross),

Hungary is most certainly competitive compared with the

progressive reform countries but in recent years it has become

less attractive on account of strong rises in wages (see Chart 3).

This is especially true if one compares Hungary with less

developed neighbouring countries such as Ukraine and

Romania. With output per employee amounting to almost

EUR 19,000 in 2003, Hungary has a very high productivity and

outperforms all other comparable countries with the exception

of Slovenia (see Chart 4).

It needs to be pointed out, however, that some parts of

Hungary, especially the west and Budapest, are already

suffering from a lack of skilled labour, and wages in these

regions and in the affected sectors are therefore well above

the national average.

region around Budapest is already well developed. It is still

inadequate in eastern Hungary, but it is being improved within

the framework of a comprehensive development program.

Investments in the transport infrastructure are important strategic

steps which promote dynamic growth, produce direct and

indirect effects, and lower transportation costs. Road construction

is therefore high on the agenda, although substantial investments

have already been made and Hungary boasts an efficient network

of motorways. Seven of the eight motorways with a length of

over 500 kilometres commence in Budapest, the capital, and link

all the country’s important cities with Europe’s network of roads.

The network of the State Railways is about 7,900 kilometres

long and is well suited for the transport of freight on account of

the low cost compared with other countries and its high reliability.

Budapest is the hub of Hungary’s railway network in that it is the

point of departure for all international and regional lines.

Hungary is a landlocked country, but offers access to the

Black Sea via the Danube and to the North Sea via the Rhine-

Main-Danube Canal. The most important ports are Budapest and

Dunaújváros.

Budapest has the country’s only international airport

(Ferihegy Repülötér), which offers daily connections to the major

European cities and long-distance destinations. In some cities the

regional governments are considering the possibility of

developing the airfields of former military bases etc. into national

airports for cargo and passengers.

Hungary’s telecommunications network is of a high standard

which in part surpasses that of other Central and Eastern

European countries. The liberalisation measures at the beginning

of 2002 also opened the market for landlines. The largest

provider is the former state monopoly MATÁV, which is now part

Chart 3: Gross monthly wages(2003 in EUR)

Sources: Bank Austria Creditanstalt Economics Department, WIIW

Chart 4: GDP per employee(2003 in EUR)

Sources: Bank Austria Creditanstalt Economics Department, nat. statistics

0

200

400

600

800

1,000

1,200

HungaryCzech Rep.SloveniaSlovakiaPoland HungaryCzech Rep.SloveniaSlovakiaPoland

0

5,000

10,000

15,000

20,000

25,000

30,000

Country Profile


The Euro is biding its time

The new EU members are required to adopt the single

European currency. It will therefore not be long before the

euro also becomes legal tender in Hungary, which will simplify

economic relations with the other EU countries. Hungary must

join the ERM II before it adopts the euro. ERM II is the

“waiting-room” for the euro, when the currencies of the

accession countries may not deviate from a central exchange

rate with the euro by more than + /– 15 % during a period of

two years. Hungary is the only country among the new EU

members to have introduced a currency system prior to

adoption of the euro, which meets these criteria. The parity

with the euro is currently HUF 282.36 for 1 euro. The parity

that will be applicable when Hungary joins ERM II will however

have to be fixed in bilateral negotiations.

In addition to the currency’s stability, which will be

monitored under ERM II, there are other criteria which need to

be fulfilled for the adoption of the euro, the Maastricht

Criteria. In view of the expansive budgetary policy pursued in

the last few years, Hungary will in particular have difficulty in

reducing the budget deficit in the shorter term to the required

maximum 3 % of GDP. The Hungarian government is planning

to fulfil the criteria by 2008, and to adopt the euro in 2010.

1.3. Economic status and outlook

The dark clouds which have been hovering above

Hungary’s economic sky these last two years are beginning to

disperse. Economic growth is picking up. Inflation is well up

on the previous year’s level following the tax rises in the

current year, but recent data indicate that the rate of inflation

will remain below 7 % in 2004. The worrisome double deficit

(budget and current account) is slowly starting to improve.

Despite the improvements heralded through merchandise

trade, the current account deficit persists at a level which is

not acceptable in the longer term. The government has taken

measures to keep the budget deficit under control. The

further reduction of the deficit will proceed only slowly, and

in view of the election year 2006, it is questionable whether

the government will achieve its objectives. The introduction

of the euro will therefore probably be postponed until 2010.

Investors again have greater confidence in the stability of the

economy, which is reflected in a stronger forint. This has

permitted the central bank to lower key interest rates in the

course of the year. The Hungarian economy is continuing to

improve in fundamental terms, but the sluggish upturn in the

EU and the slow progress made by the government in

consolidating the budget create an element of uncertainty.

Table 2: Hungary – selected indicators

2000 2001 2002 2003 2004 2005

Change on previous year in % Forecast

GDP (real) 5.2 3.8 3.5 2.9 3.4 3.8

Industrial output (real) 18.1 3.6 2.8 6.4 10.0 7.0

Gross fixed investment (real) 7.7 5.0 8.0 3.0 10.3 6.0

Consumer prices (annual average) 9.8 9.2 5.3 4.7 6.7 4.4

Unemployment rate (annual average) 6.4 5.7 5.8 5.9 5.8 5.7

Budget balance (in % of GDP) – 3.0 – 4.7 – 9.2 – 5.9 – 4.9 – 4.2

in EUR million

Exports of goods 27,988 31,346 36,821 38,060 42,200 46,300

Imports of goods 29,904 33,611 39,024 41,020 45,000 48,800

Current account balance –1,434 –1,248 – 2,771 – 6,470 – 6,600 – 6,200

Current account balance (in % of GDP) – 8.6 – 6.2 – 7.0 – 8.9 – 8.3 – 7.3

Foreign direct investment (net inflow) 214 810 891 2,320 2,500 2,800

Gross foreign debt (end of period) 33,038 37,568 38,578 45,560 47,900 54,100

Gross foreign debt (in % of GDP) 64.2 64.9 55.8 62.3 60.3 63.8

Import cover (in months) 3.5 3.3 2.8 2.8 2.3 2.2

HUF/EUR (annual average) 260.1 256.7 243.0 253.5 257.0 267.0

HUF/USD (annual average) 282.4 286.5 258.0 224.4 206.6 211.9

Sources: WIIW, National Bank of Hungary, Bank Austria Creditanstalt Economics Department

Country Profile


far ahead of Poland and ranks second only to the Czech

Republic (see Chart 6).

Germany is the most important investor in Hungary,

accounting for over 30 % of all foreign direct investment.

About three-quarters of foreign capital comes from the

member states of the European Union (EU 25), with Germany

heading the list, far ahead of the Netherlands and Austria

(Chart 7).

While the agricultural sector and the construction

industry received only about 1 % of total foreign direct

investment each, and therefore significantly less FDI than

these sectors’ contribution to GDP, industry is the most

important recipient of foreign capital in absolute and relative

terms with a share of just over 50 % of total FDI. Inflows to

1.4. Foreign direct investment

Hungary opened its doors to foreign capital very early on.

More than EUR 31 bn had flowed into the country by the end

of 2003, resulting in a far-reaching modernisation and

restructuring of the capital stock (see Chart 5). As the

privatisation process has now virtually been concluded,

foreign investments for an expansion and deepening of

production, and of the cooperation of the companies already

relocated in Hungary, are becoming more predominant.

In the initial years of economic transformation, Hungary

had the highest level of FDI in absolute terms. With inflows

ebbing in recent years, it has forfeited this top position to

Poland (with EUR 64.3 billion at the end of 2003). However,

in relation to population or economic output, Hungary is still

Chart 5: Total FDI stock in Hungary(year-end 2003 in EUR mn)

Sources: Bank Austria Creditanstalt Economics Department, MNB

Chart 6: Total FDI stock in comparison(year-end 2003)


Chart 7: FDI by country(year-end 2003)


Chart 8: FDI by sector(year-end 2003)


20032002200120001995

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000 Germany 31.1%

Netherlands 14.7%USA 8.2%

Austria 11.7%

France 5.2%

Others 24.8%

Italy 2.1%Belgium 2.2%

Real estate activities 11.6%

Financial intermediation 11.5%

Automotive sector 10.4%

Trade 10.2%

Transport, Telecommunication 10.0%

Electrical and optical equipment 9.6%

Food industry 6.4%

Others 30.3%

FDI stock per capita in EUR (left scale)

FDI stock in % of GDP (right scale)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

HungarySloveniaCzech RepublicSlovakiaPoland

10

0

20

30

40

50

60

Country Profile


the sectors concerned with the manufacture of motor-

vehicles and electrical and optical equipment, and to the

chemicals industry, were particularly high. In the services

sector, FDI in the financial services industry is particularly

pronounced. This is explained by the sale of most of

Hungary’s banks to foreign companies. Privatisation also

accounts for the outstanding position of the transport and

telecommunications sectors (Chart 8).

When viewed by region, the inflows of FDI are

distributed very unequally among the various regions of

Hungary. Central Hungary, consisting of the capital city

Budapest and Pest county which surrounds it, is by far the

most appealing target for foreign investors. More than two-

thirds of all FDI has flowed into this region so far. Other

preferred regions are Central and Western Transdanubia, two

very dynamic economic regions which have profited from the

establishment of foreign industrial plants. There is a

particularly heavy concentration of these new industrial

startups in Györ-Moson-Sopron county in Western

Transdanubia, where multinational companies like Audi,

General Motors, General Electric and Philips have established

themselves.

1.5. Regional Economic Overview

In accordance with the standard Nomenclature of

Territorial Units for Statistics (NUTS – Noménclature des

unités territoriales statistiques), Hungary is divided into seven

regions, which in turn are divided into two to three

administrative districts referred to in English as counties (see

Map 1). The regional economic status is shaped by the clear

dominance of Budapest, the capital city, where nearly one-

fifth of the total population lives, and by the contrast

between the dynamic growth trend in the western part of

the country and sluggish growth or stagnation in eastern

Hungary. The already existing differences have been

exacerbated since 1989, with the unequal distribution of FDI

mentioned above also playing a part.

Central Hungary

The region known as Central Hungary takes in the

capital city district and Pest county. With over 2.8 million

inhabitants, it is not only the most populous region but also

the most powerful economically. Although home to only

28 % of the total population, Central Hungary accounts for

43 % of Hungary’s total economic output and for 50 % of

the country’s over. 400,000 registered businesses. The region

has a jobless rate of not quite 2 %, the lowest in Hungary.

Nógrád

Borsod-Abaúj-Zemplén

Heves

Szabolcs-Szatmár-Bereg

Hajdú-BiharJász-Nagykun-Szolnok

Békés

Csongrád

Bács-Kiskun

Pest

Tolna

Baranya

Somogy

Zala

Vas

Komárom-Esztergom

FejérVeszprém

Gyor-Moson-Sopron˜

WesternTransdanubia

Central Transdanubia

Southern Transdanubia

Central Hungary

Southern Great Plain

Northern Great Plain

Northern Hungary

Budapest

Country Profile


Austria, Slovakia and Croatia. This region is the second most

developed in Hungary after Central Hungary. It has a well-

educated workforce and three highly competitive industries:

machine building, light industry and food processing.

Györ-Moson-Sopron deserves special mention as a county

which has attracted a lot of foreign capital. In fact, it has the

third-highest number of joint venture companies in Hungary

after Budapest and Pest. A number of multinational com-

panies have also established business operations here.

Southern Transdanubia

The economic situation of this region’s three counties,

Baranya, Somogy and Tolna, varies considerably. Their overall

economic output is only 50 % of the national average.

Military conflict in recent years in areas of Yugoslavia

immediately bordering the region hampered its development

and reduced its attractiveness for foreign investors. Paks, the

city where the country’s only nuclear energy plant is located,

and the area around Lake Balaton are both significant to the

regional economy. Infrastructural improvement, particularly in

transport routes, is a crucial prerequisite for this region’s

further development.

Northern Hungary

This region consists of the counties Borsod-Abaúj-

Zemplén, Heves and Nógrád and is to Hungary what the Ruhr

District is to Germany, the centre of traditional heavy industry.

It has been struggling hard to overcome the structural crisis in

this sector that came in the wake of the fundamental

changes in the economy. Its unemployment rate is the highest

in the country, yet this might also be characterised as one of

the region’s strengths. A skilled workforce is available here at

Gross monthly pay, at EUR 650, is about 20 % above the

national average.

The leading position of Central Hungary is clearly

attributable to Budapest, the national capital, being located

within it. This city is the hub of the Hungarian transport

system and has relatively highly developed economic,

financial and science sectors that make Budapest one of the

key regional centres in all of eastern Central Europe.

Budapest is also the most important market for Pest county,

with nearly half of the gainfully employed persons in the

county commuting to the capital to work. Thanks to its

proximity to Budapest, Pest county has a relatively well-

developed industry and a market-oriented agricultural sector.

Central Transdanubia

Central Transdanubia consists of the three counties Fejér,

Komárom-Esztergom and Veszprém and is one of Hungary’s

most dynamically growing regions. The per capita GDP at

purchasing power parities is EUR 11,200, which is somewhat

below the average for Hungary as a whole. The region’s

favourable geographical location, qualified workforce and

comparatively well-developed infrastructure have all been

magnets for investments in the past. To maintain this high

rate of growth in the future, Central Transdanubia must rise

to the challenging task of further developing its infrastructure

(telecommunications, road and rail networks), tertiary sector

and R&D capacity.

Western Transdanubia

Western Hungary is made up of the three counties Györ-

Moson-Sopron, Vas and Zala. It is referred to as the “gateway

to the West” because of its geographical location, bordering

Table 3: A comparison of the regions

Region Area in sq. km Population in mn GDP per capita Unemployment- Monthly Gross in EUR 2001 rate 2003 wages 2003

in % in EUR

Central Hungary 6,919 2.8 8,978 4.0 651

Central Transdanubia 11,237 1.1 5,298 4.6 490

Western Transdanubia 11,209 1.0 5,920 4.6 469

Southern Transdanubia 14,169 1.0 4,272 7.9 450

Northern Hungary 13,428 1.3 3,723 9.7 459

Northern Great Plain 17,729 1.5 3,771 6.8 441

Southern Great Plain 18,339 1.4 4,071 6.5 441

Hungary 93,030 10.1 5,675 5.9 541


Country Profile


low wages as well as fully developed business locations for

industry. There is also great potential for tourism here, given

the diversity of tourist attractions and the wealth of under-

utilised natural resources.

Northern Great Plain

This region, together with northern Hungary, is the most

poorly developed region in the country. The gap between it

and the other regions has widened further in recent years.

The Northern Great Plain is heavily agricultural, but also has a

food industry and a well-developed pharmaceutical industry.

The region lacks infrastructure but might have developmental

potential as a bridge between West and East. Special

enterprise zones and industrial parks offering tax concessions

have been created in an effort to attract investors.

Southern Great Plain

The Southern Great Plain is Hungary’s largest region.

Agriculture and an associated food industry both play an

important role. Besides its strengths in tourism (clean bodies

of water and protected nature areas), the region could be

established as the gateway to the Balkans. However, this

requires further substantial improvements in the local

infrastructure.

Your contacts at Bank Austria Creditanstalt:

Marianne Kager,

Head of Department,

Bank Austria Creditanstalt Economics Department,

Renngasse 2, A-1010 Vienna, tel.: +43 (0) 505 05 ext. 41952,


Walter Pudschedl,

Bank Austria Creditanstalt Economics Department,

Renngasse 2, A-1010 Vienna, tel.: +43 (0) 505 05 ext. 41957,


Overview of Assistance Programmes and Financing Products

14

Another possibility is the involvement of multinational

organisations (European Bank for Reconstruction and Develop-

ment – EBRD, the World Bank subsidiary International Finance

Corporation – IFC, the Overseas Private Investment Corporation

– OPIC, and the European Investment Bank – EIB). All these

institutions have extensive experience in project financing and

can also make equity investments of their own, thereby making

it possible to realise financing deals in difficult markets as

well.

Besides pure project finance deals, it is also possible to

combine project financing and export financing, guarantees

extended by OeKB for Austrian suppliers, etc. – see Chapter

3.5. “International Export Financing” – in order to meet

customer demands in the best possible way.

In times of globalisation when take-overs are becoming

increasingly common and expansion is the trend in many sectors,

acquisition financing has become a significant segment of

project financing. This type of financing involves the takeover

of an existing company by a competitor. The loan used in

financing the takeover must be repayable from the joint

future cash flow of the two undertakings – taking into

account the savings potential (synergy effects) resulting from

such transactions.

2.1.1. International project financing and Bank Austria Creditanstalt

The Corporate and Project Finance department, which is

responsible for project finance at Bank Austria Creditanstalt,

has long-standing contacts with multinational organisations

(EBRD, EIB, the World Bank Group – in particular, IFC and

MIGA) and serves as central point of contact for any enquiries

in this area for Bank Austria Creditanstalt. Excellent cooperation

with multinational organisations makes it possible to realise

private investment projects even in difficult markets. The

department’s expertise and experience, coupled with the

excellent quality of its advice and assistance, enable it to

provide valuable support for covering local and global markets.

By cooperating with the units of Bank Austria Creditanstalt

abroad, it can efficiently serve companies on site and provide

financing tranches in local currency.

2. Overview of Assistance Programmesand Financing Products

2.1. International Project Financing

The term project financing refers to a direct financing

arrangement for a legally independent business entity created

to carry out a specific project (Special Purpose Company –

SPC). The capital requirement for the project is met by sponsors

(initiators, providers of equity), providers of outside capital

(commercial banks, multinational organisations such as the

IFC, EBRD, etc.) and guarantors. Further project financing

participants are project contractors and project operators.

In deciding whether a project will be realised, the key

criterion is the project’s financial viability (cash-flow orientation).

Apart from this, spreading the project risks among the project

participants is of particular importance in project financing.

Another important aspect is to achieve an optimised structuring

depending on the financial performance of the individual

project participants. As far as risk sharing is concerned, every

participant should bear the risks which lie within its scope of

responsibility (e.g. the project contractor should be responsible

for risks related to the timely completion of the project).

A project finance deal is characterised by a variety of risks –

commercial risks (e.g. market risk, acceptance risk, transport

risk), political risks (e.g. extraordinary government intervention,

expropriation, war, revolution, strike and import restrictions),

technical risks (e.g. process risks, operational and technological

risks) and force majeure (e.g. natural disasters). Consequently, a

detailed project analysis and evaluation (feasibility study) must

be carried out before the execution and financing of a project.

This feasibility study should cover the following: project

description, financing need, the structure of the financing

arrangement, market study, competitor analysis, cost calculation,

investment calculation, projected balance sheets, break-even

analysis, general contractor and subcontractors, project

participants and credit position reports, collateral and a final

risk and project assessment.

Although the special purpose company’s assets serve as

main collateral, and in addition to the assignment of shares in

the company, project participants may be required to furnish

further collateral. This may include the assumption of special

guarantees, assignments, liens or various types of guarantees

(warranty, sales, utilisation and transfer guarantees).




2.1.2. World Bank Group

The World Bank Group consists of the IBRD (International

Bank for Reconstruction and Development), IDA (International

Development Association), IFC (International Finance Cor-

poration), MIGA (Multilateral Investment Guarantee Agency)

and ICSID (International Center for Settlement of Investment

Disputes).

Whereas the IBRD extends loans at the usual market

rates to creditworthy states and refinances them by issuing

bonds on the capital market, IDA makes available loans to

countries with low credit ratings. Such loans (interest-free,

small processing fee, extremely long-term, 10-year redemption-

free period) cannot be refinanced on the capital market but

are funded by contributions from 30 member states.

Unlike the IBRD and IDA, IFC does not lend to countries

but directly to private companies (lender to the private sector).

It can refinance these loans on the capital market at

favourable rates thanks to its AAA rating. Apart from lending,

IFC can also take equity interests and provide know-how if

required. Since IFC lends only a specific percentage of the

project costs, international commercial banks – in addition to

providers of equity capital – are integrated in the project

financing as well (providers of B-loans).

MIGA issues guarantees against political risks to project

investors (providers of equity capital, shareholder loans or

outside capital). Projects insured by MIGA guarantees must be

economically viable, correspond to the development plans of

the host country and comply with environmental standards.

2.1.3. European Bank for Reconstruction andDevelopment (EBRD)

The EBRD was established in 1991. Its purpose is to promote

the transition to an open market economy and to encourage

private and entrepreneurial activities in those countries of

Central and Eastern Europe (CEE) and the Commonwealth of

Independent States (CIS) which are committed to and guided

by the principles of multi-party democracy, pluralism and market

economy. The main types of EBRD financing for private sector

enterprises are loans, investments (shares) and guarantees.

2.1.4. European Investment Bank (EIB)

The EIB is the financing institution of the European Union.

It finances projects which are consistent with European

objectives (promotion of small and medium-sized enterprises,

environmental protection, improvement of transportation and

telecom infrastructure, etc.) and involve a volume of over

EUR 25 million at usual market rates in the form of individual

loan arrangements. EIB financing covers a maximum of 50% of

the project costs; the difference must be raised through equity

capital and commercial bank loans or other EU assistance

schemes. The EIB refinances its loans on the capital market

thanks to its AAA rating. Smaller projects can be financed

through “global loans” granted to banks. Under this

arrangement, the EIB extends loans to banks subject to the

condition that these banks grant smaller loans to project

applicants.

EIB activities in the CEE countries are coordinated with

the Phare and ISPA programmes and with EBRD financing

arrangements.

The EIB has set up a financing scheme for CEE countries

under which it makes available a total of EUR 8.7 billion for the

period from 2000 to 2007. In addition, the “Pre-Accession

Facility” has been renewed and a total of EUR 8.5 billion has

been reserved for the period from 2000 to 2003.

Your contact at Bank Austria Creditanstalt:

Martin Handrich, Head of Department,

Corporate and Project Finance CEE,

Schottengasse 6, A-1010 Vienna,

tel.: +43 (0) 505 05 ext. 42860,


for Global Loans:

Christian Rakos, Syndications & Loan Markets,


tel.: +43 (0) 505 05 ext. 43132,


Our sectoral experts for telecoms & media, energy &

utilities, transport infrastructure & PFI and the manufacturing

industry & primary products will also be pleased to assist you

with any questions and inquiries you may have.

2.2. Financial Support from theEuropean Union

Hungary’s accession to the European Union in 2004 also

marks the beginning of transition from pre-accession

assistance to full participation in the EU’s regional policy. As

accession was not occurring at the beginning of the year, but

only on 1 May 2004, a special mechanism for transition had

to be created.

It should be noted that the new Member States are fully

integrated into the EU budget from 1 January 2004. This

means that the funds available within the framework of

regional policy can be used from 1 January 2004. Nevertheless,

projects to be carried out with the support of EU regional policy

may only be submitted and approved following accession.



Hungary will be allocated more than EUR 2 billion from the

EU Structural Funds and roughly EUR 1.1. billion from the

Cohesion Fund.

The common aid strategy which covers all the Funds will

be executed via four programmes, which are focussed on

competitiveness in the production sector (EUR 721 million, of

which EUR 304 is earmarked for agriculture and rural

development), improvement of the transport and

environmental infrastructure (EUR 314 million), development

of human resources (EUR 535 million) and regional

development (EUR 338 million). Above and beyond this,

funds amounting to EUR 88 million will be available within

the framework of technical assistance. Moreover, major

projects in transport and environmental infrastructure will

also be co-financed from the Cohesion Fund. Hungary has

seven regions all of which are eligible for aid under Objective

1 in the period 2004 – 2006.

2.2.1.2. Community programmes in theEuropean Union

In contrast to the national programmes which are directly

derived from European regional policy, the Community

programmes are centrally administrated by the offices of the

European Commission. Proposals can be submitted either

directly to the competent office (Directorate General) of the

European Commission or in certain cases to the agencies

created in the participating countries (for example, this is the

case for the programme LIFE). These bodies then publish the

relevant calls for tenders which enterprises can take part in.

Enterprises can apply to participate in the programmes directly

at the Commission’s offices and its external branches. The

new Member States are allowed to participate in the

Community programmes from 1 January 2004.

These programmes generally focus on specific areas and

goals, such as the environment, research and training. They

are not tailored to regional needs, but rather serve to promote

crucial areas which are important throughout the Union. Aid

by the European Union is provided in the form of grants,

which generally cover 50 % of the project expenses.

Examples of Community programmesThe Sixth EU Framework Programme

Every four years the European Commission adopts a

“Framework Programme” for promoting research and develop-

ment, and the economic application of research results. The

current Sixth Programme covers the period 2002 – 2006 and

has a budget of EUR 17.5 billion.

One core element of the current programme is the

promotion of cooperation between universities, research

The transition mechanism functions as follows:

◆ Participation in EU regional policy; projects carried out

under the framework of the Structural Funds which were

commenced between January and the actual date of accession

could only be approved after 1 May 2004. Expenses

incurred up to that date will be reimbursed retroactively.

◆ Termination of pre-accession assistance programmes:

◆ ISPA and SAPARD each have a successor instrument,

namely the Cohesion Fund and the Agricultural Fund.

Programmes and projects which were approved prior to

31 December 2003 will be completed under ISPA or under

SAPARD. Since 1 January 2004, new projects are only

approved within the framework of the Cohesion Fund and

the Agricultural Fund and are carried out according to their

regulations.

◆ In contrast to ISPA and SAPARD, the Phare programme has

no successor in the new EU countries. The final round of

programme planning was completed in 2003. Contracts for

measures within the framework of this programme must be

awarded within the subsequent two years, and payments

can be made until the end of 2006. Since 1 May 2004,

tenders, award of contracts, execution and payments within

the framework of the Phare programme will be carried out

by the executive offices in the new Member States.

2.2.1. Instruments of EU regional policy

The European Commission provides co-financing for

project in the Member States through programmes in the

fields of agriculture, regional policy, infrastructure,

employment and social issues. Financial support is provided

via the national programmes which cover several eligible

measures. As soon as the authorities in the Member States

and the European Commission reach agreement on the

national programmes (this happened in December 2003 in

respect of the new Member States), Community funds are

made available to realize the goals of the programmes. The

European Commission itself is only responsible for monitoring

proper performance of the programme and proper utilisation

of the funds. The national authorities are responsible for

execution, performance and announcement of the pro-

grammes and projects.

2.2.1.1. National programmes in Hungary

Hungary will receive more than EUR 3 billion in the

period 2004 – 2006 for basic infrastructure development and

measures to boost economic growth and create jobs. After

Poland, Hungary is the second largest recipient of aid from

the Structural and Cohesion Funds. Based on the decisions of

the Copenhagen European Council in December 2002,



centres and undertakings, including small and medium-sized

enterprises. More than 15 % of the total budget of the new

“Framework Programme” (EUR 2.2 billion) is allocated to the

promotion of research and innovation by SMEs.

Further information on the Sixth Framework Programme

can be found at

http: / / europa.eu.int / comm/research / fp6 / index_en.html.

CORDIS

The web portal CORDIS offers approximately 30,000

websites covering all aspects of EU research and innovation

policy. It serves as the Internet information service for research

and development in the Community. CORDIS contains all

information pertaining to programmes, projects and R&D

partners.

The Web portal can be accessed on the Internet at

http: / /www.cordis.lu.

LIFE III

The LIFE programme contributes to development,

implementation and actualisation of environmental policy and

law in the Community and promotes the integration of

environmental aspects into the Community’s policy actions.

Another goal of the programme is to explore new solutions for

environmental problems facing the entire Community.

Project proposals can be submitted to the agencies

founded in the participating countries. The EU has appropriated

EUR 0.6 billion for the current period (2000 – 2004).

For more information on LIFE III, please check the Internet

at http: / / europa.eu.int / comm/ life /home.htm

Intelligent energy for Europe

This new multi-year programme (covering the period

2003 – 2006) for measures in the field of energy offers

financial aid for local, regional and national initiatives in the

areas of “Renewable energy sources”, “Energy efficiency” and

“Energy Specific Aspects of Transport”, supports the fields of

“Renewable energy sources” (ALTENER) and “Energy

efficiency” (SAVE), updates the existing international

programme (COOPENER) and creates a new area of action

“Energy Specific Aspects of Transport” (STEER).

More information on the programme “Intelligent Energy”

can be found at

http: / /europa.eu.int /comm/energy/ intelligent / index_en.html

eContent

eContent aims to support the development of digital

content in global networks and promote linguistic diversity in

the information society. Some EUR 100 million are available

for the three target areas:

◆ Public sector information;

◆ Production of content;

◆ Markets for digital content.

The programme will run from 2002 to 2005, with a call

for proposals each year.

More information on eContent can be found on the

Internet at http: / /www.cordis.lu /econtent

More information on other programmes and initiatives

for the development of the information society can be found

on the website of the Directorate General for the Information

Society: http://europa.eu.int/ information_society/programmes/

index_en.htm

Your contact at Bank Austria Creditanstalt:

Peter Rieger, Representative

Bank Austria Creditanstalt Brussels Representative Office,

Avenue de Cortenbergh 89, B-1000 Brussels,

tel.: (+32 2) 735 41 22,


2.2.2. EU SME Finance Facility Phase II(SME FF)

In 1999 the EU Commission launched a Finance Facility

for the ten applicant countries. The Commission administers

the programme in cooperation with the EBRD, the EIB and

the CEB (Council of Europe Development Bank) or KfW

(Kreditanstalt für Wiederaufbau).

The essential purpose of the programme is to facilitate

long-term lending to small and medium-sized enterprises

(SMEs) by local financial institutions (banks, leasing companies

and equity funds) in the applicant countries. Support to these

intermediaries is provided in two ways: the “traditional”

lending procedure, through the so-called “Loan and Guarantee

Window”, in which technical assistance, performance bonuses,

exchange risk hedging, incentives for small-volume loans and

the assumption of costs of special loan guarantees are offered.

Through the other variant, the so-called “Equity Window”,

equity capital and management support are made available.

In either “Window”, the final borrowers, i.e. local SMEs,

have to meet the local and national standards in the areas of

environmental protection, security and health protection. The

lending banks are contractually obliged to apply the assistance

granted to them exclusively to measures promoting SMEs and to

provide information on individual financings to the institutions

administering the programme and the EU Commission on

request.



Guarantee cover ratio:

Up to 100% for political risks (portion of loss to be borne

by the applicant: 0 – 5%).

Variable guarantee fee:

Between 0.2% and 1.5% p.a., payable annually in

advance, for the cover of the political risk in the narrower

sense (e.g. expropriation, war, armed conflict, etc.). For the

assumption of guarantee cover for the transfer risk, an add-on

of 50% is charged.

Term:

Up to a maximum of 25 years; in practice: 5 to 10 years in

most cases.

Origination of claims, covered risks:

Complete or partial loss or complete or partial destruction

of the equity investment or of the right similar to an equity

investment as a result, directly or indirectly, of a political action

(e.g. nationalisation, expropriation etc.) and restrictions on the

transfer of the proceeds derived from the sale or liquidation of

the equity investment, of income from equity investments or

of payments of capital and interest under legal transactions

similar to equity investments.

Application procedure:

G4 applications (forms) are to be filed through Bank Austria

Creditanstalt as the applicant’s principal banker.


Your corporate account manager at

Bank Austria Creditanstalt and the Head and team of

Export & Investment Promotion Finance,

tel.: +43 (0) 505 05 ext. 44405, 44424,


2.3.1.2. OeKB investment financing

Objective:

Financing an equity investment (up to 100%) in a foreign

company. Granting of a shareholder loan for the setting up of

production facilities, distribution facilities, etc.

Requirements to be met:

G4 guarantee (if there is a conceivable political risk), or

a bill guarantee commitment of the Republic of Austria, or a

guarantee undertaken by Austria Wirtschaftsservice Gesell-

schaft mit beschränkter Haftung (AWS).

HVB Bank Hungary Rt. (http:/ /www.hvb.hu), a member of

the Bank Austria Creditanstalt Group, has been granted finance

facilities by the EIB. The facilities will be made available to SMEs,

territorial authorities, PPPs and companies acting in the interest

of local authorities, for infrastructure projects. The finance

facilities are a prerequisite for participation in the “Loan

Window” of the EU SME Finance Facility. HVB Bank Hungary

is participating in this programme.


Christian Rakos, Syndications & Loan Markets,


tel.: +43 (0) 505 05 ext. 43132,


Kurt Klepeisz, Syndications & Loan Markets,


tel.: +43 (0) 505 05 ext. 53955,


2.3. Austrian Financing Products

2.3.1. Insurance and financing products ofOesterreichische Kontrollbank (OeKB)

2.3.1.1. Guarantee of the Republic of Austria:OeKB investment guarantee

Objective:

Promoting investment projects which directly or indirectly

serve the improvement of Austria’s balance on current account

through assumption of a guarantee to cover the political risk.

Applicants:

Austrian companies, e.g. production, trading and service

companies, holding companies, etc.

Projects eligible for assistance:

Equity investments, rights similar to equity investments

(loans similar to equity investments, shareholder loans).

Scope of guarantee:

◆ Book value of the equity investment (financial contributions

or contributions in kind, shareholder loans).

◆ Increases (e.g. in connection with capital increases) are

possible. Reductions will be made on account of decreases

in equity interests held, loan repayments, write-downs etc.

◆ Guarantee cover for interest and income is possible. There

is no upper or lower limit for the project.



Financing amount:

Value of the equity investment and /or the loan, in certain

cases less a portion to be borne by the applicant.

Term:

A maximum of 25 years, of which a maximum of 10 years

may be redemption-free (in practice 5 to 10 years, of which

usually 2 to 3 years redemption-free).

Financing cost:

◆ Terms of OeKB Export Financing Scheme (EFS) depending

on the term of the loan.

◆ Fee for G4 (the guarantee fee is variable, depending on the

country risk) or bill commitment (bill of exchange fee:

0.2% p.a.; the risk is borne by Bank Austria Creditanstalt)

or a guarantee of AWS.

The interest rates applicable at any given time are shown

on the information sheet “Exportservice” or on the Internet

page of Bank Austria Creditanstalt (http: / /www.ba-ca.com).

Financing fee:

0.8% of the financing amount, payable only where the

financing is backed by a guarantee of AWS.

Interest is charged:

Quarterly in arrears.

Collateral:

Assignment of G4, assignment of the equity investment /

loan agreement, in certain cases additional material collateral

(e.g. mortgage security, AWS guarantees, etc.)


Written application (no formal requirements) to Bank Austria

Creditanstalt as the applicant’s principal bankers, after a G4,

a bill commitment, or an AWS guarantee has been obtained.

Further information:

Information sheet “Exportservice-OeKB-Beteiligungs-

finanzierung” or Bank Austria Creditanstalt’s Internet page

(http: / /www.ba-ca.com).





tel.: +43 (0) 505 05 ext. 44405, 44424,


2.3.2. Austria Wirtschaftsservice Gesellschaftmit beschränkter Haftung (AWS)

2.3.2.1. Guarantees issued by the Ost-West Fond

Objective:

Promoting the internationalisation of Austrian companies,

reducing the risk in connection with equity investments of

Austrian companies outside Austria through assumption of a

guarantee to cover the commercial risk.

Applicants:

Companies

◆ which have their registered office in Austria,

◆ which are majority-owned by Austrian investors,

◆ which are not majority-owned by Austrian investors yet where

the investment project promotes the strategic goals and

strengthens the competitive position of the applicant company

and the latter is in charge of the execution of the project.


◆ Acquisition of equity interests in foreign companies; raising

equity interests in, and capital increases of, companies in

which an interest is held already.

◆ Granting shareholder loans, shareholder contributions and

other shareholder instruments (e.g. sureties) to the affiliated

company, provided that these measures may be expected to

increase the company’s efficiency and to lead to a sustained

improvement in the Austrian company’s market position.

◆ In the case of equity interests in EEA countries, the applicant

company must qualify as SME (= small or medium-sized

enterprise) under the EU definition (fewer than 250

employees, an annual turnover of less than EUR 40 million

or total assets of less than EUR 27 million).


There must be a need for collateral, i.e. failure of the

project would cause substantial damage to the applicant

company.

Project limits:

Lower limit: EUR 0.73 million; no upper limit.

Method of assistance:

The assumption of a

◆ Direct guarantee – AWS/East-West Fund undertakes to pay

to the Austrian company a certain share of the equity

investment (risk-sharing ratio) if and when the defined

event (= commercial failure of the investment project)

occurs.







tel.: +43 (0) 505 05 ext. 44405, 44424,


2.3.2.2. Internationalisation projects (SME)

Objective:

Promoting the internationalisation of Austrian small and

medium-sized enterprises (SMEs).

Applicants:

SMEs with their registered office in Austria.


Foreign investment / internationalisation projects whose

projected costs must not exceed EUR 1 million.

Conditions:

The project must help to strengthen the competitiveness

of Austrian SMEs; it must have a positive effect on Austria’s

balance on current account.

Method of support:

The assumption of

◆ Guarantees to cover the commercial risk (= project guarantee)

or

the financing relating to the project (= financing guarantee)

and

◆ Guarantees to cover the political risk (transacted via OeKB).

Risk covered by the guarantee:

This is determined on a case-by-case basis, although the

beneficiary under the guarantee must in each case assume

part of the commercial risk (minimum: 50%). The financing

guarantee covers a maximum of 80% of the outstanding loan

amount. As regards the political risk, a cover ratio of up to

100% (with 5 –10% to be borne by the beneficiary) is possible.

Guarantee fee:

Approximately 1% p.a.

◆ Financing guarantee with risk sharing – this is a combination

of a direct guarantee and a guarantee undertaken in

favour of a financing bank.

Where financing is to be granted: what is the

cost of financing?

◆ It will be in line with market terms.

◆ A combination with cost-attractive loans (ERP loans, OeKB

investment finance, start-up loans, etc.) is possible.

Risk covered by the guarantee:

◆ Risk-sharing ratio in the case of direct guarantees: a

maximum of 50% (the exact share is determined on a

case-by-case basis).

◆ Financing guarantees with risk sharing: the loan amount

must not exceed 90% of the planned project costs. The

guarantee in favour of the bank covers up to 90% thereof

(with ERP financing arrangements: up to 100%).

Guarantee fee:

Depending on type and scope of guarantee: approximately

1% p.a., payable semi-annually on 30 June and 31 December.

Term of guarantee:

◆ Direct guarantee: up to a maximum of 12 years.

◆ Financing guarantee with risk sharing: up to a maximum of

15 years.

Origination of claims:

◆ Direct guarantee: occurrence of the event(s) defined for

the individual case (e.g. insolvency of the affiliated

company, enduring operating losses etc.)

◆ Financing guarantee with risk sharing:

◆ Insolvency of the Austrian company,

◆ Occurrence of the special event(s) defined for the individual

case.

Applications must be filed with:

◆ Your Bank Austria Creditanstalt branch.

◆ Austria Wirtschaftsservice Gesellschaft m.b.H. (formerly

Finanzierungsgarantie Ges.m.b.H. /Ost-West-Fonds), Ungar-

gasse 37, A-1031 Vienna.

Applications must be accompanied by:

◆ Information on the applicant’s economic and personal

circumstances, and evidence of its compliance with

company law and trade law regulations.

◆ Documentation on the investment project.



Where financing is to be granted: what is the

cost of financing?

◆ It will be in line with AWS/BÜRGES terms.

◆ A combination with cost-attractive loans (ERP loans, OeKB

investment financing, start-up loans etc.) is possible.

Origination of claims:

◆ Failure of the internationalisation project (prevention of

enduring damage to the Austrian SME).

◆ Insolvency of the beneficiary under the guarantee

(= Austrian company).

◆ Occurrence of political event(s) covered by the guarantee.

Applications must be filed with:

◆ Your Bank Austria Creditanstalt branch.

◆ Austria Wirtschaftsservice Gesellschaft m.b.H. (formerly

BÜRGES Förderungsbank Gesellschaft m.b.H.), Ungargasse 37,

A-1031 Vienna.

Applications must be accompanied by:

◆ Information on the borrower’s economic and personal

circumstances and evidence of its compliance with

company law and trade law regulations.

◆ Documentation on the equity investment project.





tel.: +43 (0) 505 05 ext. 44405, 44424,


2.3.3. Study funds of AWS and OeKB

2.3.3.1 AWS:

Objective:

The objective is to offer financial support for and assistance

with the application for programmes of European and

international organisations (= suppport of applications) and

preparing and accompanying projects (= support for studies)

in connection with direct investments, equity investments

and /or other investments outside Austria.

Eligible for assistance:

Companies active in all economic sectors (with the exception

of agriculture and forestry, real estate and insurances) with

their registered office in Austria.

Object and amount of support:

◆ Support for applications: general expenses arising in

connection with applications for assistance under EU

programmes and comparable programmes of other inter-

national organisations. There is a lump-sum grant of

EUR 2,900.–; in the case of costs exceeding EUR 5,800.–

the grant will be 50%, yet not exceeding EUR 7,250.–.

◆ Support for studies: If support under the programmes

referred to above is not available, AWS will take over 50%

of the costs of external consultants and experts for the

development, preparation and evaluation of the feasibility

of the project. Cash outlays of the company (e.g. travel

expenses) may be included in the costs eligible for assistance

up to a maximum of 25%.


◆ Support for applications: filing of the application, duly

signed by the applicant company, with the European or

international organisation; the application must comply in

terms of form and substance with the requirements of the

relevant programme.

◆ Support for studies:

◆ The investment project must be plausible.

◆ The conditions necessary for a successful execution of the

project are met or can be created by the SME or its partners.

◆ The qualifications of the external consultants are ensured.

◆ There must be an appropriate relation between the con-

sultancy costs and total project costs.

◆ Work on the study has not yet started at the time of filing

of the application.

◆ No other assistance programmes are available for this project.

2.3.3.2 OeKB study fund

Objective:

Assistance in penetrating new markets and reduction of

start-up costs. Access to professional market studies which

are of significance to the exporting sector as a whole. Infor-

mation on new growth markets and growth sectors.

Amount of assistance:

Up to 100% of the costs for which evidence has been

furnished, up to a maximum of EUR 200,000.–.


Application for the commissioning of a study directly with

OeKB, including a detailed description and the requested

scope of the study, a breakdown of the prospective costs and

a list of potential deliveries and services.



advantage of all available national and international assistance

and insurance options.

The main focus is on the Austrian export promotion system.

The Republic of Austria has appointed Oesterreichische

Kontrollbank AG (OeKB) as its agent for the operation of the

export guarantee scheme and export financing system.

Oesterreichische Kontrollbank (OeKB) has established a

wholly-owned subsidiary which will become active in the area

of credit insurance in August 2004. The subsidiary will provide

cover for short-term export transactions (terms of payment for

goods and services of up to 24 months, as a rule on a

revolving basis). The purpose of this move is to increasingly

leave marketable risks to the private insurance market.

Requirements for the assumption of guarantees

by the Republic of Austria:

◆ The underlying export transaction must improve the Austrian

current account either directly or indirectly and must comply

with the applicable regulations regarding the minimum net

product generated in Austria.

◆ Compliance with the rules set at the international and EU

level (Berne Union, OECD Consensus – the Arrangement

on Guidelines for Officially Supported Export Credits – this

is accepted as a gentlemen’s agreement by almost all

OECD member states).

◆ Examination of each individual transaction for eligibility for

cover on the basis of the current guarantee cover policy of

the Austrian export promotion agencies.

Major products offered by the International Export

Finance department of Bank Austria Creditanstalt:

◆ Buyer credits with /without OeKB guarantee:

This is the classical product in international export financing.

Based on an export contract, a credit agreement is concluded

between our bank and the buyer or the buyer’s bank for the

direct financing of the export contract. The loan is disbursed

directly to the exporter on a pro-rata basis against delivery,

and against presentation of documentary evidence. The

borrower then repays the credit in accordance with the agreed

terms. Depending on the project and the prevailing inter-

national setting, the term of a buyer credit ranges between

2 and 10 years (power plants: up to 12 years).

◆ Purchase of receivables with/without OeKB guarantee:

This is the recommended method for lower-volume

export transactions. Unlike the extensive negotiations involved

in a buyer credit, the contractual arrangement is limited to an

agreement between Bank Austria Creditanstalt and the

exporter. However, it offers the same advantage of balance

sheet contraction as does the buyer credit. Furthermore, even





tel.: +43 (0) 505 05 ext. 44405, 44424,


2.4. International Export Financing (Austria)

In global competition, exporters increasingly face the

challenge of having not only to sell their products and services

but also to raise part or all of the finance to fund such trans-

actions. This means that besides the price, technology, quality,

delivery period and after-sales service, the appeal of the

accompanying financing offer is a crucial factor in landing a

contract.

In response to this trend, financial institutions and

commercial banks have developed a number of products and

facilities to offer tailor-made financing arrangements to

support export projects – all of which seek to take into

account as much as possible the sometimes very different

preferences and demands of buyers.

International export financing generally covers the wide

range of buyer-related export financing arrangements. It

includes all financing measures in which the foreign buyer /

importer, its bank or the respective government acts as

borrower or guarantor.

Since international export financing is a type of sales

financing, there must be a direct connection between an

actual export transaction and the relevant financing.

This means:

◆ There must be a material connection between the export

contract and the financing.

◆ The financing must be used directly for the performance of

the export contract.

Cross-border financing operations frequently entail

commercial risks (production, acceptance, del credere risks,

etc.) and also political risks (e.g. extraordinary government

intervention such as the freezing of payments, moratoriums,

transfer and exchange restrictions as well as strikes,

expropriation, revolution, war, import restrictions, etc.). To

counter these risks, recourse to national (OeKB or private

insurers) and international (MIGA, AIG, etc.) insurance products

is often advisable.

The range of international export financing products

offered by Bank Austria Creditanstalt comprises all sorts of

short, medium and long-term financing facilities, taking full



without OeKB cover, Bank Austria Creditanstalt may discount

export receivables with or without recourse (forfaiting) – if

necessary, with the involvement of a private insurance

company, this depends on the creditworthiness of the debtor

and the collateral furnished.

◆ Advance payment or local cost financing (without

OeKB guarantee):

This financing product is a supplementary credit to the

buyer credit. It is not backed by a guarantee of the Republic

of Austria. The handling of the transaction resembles that of

a buyer credit, but generally shorter repayment periods are

involved.

◆ Syndicated loans:

Bank Austria Creditanstalt, in an arranger or co-arranger

capacity, acts as lender jointly with selected domestic and /or

foreign banks (banking syndicate) to finance large-scale

projects.

◆ Master loan agreement:

Bank Austria Creditanstalt has concluded master loan

agreements with a number of foreign banks. These agreements

set down the basic arrangements for the aforementioned

financing projects. The incorporation of a financing transaction

in this type of agreement greatly reduces and simplifies

administrative procedures and the time required for the

transaction.

◆ Letter of credit follow-up financing (with /without

OeKB guarantee):

A foreign bank opens a letter of credit in favour of an

Austrian exporter, payable “at sight”. For the medium-term

financing of payments under the L /C, the foreign bank

simultaneously concludes a financing contract with the

advising bank of the Bank Austria Creditanstalt.

◆ Multisourcing in international export financing:

As the degree of globalisation increases, so does the

complexity of export projects. Larger contracts today often

involve several deliveries from various countries. Thanks to the

extensive international network of the HVB Group, Bank Austria

Creditanstalt is in a position to take advantage, directly or

indirectly, of the various government financing and guarantee

programmes and to obtain private insurance cover, thus

offering tailor-made financing solutions under one roof. For

such financings the local units of the Bank Austria Creditanstalt

cooperate with the government export insurance agency of

Hungary (Hungarian Export Credit Insurance – MEHIB).

Financing in connection with the Kyoto Objective:

At the World Climate Conference held in Kyoto in 1997

the industrialised countries decided to lower their greenhouse

gas emissions within a specific timeframe. These commitments

have a direct impact on the competitiveness of companies. As

a result of the Kyoto Protocol and the relevant resolutions

passed at EU-level and in Austria, companies will have to take

decisions related to climate policy into account when

developing their own corporate strategy.

The projects realised within the flexible instruments Joint

Implementation (JI) and Clean Development Mechanism

(CDM) and the emission certificates generated under these

schemes offer additional business potential to many companies.

Bank Austria Creditanstalt supports companies in all aspects

of structuring and financing such cross-border transactions.

Where it is possible and appropriate, refinancing of the

aforementioned products will be obtained under the Export

Financing Scheme (EFS) operated by OeKB.


Robert Fleischmann, Head of Department,

International Export and Trade Finance,

Am Hof 2, A-1010 Vienna, tel.: +43 (0) 505 05 ext. 56901,


Florence Werdisheim, Deputy Head of Department,




2.5. Structured Trade Finance andCommodity Trade Finance

These are financing instruments used in transactions

involving raw materials and goods purchased for resale (e.g.

crude oil, steel and steel products, metals, cotton, fertilisers,

paper, etc.).

In structuring the financing arrangement account is taken

of the production, transport and selling cycle of the commodity

concerned. As collateral for the financing, rights to the goods

(including, if applicable, insurances) and /or rights to the

contracts of sale are assigned to Bank Austria Creditanstalt.

Generally, a maximum of 80 % of the contract value is

financed. Structured trade finance is a form of sales finance, so

credit periods are in the short to medium range (6 – 18 months).

Frequently used methods of financing:

◆ Pre-export financing,

◆ Tolling financing,

◆ Transport financing,

◆ Inventory financing,

◆ Trade receivables financing,



31 December 2002 (the last year being 2011). A certain

increase in the workforce is a prerequisite for tax relief.

◆ Major investment (at least HUF 3 billion) for production

operations in economically underdeveloped regions. Tax relief

is set as a proportion of sales, with account being taken of the

total sales revenues derived from product manufacturing in

the region. Tax relief is granted for a maximum of 10 years

from the commencement of operations for investments

in respect of which operations commenced prior to

31 December 2002 (the last year being 2011).

2. Development incentive (government ordinance 275/2003,

XII.24)

Major investment:

◆ Investments of at least HUF 3 billion (HUF 1 billion in

regions which are lagging behind)

◆ which result in the creation of a new plant, or

◆ in the expansion of an existing plant, which results in changes

to the manufactured product, the performance delivered, or in

changes in the production or performance process.

An 80 % tax concession is granted for a maximum period of

10 years from the commencement of operations for

investments in respect of which operations commenced after

31 December 2002 and which are operated for 5 years,

provided the following conditions are met:

◆ in the case of major investments the share of new plant

must amount to at least 30 %

◆ the amount accounting for the enlargement of existing

plants may not exceed 20 % of the investment amount (this

requirement does not apply to regions which are lagging

behind).

Furthermore, one of the following three conditions must be

met:

◆ Staffing levels are increased by 100 persons (or by 50 in

regions which are lagging behind)

◆ The annual wage costs are increased by 600 times the

current minimum wage (or by 300 times in regions which

are lagging behind) within 4 fiscal years

◆ Small and medium-sized suppliers account for at least 30 %

3. Investments which create jobs

◆ A tax concession without a minimum investment is granted

for 80 % if staffing levels are increased by 300 persons (or

by 150 in regions which are lagging behind) within 5 fiscal

years, if 20 % of the hired personnel are entry-level workers

or employees.

◆ Financing of capital goods redeemed by sale of goods

under firm delivery contracts,

◆ Barter and countertrade transactions.

In contrast to classical “balance sheet lending”, in structured

trade finance the main focus is on the structure of the trans-

action and of the collateral.


Margit Slezak, Deputy Head of Department,




Alfred Wolloch,




2.6. Investment Incentives Available inHungary

The following corporate income tax relief for investments can

be claimed as from 1 January 2004:

A distinction is made as regards the type of investment:

1. Projects involving the manufacturing of products

2. Projects involving expansion and renewal (development)

3. Projects for the creation of jobs

4. Other investments.

A distinction is also made as regards the location of the

investment:

◆ Enterprise zones = regions listed in government ordinances

(there are currently 11 such regions).

◆ Preferred regions = regions where unemployment is 15 %

higher than in the previous year. (The list of places is issued

annually.)

◆ Economically underdeveloped regions = regions listed in a

government ordinance (these places are underdeveloped

by economic or infrastructure standards, or their

unemployment rate is higher than the national average).

◆ Other regions.

Types of tax relief:

1. Investment incentive

◆ Major investment (at least HUF 10 billion) for production

purposes: 100 % tax relief for a maximum of 10 years

from the commencement of operations for investments

in respect of which operations commenced prior to



4. Other investments

◆ Major investments (at least HUF 100 billion): tax concession

of 80 % for a maximum of 10 years from the

commencement of operations of an investment

◆ to set up a wideband Internet connection,

◆ to manufacture film and videos,

◆ within the framework of an independent environmental

protection project,

◆ for the promotion of food hygiene at an existing

production plant for food from animal sources.

◆ SMEs can claim tax relief amounting to 40 % of their loan

interest during the fiscal year (maximum: HUF 6 million a

year) if the loan was taken out for the acquisition

(production) of tangible assets after 31 December 2000.

Tax relief can be claimed in the years in which the tangible

assets are in the company’s possession. The last year of the

tax relief is the year in which the loan has to be paid back

according to the original loan agreement. (In other words,

a subsequent extension of the repayment period does not

result in an extension of the tax concession.)

Tax relief cannot be claimed either by international shipping

companies or for activities in the field of forestry and

agriculture, and fisheries.

De minimis assistance

◆ With due consideration to Regulation 69 /2001/EC,

taxpayers can in Hungary claim assistance in a total

amount of EUR 100,000 in three consecutive years (de

minimis).

The following qualify as de minimis assistance:

◆ concessions for SMEs: the assessment basis for tax

purposes can be reduced by the profits before taxes, but by

not more than HUF 30 million provided certain conditions

are met (Sections 7 – 8, Corporate Income Tax Act);

◆ concessions for research and development: the assessment

basis for tax purposes can be reduced by the direct costs of

the research and development work, but by not more than

HUF 50 million provided certain conditions are met

(Sections 7 – 8, Corporate Income Tax Act);

◆ Tax concessions for SMEs (see above for loan interest relief).

Relief on capital investment tax for new investments can no

longer be claimed after Hungary’s accession to the EU.

Assistance granted prior to Hungary’s accession to the EU will

remain intact for the period for which it was provided, but it

is subject to further conditions (Section 29 /E, Corporate

Income Tax Act), which need to be taken into account for the

computation of the actual percentage of relief granted.

Investments in the areas of agriculture, forestry and fishery

are subject to additional conditions for eligibility for the relief

mentioned above. These are outlined in the Council

Regulation 1257/1999/EC and 1263/1999/EC.

Your contacts at CONSULTATIO:CONSULTATIO Wirtschaftsprüfungsgesellschaft m.b.H.

Gerhard Pichler, Auditor and Tax Consultant,

Managing Director,

Holzmeistergasse 7 – 9, A-1210 Vienna,

tel.: (+43 1) 27 775 ext. 240,


Siegfried Scheiner, Auditor and Tax Consultant,

Holzmeistergasse 7 – 9, A-1210 Vienna,

tel.: (+43 1) 27 775 ext. 244,


CONSULTATIO Kft.

Gazdasági és Adóügyi Tanácsadó /

Tax Consultants and Auditors,

József Knapp, Auditor and Tax Consultant, Managing Director,

Zugligeti út 6, H-1121 Budapest, tel.: (+36 1) 391 4170,


Zsuzsa Marosfalvi, Tax Consultant,



Krisztina Gubicza, Tax Consultant,



3.1. Commercial Law, Company Law

3.1.1. General remarks

As part of a further harmonisation of Hungarian law with

the body of law in the European Union, company law has

been newly regulated in the “Law on Economic Entities”,

which entered into force on 16 June 1998.

Since 1998, Hungarian company law has allowed the

formation of a pre-registration company (“pre-company”),

which comes into being upon

◆ the recording of the shareholders’/partnership agreement

in an official document and

◆ the countersigning of the shareholders’/partnership

agreement by an attorney at law.

A pre-company can begin conducting business upon

applying for entry in the Commercial Register, but it is subject

to certain restrictions during the period until registration:

◆ The company is not allowed to conduct activities requiring

an official permit or authorisation until it is entered in the

Commercial Register.

◆ No change in shareholders /partners is allowed.

◆ The pre-company is not allowed to be dissolved or

converted into another form.

◆ No change in the shareholders’/partnership agreement is

allowed.

◆ No legal action may be taken to exclude a shareholder /

partner.

A one-man company is not allowed to be a sole partner

or shareholder of another company. This provision also applies

to one-man companies whose registered office is abroad.

The provisions on executive organs (managing

director /management board) were made more stringent in

order to protect creditors. Once an economic entity is legally

determined to be insolvent (bankrupt), any managing

director /management board member who served in an

executive capacity at the bankrupt company for at least one

year in the two years prior to the institution of bankruptcy

proceedings must not be appointed as managing director of

another company for a period of 3 years.

In 1998 a provision was included in the law that enables

a full power of attorney to be granted to an employee to act

on behalf of the company.

A company with branches or more than one business

location can grant this power of attorney to several

employees.

Sanctions were introduced to combat the abuse of

limited liability. The partners / shareholders are jointly and

severally liable in full for the outstanding liabilities of the

dissolved company if they have abused their limited liability.

The court is entitled to rule on this transferred liability.

Companies with insufficient equity are subject to

“compulsory conversion”: If the data in the financial

statements indicate that a company’s equity is below the

amount of subscribed capital legally required for this form of

business organisation in two subsequent years (e.g. due to

accumulated losses), and the company (shareholders) does

(do) not take steps to procure the necessary equity within

three months after the approval of the financial statements,

the company must pass a resolution to convert itself to

another form of business organisation.

In this conversion, a form of business organisation must

be chosen for which

◆ the equity capital of the company meets the prescribed

requirement or

◆ no minimum amount of subscribed capital is required by

law.

The new Law on Company Registration entered into

force concurrently with the Law on Economic Entities on 16

June 1998. The Commercial Register is kept at the county

court of the capital city (Budapest) or at the district courts. It

is public and can therefore be inspected by anyone.

Based on the EU Council Directive 69 /335 /EC

concerning indirect taxes on the raising of capital

(corresponds to the Austrian regulation on company tax),

according to which the entry of a company in the Register of

Firms (establishment of a company) and notification of

changes is subject to tax at a rate which may not exceed 1 %

of the capital, there has been an amendment. The

percentage-based registration fee, which exceeded the 1 %

ceiling, has been replaced by fixed rates.

In line with this procedure, the registration fee for

an open stock corporation amounts to HUF 600,000, for a

limited liability company or a closed stock corporation

3. Legal Principles and Investment Environment

Legal Principles and Investment Environment




HUF 80,000, and for companies which are not legal entities

(e.g. a limited partnership) the registration fee amounts to

HUF 50,000. The fee for notification of changes amounts to

40 % of the registration fee.

The disclosure fee in respect of the application is

HUF 25,000 for companies which are legal entities, and

HUF 14,000 for companies which are not legal entities. The

disclosure fee for changes is HUF 15,000 and HUF 7,000,

respectively.

To accelerate the formation of companies, the law

provides for relatively short periods within which a company

must be registered with the Registry Court. This period is 30

+8 days for general and limited partnerships, and 60+8 days

for stock corporations and limited liability companies.

If no decision is taken within this period (an application

is rejected or approved) the company is ex lege deemed to

have been entered on the 39th day or 69th day, respectively.

No restrictions apply to the formation of a company by

foreigners. Foreigners can be shareholders /partners as well

as managing directors.

3.1.2. General partnership (kkt)

As in Austrian law, the general partnership is not

deemed to be a legal person in Hungary. The Hungarian

designation for a general partnership (kkt) must be included

in the company’s name.

The partners provide the requisite assets. They bear full

personal liability jointly and severally for the firm’s debts if

the partnership assets prove to be insufficient (a relevant

action must be filed).

In principle, each partner is entitled to manage the firm

unless he / she has been finally sentenced to enforceable

imprisonment for committing a criminal act. The partners can

designate one or several managers in the partnership

agreement, in which case the others are not authorised to

manage the company.

The partners are not obligated to increase their portion

of partnership assets as defined in the partnership agreement

or to even up their contribution to these assets in the event

of a loss. The surrender of a share in the partnership’s assets

or its equivalent value can only be demanded if the company

is dissolved or a partner withdraws from the partnership.

Profits and losses are distributed among the partners in

relation to their contribution to partnership assets unless the

partnership agreement stipulates otherwise.

3.1.3. Limited partnership (bt)

Like the general partnership, the limited partnership is

not deemed to be a legal person.

Hungarian law, like Austrian law, requires that at least

one partner in the limited partnership (general partner) bear

full personal liability in respect of the partnership’s creditors,

as well as joint and several liability if several general partners

are involved. At least one further partner (limited partner)

must bear liability in respect of the partnership’s creditors up

to the amount of his /her contribution. The regulations

governing the general partnership also apply to the limited

partnership unless the law stipulates otherwise.

The limited partner is not entitled to manage the

company unless his /her name is included in the company

name. Any contractual changes deviating from this provision

are null and void. If his /her name appears in the company

name, he / she bears the same liability as the general partner.

The company ceases to exist if all general partners

withdraw from the partnership unless

◆ a new general partner is registered within 3 months or

◆ the partnership is converted into a general partnership.

The company ceases to exist if all limited partners leave

the company unless

◆ a new limited partner is registered within 3 months or

◆ the partnership is converted into a general partnership.

3.1.4. Stock corporation (rt)

The stock corporation is a legal person with a stated

capital (share capital) amounting to at least HUF 20 million,

currently equivalent to approximately EUR 77,520; it consists

of shares of a predetermined number and nominal value. A

shareholder’s liability to the company is limited to payment of

the nominal value or issue value of the share. A shareholder

is not liable for the stock corporation’s debt.

A shareholder is obligated to pay the full value of his /her

shares within one year after the stock corporation’s entry in

the Commercial Register and to provide his /her contribution in

kind by the time the application for registration is submitted. A

shareholder is entitled to that part of the net profit which the

shareholders’ meeting has stipulated for distribution.

A stock corporation can only be registered if its

founders’ meeting was convened in conformity with the law,

the stated capital has been completely subscribed to, and at

least 30 % of the nominal value or the issue price but at least

HUF 10 million (approx. EUR 38,760) has been paid in as

cash contributions, and the contributions in kind have been

made available to the stock corporation.



The foundation charter of a corporation can confer

certain powers on the supervisory board: the power to

appoint /dismiss members of the management board, to

approve their remuneration, to approve certain legal

transactions. If the supervisory board rejects a legal

transaction, the management board is entitled to convene a

shareholders’ meeting. The shareholders’ meeting can

override the supervisory board’s decision only with a three-

quarters majority.

The members of the supervisory board (no fewer than 3

and no more than 15 persons) are elected by the

shareholders’ meeting. If the corporation has more than 200

employees, one-third of the supervisory board must consist of

employees (a rule similar to the one existing in Austria).

It is also possible to form a one-man company. This form

of business organisation comes into being when a single

person holds all the shares in a company.

The same regulations apply to the one-man company as

to a regular stock corporation, with a few exceptions: the

share capital must be fully paid in by the time the application

for registration is filed. The one-man company is not allowed

to acquire shares in its shareholder. In certain cases, the

shareholder bears unlimited and full liability. For example, if

the shareholder constantly pursues an imprudent business

policy that puts the one-man company’s ability to fulfil its

obligations at risk, the court can rule, subject to a pertinent

petition, that the shareholder must bear unlimited and full

liability.

The shareholder can also assume unlimited and full

liability in the founders’ agreement for the one-man

company’s debts.

3.1.5. Limited liability company (kft)

The limited liability company is a legal person. The stated

capital (share capital) is the total of the shareholders’ initial

contributions to capital and must amount to at least

HUF 3 million (the equivalent of approximately EUR 11,630).

The cash contributions at foundation must be at least

30 % of the share capital and must amount to at least

HUF 1 million. The registration can only be carried out if at

least one-half of each cash contribution and a total of

HUF 1 million have been paid up. Cash contributions not paid

up at foundation must be paid up within a year after the

company’s registration with the Commercial Registry Court.

The contributions in kind must be made available by the time

the application for registration is filed.

The highest organ of the stock corporation is the

shareholders’ meeting, which consists of all shareholders. The

shareholders’ meeting has sole authority, inter alia, to

determine and amend the articles of association, to increase

or decrease the share capital, to approve the financial

statements and to distribute the annual profit, to appoint and

dismiss the members of the management board (unless the

articles of association give this power to the supervisory

board) and the members of the supervisory board.

The shareholders’ meeting must be called with the

frequency stipulated in the articles of association but at least

once a year. The shareholders’ meeting can be convened any

time the need arises.

The management board, on receiving information that

the corporation’s equity has declined to two-thirds of the

share capital or has fallen below HUF 20 million as a result of

losses or that the stock corporation has ceased to make

payments and its assets do not cover its debts, must convene

a shareholders’ meeting within eight days, with simultaneous

notification of the supervisory board, in order that the

necessary actions can be taken.

The management board must consist of no fewer than

three and no more than eleven members (directors). It elects

its chairman from its own ranks. There is a different

regulation for closed stock corporations. The directors are

elected for a term of no more than five years. They can be

reelected and dismissed at any time.

The management board is the managing body of the

stock corporation. It represents the company in relation to

third parties, before courts of law and other authorities,

decides and guides the way work is organised at the

corporation, and exercises the rights of an employer. Its rights

and chief duties include, but are not limited to, the following:

◆ making all decisions outside the purview of the

shareholders’ meeting,

◆ submitting and publishing the annual financial statements,

◆ submitting a proposal for the distribution of profit,

◆ making decisions on taking up loans, etc.

The supervisory board is charged – as in Austria – with

supervising the company’s management and is entitled to

demand reports or information from the company’s directors

and executive personnel in order to monitor the company’s

activities. The shareholders’ meeting is not entitled to make a

decision on the annual financial statements or the use of

profit without first receiving a written report from the

supervisory board.



The initial contributions to capital may vary in size but no

single contribution must be less than HUF 100,000. Each

shareholder is permitted to hold just one initial contribution

to capital, but an initial contribution may be held by several

owners.

The initial contribution to capital corresponds to the

share in the company that embodies the shareholders’ rights

and the portion of company assets to which he / she is

entitled. Title to this share can be freely transferred to the

company’s shareholders. Title to the share can only be

transferred to an outside party if the shareholder has paid up

his /her initial contribution to capital in full. The shareholder,

the company or a person named by the shareholders’

meeting is entitled to a right of pre-emption to the share

intended to be transferred. The transfer of the share does not

require a modification of the shareholders’ agreement, but it

must be reported to the Commercial Registry Court.

The company’s profit is divided in proportion to the initial

contributions to capital unless the shareholders’ agreement

stipulates otherwise.

The shareholders’ meeting is the highest organ of the

limited liability company and must be convened at least once

a year.

The shareholders’ meeting must be convened immediately

to take necessary actions if the financial statements or

accounting records of the company indicate that equity has

declined to half of the share capital or below HUF 3 million as

a result of losses, or if the company has ceased to make

payments and its assets do not cover its debts.

The shareholders’ meeting can also decide on issues that

fall within the competence of executive organs if the

shareholders’ agreement so allows. There are two exceptions

to this rule: In a one-man company and a company in which

a shareholder has at least a three-quarters majority, the

shareholder can divest the managing director of his /her

powers at any time. This frees the managing director from

his /her legally stipulated responsibility.

The shareholders’ meeting has sole power on certain

matters, including, but not limited to, the following:

◆ adopting the financial statements and distributing the

company’s profit

◆ increasing and decreasing the share capital

◆ redeeming shares

◆ excluding shareholders

◆ electing and dismissing the managing director, the

members of the supervisory board, etc.

The managing director (directors) is (are) appointed for a

specified period of time (a maximum of 5 years, but he / they

can be re-elected), represents (represent) the company in

external relations and handles (handle) the affairs of the

company. The managing director’s representational power

can be limited by the shareholders’ agreement, but such

limitations are invalid in respect of third parties. All

shareholders can be authorised to represent the company, i. e.

all shareholders can be appointed as managing directors.

The managing director may grant two employees a

power of attorney for the performance of specific duties;

these are however required to sign jointly on behalf of the

firm (with the exception of an authorised signatory, who is

authorised to sign singly).

A Hungarian limited liability company can also have a

supervisory board, whose members are elected by the

shareholders’ meeting. The election of a supervisory board is

mandatory if the share capital exceeds HUF 50 million or if

the average number of full-time employees exceeds 200. In a

limited liability company, as in a stock corporation, the

shareholders’ agreement can place the supervisory board

above the managing director(s) in certain matters (see the

regulations for stock corporations for more details).

The company can also be formed by just one shareholder,

in which case it is referred to as a one-man company. The

shareholders’ meeting consists of the founder. A one-man

limited liability company is not allowed to acquire a share in

itself. A supervisory board is only required if the average

number of full-time employees exceeds 200. The cash

contribution to capital must be paid up in full prior to

registration with the Commercial Registry Court.

As with a one-man corporation, the shareholder of a

one-man limited liability company can bear full and unlimited

liability in accordance with the legal provisions concerning

groups of companies (imprudent business policy).

3.1.6. Limited partnership with a limitedliability company acting as general(personally liable) partner

There is no Hungarian designation for this form of

business organisation. The general (personally liable) partner

is a limited liability company. The Hungarian name of a

company of this type does not indicate that the only general

partner is a limited liability company. The same provisions

apply as to limited partnerships.



The branch comes into being upon its entry in the

Commercial Register and can begin conducting business at

this point in time.

In principle, domestic enterprises and foreign branches

are treated equally with regard to establishment and

operations. In a few cases1, however, there are diverging

regulations.

A branch operating in the name of a foreign company or

of a non-resident is not permitted to conduct representative

or agency activities. The foreign company may dispose of the

assets, rights and obligations of a branch only in the event of

dissolution of the branch or during insolvency proceedings

governed by the Establishment Law2.

3.1.10. Commercial representations

A foreign company is entitled to found a permanent

direct commercial representation in Hungary. This

organisational entity comes into being upon its entry in the

Commercial Register and has no legal personality of its own.

A commercial representation is permitted to perform the

following activities:

◆ Arranging trade agreements with foreign partners,

◆ Helping with the preparations for the conclusion of

agreements and

◆ Information and advertising activities.

3.1.11. Forming a limited liability company (kft)

The formation is performed by a lawyer or notary public.

A shareholders’ agreement or, in the case of a one-man

company, a foundation charter must be executed.

The shareholders’ agreement must contain at least the

following elements:

◆ Company’s name (related to the company’s line of activity)

◆ Registered office (with exact address)

◆ Name, address of the shareholders (for natural persons:

mother’s maiden name; for legal persons: the company’s

registration number and a certified copy of the Commercial

Register extract)

◆ Scope of business

◆ Share capital and shareholders’ initial contribution to

capital

◆ Method of, and due date for, payment of the cash

contribution to capital

3.1.7. Joint venture (kv)

The joint venture is a special form of business

organisation. It is an economic entity formed by members

and is liable to creditors to the extent of the company’s

assets. If these assets do not suffice to cover the liabilities, the

members are jointly liable for the debts as guarantors in

proportion to their stake in the venture.

The board of directors is the highest organ of the joint

venture; the managing director is responsible for managing

and representing the joint venture.

This type of business organisation is established to

achieve a joint goal (e.g. joint research and development).

3.1.8. Sole proprietorship (sole tradership)

Sole proprietorships are regulated in the “Law on the

Establishment of Independent Foreign Businesses for

Commercial Purposes” (Law LXXII of 1998).

Foreign citizens have been entitled to register as sole

proprietors in Hungary since 1 January 1999. The only

requirement is that Hungarian citizens be given the same

opportunity. A sole proprietor registers with the appropriate

mayor’s office in Hungary, which will issue to him/her the

business licence required to conduct the given activity. There

are no minimum capital requirements. The sole proprietor

must assume personal liability and personally participate in

the business. Foreigners need a residence permit. A person

who is a partner / shareholder bearing unlimited liability in a

company is not permitted to be a sole proprietor.

3.1.9. Branches of foreign companies

The provisions governing the establishment of branches

are contained in the “Law on the Establishment of Branches

and Commercial Agencies in Hungary by Companies whose

Registered Office is Abroad”.

A foreign company has been able to open branches in

Hungary without founding a separate company since

1 January 1998. A branch establishment is a legally

independent organisational entity of the foreign company. As

a rule, there are no minimum capital requirements, although

a branch of a foreign bank, for example, must be endowed

with a capital of at least HUF 2 billion upon its establishment.

The parent must ensure that the requisite assets are

provided at all times. As from 1 January 2004, only branch

employees or employees domiciled in Hungary may be

authorised to sign for the branch, but these employees must

not be given full power of attorney to act on behalf of the

parent company or other associated companies. The branch

must be entered in the Commercial Register. 1) Where public safety and order are involved, for example.2) Section 10 II of the Establishment Law



◆ Voting rights

◆ Name, mother’s maiden name and address of the first

managing director; nature and type of representation in the

case of more than one managing director. A foreigner can

also be the managing director; he / she need neither have a

residence in Hungary nor master the Hungarian language.

◆ Company signature: A notary public is required for the

authentication of the managing director’s signature.

◆ In the mandatory election of a supervisory board, the

supervisory board members’ names and addresses and

their mothers’ maiden names must be indicated.

◆ In the mandatory appointment of an auditor, the person

acting as the first auditor must be indicated.

◆ The procedure for convening regular shareholders’

meetings.

◆ Duration of the company: If the company is founded for a

specified period of time, this period must be indicated.

3.2. Accounting Law

3.2.1. Introduction

The Accounting Act C of 2000 went into effect on

1 January 2001.

Basically, the Act aims to adjust Hungarian accounting

provisions to those contained in the EU Accounting Directive

No. 4 of 1978 and in the International Accounting Standards.

The main purpose of the Act is to ensure that the

financial statements give a true and fair view of a company’s

assets, financial position and earnings.

3.2.2. Reporting and bookkeeping

Section 4 of the Accounting Act defines the obligation of

all business owners, public organisations, other organisations

(foundations, housing cooperatives, non-profit organisations)

and the National Bank of Hungary to report on their activities,

assets, financial position and earnings.

A separate government ordinance regulates the special

requirements for accounting and the preparation of the

annual financial statements by the National Bank of Hungary,

other banks, financial services firms, investment funds, etc.

The Accounting Act provides for four methods of

reporting:

◆ annual financial statements,

◆ summary annual financial statements,

◆ consolidated annual financial statements,

◆ summary financial statements (summary balance sheet and

summary income statement)

Companies are generally required to prepare (“normal”)

financial statements. The annual financial statements consist

of a balance sheet, an income statement and the notes to the

financial statements. An annual report must also be prepared.

The summary annual financial statements (an annual report is

not required) are permissible only if two of the three key

figures below are not exceeded in two successive years:

◆ Total assets: HUF 150 million (approx. EUR 580,000),

◆ Annual net sales revenues: HUF 300 million (approx. EUR

1,160,000),

◆ Average workforce: 50.

A stock corporation, a company that is consolidated and

the branch establishment of a foreign company are not

permitted to prepare summary annual financial statements.

In the summary annual financial statements, the balance

sheet evidences the items designated with Roman numerals

and written in upper-case letters (see Chapter 4.2.6. –

Important balance sheet and income statement items); the

notes are not as extensive as in the standard annual financial

statements.

Consolidated annual financial statements must be

prepared by a company acting as parent company or by a

company whose equity interest in a jointly managed company

gives it certain rights in respect of that company.

The parent company is deemed to be the company that

has a controlling influence on another company and meets at

least one of the following criteria:

a) it holds a majority of owners’ (shareholders’) votes based

on its ownership share or an agreement it made with the

other owners (shareholders); or

b) it is entitled as owner of the company to appoint or dismiss

the majority of the executive company officers (re-

presentatives) and members of the supervisory board; or

c) it exercises a decisive right of management or control

based on a contract concluded with the owners

(shareholders) (or a provision in the memorandum of

association) – regardless of its ownership interest, share of

votes, and the right to appoint and dismiss.

If the parent does not exceed two of the three key

figures below in the two years prior to a given reporting year,

it need not prepare consolidated annual financial statements

for that year:

◆ Balance sheet total: HUF 2,700 million

(approx. EUR 10.5 million)

◆ Sales proceeds: HUF 4,000 million (approx. EUR 15.5 million)

◆ Average workforce: 250



The business owner can dispense with the publication of

the notes in part or in full if the auditor attests that the

disclosures in the balance sheet and income statement suffice

to assess the company’s assets, financial position and

earnings. If the auditor has no objections after completing

the audit, he / she issues the legally prescribed short version of

an opinion as in Austria.

If the annual financial statements are not examined by an

auditor, this fact must be indicated therein: “The published

data have not been examined by an auditor.” In this case,

disclosure of the notes is compulsory.

Obligation of audit (Section 155 of the Accounting Act)

All companies are required to undergo audits if their net

sales proceeds exceed an average HUF 50 million in two

consecutive years.

Audits are also mandatory:

◆ if the choice of the public accounting company is specified

in a binding manner by legal provisions (e.g. stock

corporation, one-man company),

◆ for savings banks,

◆ for companies which are consolidated,

◆ for branch establishments of foreign companies.

Branch establishments of foreign companies are

exempted from the obligations of lodgement, disclosure and

audit if the company’s registered office is located in a

member state of the European Union, or, should the

registered office not be located in a member state of the

European Union, if the legal provisions of the relevant country

on the obligations of lodgement, disclosure and audit are in

accord with the pertinent provisions of the European Union.

The list of these countries is disclosed by the Ministry of

Finance. The branch establishments referred to above are

subject to the obligations of lodgement and disclosure only if

the annual financial statements or consolidated financial

statements were prepared by the foreign company on the

basis of the pertinent provisions of the member state in

which foreign company has its registered office, unless their

preparation, audit, disclosure and lodgement is in accord with

the relevant provisions of the European Union.

3.2.4. Standard format of accounts

The purpose of the standard format of accounts with its

uniform and systematic classification of assets and liabilities is

to assist the business owner in organising his /her accounting

procedure and to secure the basic information necessary to

prepare the annual financial statements (Section 78). The law

The summary annual financial statements corresponds to

the Austrian cash-based accounting method. As from

1 January 2004 a summary financial statement may no longer

be prepared by a partnership company (only by sole

proprietorships); as from this date a partnership company is

required to prepare its accounts in accordance with the

double-entry bookkeeping system.

The financial statements must be prepared in Hungarian,

and the figures must be indicated in HUF 1,000. Exception:

companies in duty-free zones are permitted to prepare their

annual financial statements in convertible foreign currencies,

but in million HUF if total assets exceed HUF 100 billion.

The books of account must be in Hungarian (for single or

double-entry bookkeeping).

Unlike Austria, the advance payment of dividends is

allowed. Prerequisite for the advance payment of dividends is

that an interim balance sheet be drawn up. The valuation

provisions for annual financial statements (Section 21 of the

Accounting Act) apply to the preparation of this interim

balance sheet.

3.2.3. Obligations of lodgement, disclosureand audit

Obligation of lodgement

All companies (including business establishments)

entered in the Commercial Register must lodge with the

Commercial Registry Court their annual financial statements

and the proposal for the use of the taxed profit for a given

year under review within 150 days of the balance sheet

reference date, but by 30 May of the following year (Section

153 of the Accounting Act). The management report does

not have to be lodged.

For the parent (consolidated annual financial statements),

the deadline for lodgement is within 180 days of the balance

sheet reference date, but by 29 June of the year following the

year under review.

Obligation of disclosure (Section 154 of the Accounting Act)

The business owner must also send a copy of the annual

financial statements to the company registration and

information office of the Hungarian Ministry of Justice. If

he / she fails to comply with this obligation and a third party’s

interests are affected as a result, that third party can file a

petition with the Commercial Registry Court to institute

supervisory proceedings to ascertain whether all legal

requirements have been met.

Disclosure of the management report is not required.



stipulates the content of the account classes; the format of

accounts is not legally mandatory up to the first number of

the account class.

Please refer to Annex 1 (Chapter 4.1.) for more

information.

3.2.5. Annual financial statements

3.2.5.1. General remarks

As mentioned above, the annual financial statements

include, pursuant to Section 19 of the Accounting Act, the

following:

◆ the balance sheet,

◆ the income statement,

◆ the notes (“supplemental annex”).

Every company using double-entry bookkeeping is

required to prepare an annual report (= management report).

Companies which prepare summary financial statements are

exempted from this requirement. As from 1 January 2002,

the annual report is formally no longer part of the annual

financial statements. It no longer has to be published, but

must be deposited at the company’s registered office and be

made accessible to other persons (employees, public

accountants, finance office, etc.).

3.2.5.2. Balance sheet

The law provides for two versions of the balance sheet,

“A” and “B”. The summary balance sheet contains only

summary items designated with letters.

Additional items may be added, empty items may be

deleted, and items may be summarised or renamed (Section

22, Para (3) of the Accounting Act).

The balance sheet formats are shown in Annex 2

(versions “A” and “B”).

3.2.5.3. Income statement

The income statement must be drawn up in conformity

with a legally prescribed format. Companies (obliged to keep

books of account) have a choice between the total cost

method and the cost of sales method. If the latter method is

used, the figures have to be indicated for the total cost

method in the notes.

The format of the income statement is presented in the

Annex (4.2.3.– 4.2.6.).

3.2.5.4. Notes

The notes must be prepared for both the “standard” and

the summary annual financial statements (Sections 88 – 94 of

the Accounting Act). Requirements are relaxed somewhat for

the summary annual financial statements. The disclosures

deemed to be significant (valuation methods, investments,

statement of fixed assets) correspond to those in Austria. In

Hungary the notes must also include an analysis of the

development of the assets, financial positions and earnings,

and a presentation of the development of equity, liabilities,

liquidity and profitability. This information overlaps with that

appearing in the management report. The reason is that the

management report only has to be produced for the

(“standard”) annual financial statements and need not be

published. A cash flow statement constitutes part of the

notes to the “standard” annual financial statements.

3.2.5.5. Management report

The management report (to be prepared in accordance

with Section 95 of the Accounting Act) has to be prepared

only for the (“standard”) annual financial statements. The

management report should give a true and fair view of the

assets, financial position and earnings of the company and

the course of its business. It must elaborate on significant

events occurring after the balance sheet date, on the

acquisition of treasury stock, on R&D activities and on the

likely development of the general economic environment.

3.2.6. Important balance sheet and incomestatement items

3.2.6.1. Fixed assets

Acquisition costs of an asset are the expenses incurred to

acquire it, put it into operation or deliver it to the warehouse,

to the extent that they are individually allocable to the asset.

The acquisition costs include the purchase price less price

reductions or plus price markups, the costs of delivery and

shipping, etc. The following costs closely associated with the

acquisition of assets are also considered part of the

acquisition costs:

◆ fees and charges to be paid,

◆ customs charges and fees levied on dutiable goods in

addition to customs duties,

◆ general value-added tax charged but not deductible,

◆ other fees and charges,

◆ interest on credits and loans taken out in direct connection

with the acquisition or production of assets until the asset

is put into operation (Section 47, Para (4) of the

Accounting Act),

◆ fees for bank guarantees paid prior to taking up credits

and loans,

◆ commissions, etc.



3.2.6.1.3. Financial assets

Long-term financial investments are defined as assets

(investments, securities, loans, long-term bank deposits)

which a business owner invests in or hands over to another

business owner with the intention of realising continuous

income (dividends or interest) from that business owner or of

acquiring the possibility of influencing, managing or

controlling that business owner.

3.2.6.2. Current assets

Inventories, receivables (not serving the business owner’s

activity on a long-term basis), securities (embodying a credit

relationship) and liquid assets have to be evidenced under

current assets.

Like fixed assets, current assets are to be valued at their

cost of acquisition or production.

3.2.6.3. Accrued and deferred items

Accrued and deferred items in Hungary include both

transitory items and anticipatory items. In Austria only

transitory items may be recorded under accruals and

deferrals, while anticipatory items must be recorded under

other receivables or other liabilities.

Accrued and deferred liabilities also contain damage

claims, court costs and interest on arrears allocable to the

fiscal year even if they were not asserted against or made

known to the company until preparation of the balance

sheet. Also included are bonuses and premiums allocable to

the fiscal year and already decided upon but not yet paid.

3.2.6.4. Capital and reserves

Hungary has significantly fewer legal provisions on

liability and creditor protection than Austria. For example,

there is no legally set minimum for reserves; interests in one’s

own company can be acquired without limitation up to a

stake of 33 % (up to 10 % in a stock corporation).

Capital and reserves comprise capital subscribed, capital

subscribed but not yet paid in, the capital reserve, the

revenue reserve, the appropriated reserve, the revaluation

reserve, and the profit or loss for the year.

In the case of stock corporations and limited liability

companies, capital subscribed is defined as the share capital

registered with the Commercial Registry Court; in the case of

other forms of business organisation, the capital made

available to the business by the owner on a permanent basis.

The capital reserve item includes, inter alia, the difference

between the nominal value and the issue value of the shares,

monies and assets finally made available by shareholders /

partners upon foundation or as part of a capital increase, or

Deductible input tax does not qualify as part of the

acquisition costs.

Production costs include expenses directly incurred during

the production, commissioning, expansion or modification of

the intended purpose, the conversion and the restoration of

the original state of an asset (product). They must be

demonstrably closely related to the production and be able to

be netted against the assets with the help of appropriate key

figures and conversion formulas. The cost of sales and not

directly allocable administrative and overhead expenses are

not to be treated as expenses.

3.2.6.1.1. Intangible assets

Intangible fixed assets acquired from third parties must be

capitalised. Intangible assets must in principle be amortised

over their expected useful lives. Marketable rights can be

amortised over an unspecified period. Unlike Austria, self-

produced intangible assets must be recorded under assets.

As in Austria, goodwill is defined as the difference

between the price paid to purchase the acquired company

and the value of the individual assets less debt. Capitalised

goodwill must be amortised over a period of at least 5 years.

Neither Hungary nor Austria allows original goodwill to be

shown in the balance sheet.

Whereas Austria prohibits the recognition of R&D

expenses, Hungary permits it. The amortisation period is at

most 5 years.

Expenses incurred in the establishment and expansion of

the business are allowed to be capitalised in Hungary.

The Hungarian rules apply without restriction also to tax

law, whereas in Austria, for example, goodwill must be

amortised over 15 years.

3.2.6.1.2. Tangible assets

Any property, plant and equipment (land and buildings,

rights associated therewith , technical plants, machinery and

vehicles, other installations, equipment, assets in the course

of construction, payments on account and breeding stock)

used on a long-term basis (i. e. for at least one year) to

conduct business must be recorded under tangible assets.

The cost of the trial operation of a factory under

construction increases the acquisition cost of machinery and

is not an expense. Proceeds realised from the trial operation

(goods produced from the trial operation) reduce the

acquisition cost.

Minor-value assets (assets which cost less than

HUF 50,000 (currently approx. EUR 204) to acquire or

produce) may be written off in full as soon as they are put

into operation.



the lowering of capital subscribed in relation to the capital

reserve.

The following, inter alia, are recorded as an increase in

the revenue reserve: the net profit brought forward from the

previous period, the payment of a call for additional capital

by the shareholders /partners, or the lowering of the capital

subscribed in relation to the revenue reserve.

A lowering of the revenue reserve occurs as a result of

the transfer in the accounts of the loss from the previous

period, the increase of share capital from the revenue reserve

and the augmentation of the taxed profit for profit

distribution. For the shareholders /partners, the payment of a

call to a subsidiary company for the purpose of offsetting

losses is to be shown together with the changes in cash

holdings as a reduction of the revenue reserve (and not as an

increase in the carrying amount of investments). For the

subsidiary company, the additional payment received from the

revenue reserve of the parent company for the purpose of

offsetting losses is to be assigned to the appropriated reserve

until the amount is repaid.

Reference to the revaluation reserve is made in Chapter

3.2.6.4.

3.2.6.5. Provisions

The formation of provisions is very limited in Hungary

(Section 41, Para (1) of the Accounting Act). Included here

are legally prescribed guarantee obligations (already entered

into), obligations for the protection of the environment, for

early retirement of staff and for severance pay in the event of

termination /dismissal. In the case of early retirement, the

business owner can form a provision for the pensions to be

paid to employees for the period of time between their

departure from the company and their actual retirement (this

is partly mandatory and partly voluntary).

Special regulations for provisions apply to insurance

companies, banks, investment firms and venture capital firms.

In the income statement, the formation of provisions is

recorded as other operating charges; their release (as well as

their use), as other income.

3.2.6.6. Depreciation,decrease in value

Fixed assets subject to wear and tear must undergo

scheduled depreciation in accordance with Section 52 of the

Accounting Act. These assets are depreciated over their useful

lives.

Although Hungarian commercial law does permit all

methods of depreciation, the straight-line method dominates

in actual practice owing to tax law provisions.

The depreciation policy must be described in writing in

the accounting policy.

Each balance sheet item is subject to its own rules as

regards unscheduled depreciation. For tangible assets, the

market value (sales market) is the reference value for

unscheduled depreciation; no comparison is made with

adjusted replacement values.

For long-term financial investments, temporary

diminution in value must not be taken into account; a

permanent decrease in value may be taken into account if the

market value has been less than the book value for at least

one year. If however the current market value is significantly

and permanently above the book value at the time the

balance sheet is prepared, the value adjustment is to be

reduced by the difference (Section 54, Accounting Act).

In consideration of the evaluation of the buyers and

debtors, a value adjustment must be made in respect of the

receivables which are outstanding as of the balance sheet

reference date of the financial year and which have not yet

been settled by the time the balance sheet is prepared

(including claims against banks, amounts granted as loans

and as advance payments, as well as items which are similar

to receivables and which are included under deferred assets)

– according to the information available at the time the

balance sheet is prepared – in a magnitude which

corresponds to the difference between the book value and

the amount that is expected to be received from the

receivable if this difference appears to be permanent and

significant.

Inventories are always valued according to the strict

lower of cost or market principle, but the reference values

differ from those applied in Austria.

3.2.6.7. Special features

Under the Accounting Act, fixed assets can be valued at

market as of 31 December. The difference between the net

book value and the market value must be recorded under

assets as a value adjustment, and under liabilities in the

revaluation reserve under shareholders’ equity. If the

valuation is at market, the valuation of the individual assets

has to be reviewed by an auditor on an annual basis. If the

appointment of an auditor (see Chapter 4.2.3. on lodgement,

auditing and disclosure obligations) is not compulsory, an

independent certified accountant must be commissioned to

carry out the review.

As mentioned above, it is not obligatory to value fixed

assets at market; the business owner is entitled to choose

which items are to be included in the value adjustment. The

important criterion here is that the altered valuation must not



With the adoption of a “Uniform Work Register” em-

ployers are obliged to provide notification of the

establishment and cancellation of an employer-employee

relationship.

The concept of legal succession is defined on the basis of

Directive 2001/23/EC. Legal succession is when both the legal

predecessor and the legal successor – in regard to

employment that has been properly concluded – are both

subject to the regulations of the Labour Code. Legal

succession is also when an economic entity which retains its

identity is passed on to another party and continues to engage

in its previous activities with the same employees as before.

3.3.2. Employment contract

The employment relationship comes into being upon

conclusion of an employment contract. This contract must

conform with the collective agreement unless it contains

more favourable terms and conditions for the employee. The

only party entitled to conclude the collective agreement on

behalf of employees is the labour union.

The employer, together with the staff council (if there is

no labour union, a staff council may be formed if there are

more than 50 employees) can set down more favourable

terms and conditions for employees than provided for in the

Labour Code in an internal agreement between management

and labour. More favourable terms and conditions can also be

stipulated in the employment contract, which must be

concluded in writing. If the employment contract is not

concluded in writing, the employee, and only the employee,

is entitled to plead its invalidity within 30 days after being

hired.

Minimum contents

The employment contract must, at minimum, stipulate

the personal basic wage, the scope of the work and the place

at which the work is to be performed.

Anyone aged sixteen or older can enter into an

employment relationship as an employee.

Duration

The employment contract is concluded for an unspecified

period of time unless otherwise stipulated by the parties. Fixed-

term employment relationships are permitted for a term of at

most five years (exception: contracts with executive staff).

If a fixed-term employment relationship is continued after

the stipulated term for even one day, it becomes an

employment relationship unlimited in time. Exception:

employment contracts concluded for a maximum of 30 days

are automatically extended by the originally agreed term.

have any effect on the profit / loss for the year. Value

adjustments must be made on the basis of the historical

acquisition costs.

Errors in financial statements from previous years are

dealt with as follows:

If the error was significant, the changes must be stated

for each item in the balance sheet and income statement

next to the previous year’s figures. However, this does not

constitute an integral part of the income statement for the

year under review (three-column balance sheet and income

statement). The effect of these corrected errors on profit is

reflected in the revenue reserve, not in the annual profit / loss.

In tax terms, this is deemed to be an internal correction.

If a correction materially affects the assets, financial

position and earnings and renders the already released data

misleading as a result, the annual financial statements must

be republished. These republished annual financial statements

must include an auditors’ report, and they must be once

again adopted by the shareholders’ meeting.

3.3. Labour Law

3.3.1. General remarks

The Labour Code is applicable to all employment

relationships on the basis of which work is performed on a

permanent basis within the territory of the Republic of

Hungary, to employment relationships abroad in which

employees of a Hungarian employer are assigned to perform

work, and to employment relationships in which employees

of a foreign employer are assigned to work in Hungary, unless

a property right relationship exists between both employers.

The labour conditions under Hungarian labour law have

consequently been extended to the above employment

relationships.

For example: at least 20 days of paid vacation

minimum wages

conditions for hiring-out of labour

health and safety conditions

equal treatment of men and women (Gender

Mainstreaming)

The 2003 amendment to the Labour Code represents a

further step toward harmonising legislation with EU

Directives. The changes mostly affect working hours, resting

from work, and the conditions for being on stand-by.

Components of the employment contract were

furthermore also defined for the purpose of providing greater

protection to employees. The employer is moreover obliged

to inform the employee in writing of changes which affect his

terms of employment.



Statutory minimum wage

The statutory minimum wage for full-time employment is

HUF 53,000 per month as from 1 January 2004.

Probationary period

A probationary period of not more than 90 days can be

agreed in the employment contract on the creation of an

employment relationship; a probationary period is not

mandatory.

This term can be either shortened, or a maximum period

of three months may be agreed, in the collective agreement

or by agreement between the parties. Any extension of the

already agreed probationary period is prohibited and deemed

null and void. During the probationary period the

employment relationship can be terminated without notice by

either party.

Working time

The daily working time is 8 hours. It is possible to make

an agreement on a shorter working time or – in sectors

where employees have to be on stand-by at certain times or

all the time – on a longer daily working time of at most 12

hours.

The alignment of legislation with the EU Directive 97 /81

has resulted in the introduction of measures for restricting the

renewal of employment relationships for a limited period of

time, unless such a renewal is in the employer’s justified

interest and is not intended to curtail the interests of the

employee. If an employment contract for a limited period of

time is renewed within 6 months, the time of the individual

employment contracts is to be added up and may not exceed

a total of 5 years. If the 5-year ceiling is exceeded, the

employment relationship shall turn into one for an

unspecified period.

Normal working time is 8 hours per day; an arrangement

for part-time work may be agreed upon by both parties.

An employee working part-time is entitled to the same

rights and remuneration as full-time employees (an exception

is remuneration which is directly linked to the weekly working

hours).

The working time can also be set as a “framework

working time.” This means that the working time is

calculated at 8 hours a day for 2 months (a maximum of 8

weeks) and the employer can freely dictate when he wishes

to utilise the employees within this framework. The beginning

and end of the framework working time must be stipulated

and notified to the employee.

Generally, the employee must be informed about his /her

working time regulations in writing 7 days in advance.

Extraordinary working time

The Labour Code uses the term “extraordinary work”

instead of “overtime”.

Work ordered to be performed outside the stipulated

working time can be regarded as overtime. No more than 200

hours of overtime are permitted in a calendar year (or no

more than 300 hours under a collective agreement).

Extraordinary work is not allowed to be assigned to

◆ pregnant employees and single-parent employees up to the

child’s first birthday,

◆ single-parent employees with a child aged 1 to 4 without

the employees’ approval.

Vacation entitlement

Employees are entitled to vacation of 20 to 30 workdays

(gradual increase to 30 days up to age 45). In addition, an

employee is entitled to additional vacation of between 2 and

7 days each year, regardless of the number of children.

Sick leave / sick pay

The Labour Code provides for 15 (working) days of sick

leave a year for incapacity for work due to illness – this

provision does not apply to incapacity for work due to an

accident at work or an occupational illness. After that the

sickness benefit is paid by the social insurance, with one-third

of the costs being borne by the employer.

The employer must pay the employee 80 % of his /her

pay for the days of sick leave.

3.3.3. Termination of the employmentrelationship

The employment relationship ends upon occurrence of

the following:

◆ death of the employee;

◆ shutdown of the employer’s company without a legal

successor;

◆ expiration of the term in fixed-term employment relationships;

◆ termination by mutual agreement;

◆ routine termination (by employer or by employee)

◆ exceptional termination (by employer or by employee);

◆ termination without notice during the probationary period.

Apart from the expiration of the fixed term, fixed-term

employment relationships can only be ended by exceptional

termination (=dismissal / exceptional termination by

employee), termination by mutual agreement or termination

without notice during the probationary period (if a

probationary period was agreed in the contract).



the employer. The exceptional termination must be

announced within 15 days (but at the most within one year)

after the reason for it becomes known.

Severance pay

The Labour Code regulates severance payments due to

terminated employees or due to employees on account of the

dissolution of a company without a legal successor. To be

eligible, employees must have worked for the company for

more than three years. The amount of severance pay

increases with the number of years in service.

If an employee has worked for the company

◆ from three to five years, he / she receives compensation

equivalent to one average monthly salary,

◆ more than five years and up to ten years, two average

monthly salaries,

◆ more than ten and up to 15 years, three average monthly

salaries,

◆ more than 15 and up to 20 years, four average monthly

salaries,

◆ more than 20 and up to 25 years, five average monthly

salaries and

◆ more than 25 years, compensation equivalent to six

average monthly salaries.

◆ Within five years prior to reaching retirement age, a

compensation equivalent to an additional three average

monthly salaries must be paid; if the employee is eligible

for an old-age pension on leaving the company, he / she is

no longer entitled to the severance pay.

Nor is an employee entitled to severance pay in the case

of exceptional termination (dismissal). However, this

regulation does not apply in the event of exceptional

termination of the employment relationship by the employee.

Higher severance pay rates can be set in the employment

contract or the collective agreement.

If the employment relationship is terminated illegally,

both the employee and the employer can be obligated to pay

damages (employee: an amount equivalent to at least twice

and at most 12 times the average monthly pay).

3.4. Legislation regarding Aliens

3.4.1. General provisions

Hungary’s accession to the EU has resulted in substantial

changes to the country’s legislation regarding aliens:

◆ Since 1 May 2004 citizens of an EEA country no longer

need a visa to enter or stay in Hungary. Such persons only

require a residence permit from the Aliens Police Service.

Agreements and explanations regarding the termination

of the employment relationship must be rendered in writing

to attain validity.

Routine termination

Employment relationships not limited in time can be

terminated by both the employer and the employee. The

employer is obligated to state the grounds for termination,

the only exception being the termination of the employment

relationship on the employee’s retirement.

Grounds for termination

Admissible grounds for termination may only refer to

◆ the employee’s personal capabilities,

◆ the employee’s conduct within the employment relation-

ship or

◆ the employer’s business activity.

Special protection against termination is granted to

pregnant women, people doing compulsory military service,

sick people and employees on nursing leave (or persons

receiving sick pay to care for a sick child), and mothers on

unpaid childcare leave.

Employees with just five or fewer years remaining before

they are entitled to draw an old-age pension can be

terminated by the employer only in special cases and on

certain grounds.

The notice period for routine termination is at least 30

days and rises with the employee’s number of years in service

to 90 days, but is not permitted to exceed one year. During

the time the employee is exempted from work (period

granted in the event of termination by employer and

extending over half the notice period) he / she is entitled to

remuneration equal to at least the average monthly pay.

The Labour Code contains special regulations in the event of

termination involving more than one employees (this applies to

employment relationships with both a limited and unspecified

period of time): the regulations specify at what intervals (time

schedule) staffing levels may be reduced (obligation to register

and submit reports). Termination involving a group or groups of

employees is deemed to take place when the number of

employees whose employment contracts are terminated within

30 days exceeds the quota assigned to the employer.

Exceptional termination (dismissal /exceptional

termination by employee)

Exceptional termination is allowed only in the event of an

intentional or gross neglect of duty or a conduct involving a

severe violation of work regulations by the employee or by



◆ Citizens of EEA countries however still need (at least for

the transitional period of 3 years which is currently

applicable; an extension of this period is possible) a work

permit in order to work in Hungary.

Citizens of the other new EU member states – Cyprus,

Czech Republic, Estonia, Latvia, Lithuania, Malta, Poland,

Slovakia and Slovenia – are exempted from this

requirement.

◆ The legal situation for citizens of third countries has

generally remained unchanged (i. e. a visa is required unless

a bilateral agreement has been concluded between the

citizen’s own country and Hungary, and a work permit to

pursue a job). There has been one significant change: visas

are now issued free of charge to the spouses of EEA

citizens who have received a work permit

3.4.2. Work permit

A.An individual permit can be issued if an employer

◆ requires personnel for a specific activity,

◆ has notified the employment office of the necessity for

personnel, and

◆ the employment office has been unable to provide suitable

domestic personnel.

B. A collective work permit can be issued if more than one

foreign national needs to be employed for the purpose of

fulfilling all the obligations of a contract concluded with a

foreign business owner.

If a specific job is taken on on the basis of a collective

permit, the respective individual work permits must also be

obtained.

The work permit must state the employer, the activity or

the sphere of activity, and the name of the employee. The

individual permit is issued for a maximum period of one

year , after which it can be extended for subsequent

periods.

C. The following are instances where the employer is not

required to provide evidence for the need to employ a

foreign national:

◆ if the person(s) to be employed are key personnel as

defined in the EU Treaty,

◆ businesses which are majority-owned by a foreign

company if the percentage of foreign employees does not

exceed 2 % of total staff,

◆ the putting into operation of equipment, service work,

work arising from a guaranty or liability obligation, if these

do not exceed 15 days per job task.

D.A work permit is not required for foreign managers or for

members of a managing board. Such persons may however

in particular circumstances require a “visa for gainfully

active persons”.

E. Exceptions: Employment without a residence or work

permit is possible under the following circumstances:

◆ if this is called for by an international treaty;

◆ the manager of a branch establishment or agency of a

company which is domiciled abroad;

◆ for the work performed by persons assigned to the

diplomatic mission of a foreign country;

◆ the putting into operation of equipment, service work,

work arising from a guaranty or liability obligation, if these

do not exceed 15 days per job task;

◆ for a company’s managing directors and the members of

the Supervisory Board if the company is partly foreign-

owned.

3.5. Social Insurance Law

3.5.1. Incidental wage costs and socialinsurance contributions

The following payroll charges currently apply:

Employee’s share 13.5 %: Health insurance 4.0 %

Social pension insurance 8.5 %

Unemployment insurance 1.0 %

Employer’s share 33.5 %: Pension insurance contribution 18.0 %

Health insurance contribution 11.0 %

Unemployment insurance contribution 3.0 %

Professional training contribution 1.5 %

Rehabilitation contribution

Health care contribution

The basis of assessment for social insurance contribution

is pay derived from paid employment and self-employment

and deemed to be income in the determination of

withholding tax and taxable in accordance with the income

tax schedule. Taxable payments in kind are also chargeable in

respect of social insurance contributions.

The basis of assessment for health and social pension

insurance contributions is the income chargeable in respect of

social insurance.

No ceiling is set for the social insurance contribution

(pension insurance contribution of 18 % and health insurance

contribution of 11 %) to be rendered by the employer, while



assignment (in each case for a period of not more than 12

months), are not subject to Hungary’s social insurance code.

3.5.2. Pension insurance

The old-age retirement scheme is based on three pillars:

◆ the state pension (pay-as-you-go);

◆ a private pension (establishment of a compulsory pension

fund);

◆ a voluntary private pension (or life) insurance.

Individuals who were covered by state social insurance

prior to 1 January 1998 were able to select a private pension

fund of their choice. Those who did not opt for a private

pension fund will receive their pension solely from the state

pension insurance system.

Persons who selected a private pension fund will receive

a pension payment from the state social insurance system and

from the private pension fund. Of the 8.5 % pension

contribution, 8 % is paid into the private fund and 0.5 % into

the state social insurance system. The payment into the

private fund can be increased to 10 %. These contributions

can be made by the employer as well as by the employee.

In addition, employees can voluntarily join a pension

fund. Payments into such funds can also be made by both the

employee and the employer.

3.6. Tax Law

3.6.1. Income tax law

Income tax is used for taxing private individuals’ income;

partnerships are subject to corporate income tax. If an

international agreement stipulates otherwise, it takes

precedence. In principle, the fiscal year is defined as the

calendar year. (The statutory period of limitation in Hungary is

five – completed fiscal – years.)

3.6.1.1. Personal liability to pay tax (Sections 2and 3 of the Income Tax Act 3)

Hungarian income tax law distinguishes between private

persons residing permanently in Hungary whose income is

therefore subject to unrestricted taxation and private persons

residing abroad who are only liable to pay taxes on the portion

of their income they earn in Hungary (limited tax liability).

3.6.1.2. Categories of income

Under Hungarian income tax law for natural persons, there

are three categories of income which are included in a basis of

assessment for the purpose of determining a person’s income.

the pension contribution from employees (8.5 %) is currently

limited to an assessment basis of HUF 5,307,000 (approx.

EUR 20,570). The health insurance contribution of 4 %

payable by employees is not subject to an upper limit.

In addition to social insurance contributions, Hungary

also levies what it calls a “fixed health care contribution.”

This is a fixed amount, namely HUF 3,450 per employee (=

HUF 115 per day), payable only in the case of an employment

relationship.

Furthermore, a so-called “percentage health care

contribution” is payable. This levy, however, is not considered

a social insurance contribution but rather a quasi-tax payment

obligation. This contribution (rate: 11 %) is levied on

payments subject to tax but not to social insurance (e.g.

representation and certain compensation payments).

The employer is required to pay a rehabilitation

contribution to promote the occupational rehabilitation of the

disabled. This payment obligation arises if the number of

employees exceeds 20 and the number of disabled makes up

less than 5 % of total employees. The annual contribution

amounts to HUF 117,600 per head.

Social insurance obligations of foreign citizens after

Hungary’s accession to the EU

Persons working in an EU member state are generally

required to pay social insurance in the country where they are

employed. Every person is in principle required to pay social

insurance only in one country.

Foreign citizens working in Hungary for an employer who

is not registered in Hungary have no social insurance

obligations in Hungary. Citizens of an EU member state are

deemed to be residents in Hungary if they are in possession

of an EU residence permit issued by Hungary’s Aliens Police

Service, and they are therefore subject to Hungary’s social

insurance code.

Sending out: As from 1 May 2004 EU law applies to

employees sent to Hungary by companies domiciled in an EU

country. Employees who are sent to Hungary are automatically

subject to the social insurance system of the country from

which they are sent out if the work assignment is not expected

to exceed 12 months. If the work assignment is for a period of

more than 2 years, the social insurance law of the country in

which the employees are actually working is applicable.

The social insurance legislation pertaining to citizens of

third countries was also amended as of 1 May 2004. If such

persons commence work in a company in Hungary which is

partly foreign-owned, they are subject to Hungary’s social

insurance code. Citizens of third countries who are either

seconded to Hungary or sent to Hungary for a work 3) Law CXVII of 1995 on income tax for private persons



1. Income from self-employment (Section 16)

This category of income basically includes all income a

natural person receives for his /her activity as long as it is not

income from non-self-employment or other income governed

by special provisions of the law. Consequently, this category

of income pertains, in particular, to income from conducting

a trade, income from agriculture and forestry, as well as

income from other types of self-employment (e.g. as

auditors /public accountants) including rental income. Thus,

this category of income essentially takes in all income referred

to in Austrian tax law as so-called business income (income

derived from a company’s profits) as well as rental income.

Under Hungarian law the sole proprietorship is a special

form of self-employment. The term sole proprietor covers,

besides persons conducting a trade, in part farmers and

foresters and some professionals (e.g. physicians) who are

subject to stricter accounting regulations.

To determine taxable income, revenues are set against

the proven and legally recognised expenses. Depending on

the tax return for the given year, costs can be either

calculated in detail or set at 10 % of revenues. It is not

permitted to apply both methods within the same tax year.

Non-repayable subsidies and which are granted on the

basis of laws, government ordinances or international

agreements are tax-exempt as long as all subsidies are used

up for their intended purpose within three years.

2. Income from paid employment (Section 24)

This income is equivalent to income from paid

employment (“non-self-employment”) as defined in Austrian

income tax law. Non-self-employment includes the work

performed within an employment relationship, work as a

parliamentarian, the personal participation of a private person

as a partner in a company if the pay received is posted in the

accounts as a company expense, and work in a business as a

participating family member.

Income from employment comprises the following:

◆ wages (salary, pay supplements, remuneration in kind,

bonuses, severance pay, vacation pay, taxable social

security, unemployment benefits, retraining contributions)

◆ reimbursement of rent (“amounts for subletting”),

reimbursement for the use of a private vehicle for company

purposes (covers only a certain portion), other

reimbursements, per diems abroad

◆ insurance payments by the employer on behalf of the

employee (paid premiums).

Income does not include payments in kind rendered by

the employer or the granting of credits at favourable interest

rates. For these items tax must be paid by the employer at a

fixed rate.

3. Other income (Section 28)

This category basically covers all income not counted as

income from paid employment and self-employment and not

subject to separate tax rules based on special legal provisions,

in particular taxation at special tax rates.

Social insurance pensions have been tax-exempt since 1

January 2002. Non taxable income (child benefits, grants) is

defined as other income if the private person earns other

income as well and this non-taxable income pushes the rest

of the income into a higher rate of progression.

These three categories of income of a natural person are

added together to determine the basis of assessment (taxable

income). A standard progressive schedule of tax rates is then

applied to the entire amount (Section 30 of the Income Tax Act).

3.6.1.3. Tax rates (Section 30 of the Income Tax Act)

Income in Hungary is subject to a progressive tax rate. The

maximum tax rate is 38 %, the minimum rate is 18 %. The

following tax schedule went into effect on 1 January 2004:

Annual income (HUF) Tax rate

0 – 800,000 18 %

800,001 –1,500,000 28 % + HUF 144,000

1,500,001 or more 38 % + HUF 326,000

Example: Annual income

HUF 2,650,000

– 1,500,000

1,150,000 x 38 % = 437,000 (tax payable on amountsin excess of THUF 1,500)

+ 326,000 (tax payable on THUF 1,500)

763,000 annual tax

Employees are entitled to deduct 18 % of their wage

income from taxes. This is deducted from the computed tax.

An amount of HUF 9,000 (annual amount of HUF 108,000)

can be deducted each month for an annual income of up to

HUF 1,350,000 (approx. EUR 5,230). This is gradually reduced

to between HUF 1,350,000 and HUF 1,950,000, so that

employees with an annual income of over HUF 1,950,000

(approx. EUR 7,560) are no longer entitled to a deduction.

The law provides for various types of tax relief. As from 1

January 2004 this relief is provided for pensions and



Representation and business gifts are considered to be

payments in kind and are subject to 44 % wage tax and 11 %

health care contribution. However, no tax is levied up to a

certain amount:

◆ in the case of representation, up to 0.5 % of all income

(maximum: HUF 10 million);

◆ in the case of business gifts, the limit for the total amount

of gifts with individual values of less than HUF 10,000 is

HUF 5,000 per person, with account to be taken of the

average number of employees.

Tax must be paid once a year by the 12th day of the

month following the deadline for the determination of

annual sales (generally 31 May).

3.6.1.6. Dividend distribution

With natural persons, dividend income is taxed at a rate of

20 %, provided the distributed amount is below a certain limit.

If a dividend payment exceeds this limit 4, the amount in

excess of the limit is taxed at a rate of 35 % (Section 66 of

the Income Tax Act). In this case, the health care contribution

is also levied on the profit distribution. (The health care

contribution amounts to 11 % and is paid by the company.)

A different amount of tax is withheld if an agreement to

avoid double taxation so dictates. (Please refer to Chapter 4.8.)

Dividend tax must be paid regardless of whether it is an

advance on a dividend or a definitively approved dividend

distribution. If the advance on a dividend must be repaid

because the company does not post a profit, the advance is

treated as credit.

If a private person pays no interest or pays interest at a

favourable rate on the above advance, he / she is deemed to

have acquired income in the form of a preferential interest

rate. Moreover, the dividend tax withheld can also be

refunded.

3.6.2. Taxation of corporate income anddividends

Corporate income tax is payable by both legal entities

and partnerships. The tax base is the annual result

determined in accordance with commercial law adjusted by a

long list of additions and deductions.

Under Hungarian tax law, expenses of relevance under

commercial law are recognised either not at all or only to a

contributions to voluntary mutual insurance funds,

repayments of housing loans (with restrictions), tuition, certain

activities, family size, charitable donations, insurance, etc.

The following categories of income are taxed separately

and not in accordance with the tax schedule:

Category of income Tax rate

Income from the transfer of movable assets 20 % 1

Income from the transfer of real estate and

rights representing asset value 20 %

Interest income 0 %

Price gains = disposal of equity interests 20 %

Dividends 20 % or 35 % 2

Income from exchange-traded forward

and option transactions 20 %

Rental income 20 %

Payments in kind 44 %

Winnings from gambling 20 – 25 %1) If the value exceeds HUF 200,000; below that amount tax-free2) see Chapter 4.6.1.6.

3.6.1.4. Taxation at source

The employer must remit the wage tax withheld by it for

a given month by the 12th day of the following month. The

monthly or quarterly tax returns must be submitted to the tax

authorities by the 20th day of the month following the end of

the period covered; the annual returns for a given year must

be submitted by 15 February of the following year.

3.6.1.5. Payments in kind, representation andpresents

Payments in kind are assets given by the payer to a

private person – regardless of what form they take.

The tax on payments in kind to employees consists of

44 % wage tax +29 % social insurance contribution +3 %

employer contribution, and on payments to third parties, of

44 % wage tax and 11 % health care contribution. This tax is

paid by the payer of said payments.

As from 1 January 2004, payments in kind are deemed to be:

the private use of company cars; here the monthly tax

ranges from HUF 6,000 to HUF 42,000 (half the amount if a

passenger car is over 5 years old).

If a private person is granted credit by the payer at a rate

of interest lower than the central bank interest rates which

have been raised by 5 percentage points, the employer is

liable to the taxable difference.

4) The limit must be set individually for each company. The calculation is basedon equity excluding the revaluation reserve. A percentage of this amountwhich is twice the percentage of the central bank interest rate (which iscurrently at 12 %) is calculated to serve as the limit; i. e. everything distributedabove this amount is taxed at a rate of 35 %.



limited extent. This applies in particular to depreciation but

also to the provisions and value adjustments which are

already limited under commercial law.

During its audit of a company, the tax office is entitled

not only to correct the additions and reductions provided for

by law but also the basis of taxation if the transfer prices

between affiliates deviate from customary market prices. The

affiliates can also perform these corrections voluntarily in

their tax returns based on a mutual declaration.

If an international agreement contains a provision that

deviates from this law, that agreement’s provisions are to be

applied.

3.6.2.1. Tax rate (Section 19 of the CorporateIncome Tax Act)

The tax rate is 16 % as from 1 January 2004, with the

following exception: for offshore companies (companies with

their registered office in Hungary yet wholly owned by

foreigners and conducting business exclusively outside

Hungary) the tax rate is 4 %. Offshore status can however no

longer be acquired as from 1 January 2003; the regulation

concerning offshore companies becomes inoperative as from

1 January 2006.

3.6.2.2. Depreciation

Depreciation recognised under tax law is effected on a

daily basis pro rata temporis.

The maximum deductible depreciation pursuant to tax

law is as follows:

Depreciation category Maximum annual depreciation rates

Buildings depending on useful life 2 – 6 %

Structures (bridges, tunnels, and the like) 2 – 25 %

Plantings 4 –15 %

Machines 14.5 %

Machines and plants for the production

of film and videos 50 %

Vehicles 20 %

IT and other tangible assets

enjoying preferential treatment 33 %

Office equipment 14.5 %

Environmental protection systems 33 %

For buildings that are leased out, the rate of depreciation

is 5 %; for other leased plants, the rate rises to 30 %. Real

estate with a long useful life used by a business in the

commercial accommodation and catering sector can be

depreciated under tax law at a rate of 3 % per year.

In many areas, these rates are now closer to the generally

realistic service life of the assets; e.g. for buildings with a long

useful life (50 years), in IT, environmental protection, and for

vehicles. The general period of depreciation for movable assets

of some seven years is, by contrast, very long.

◆ Under the Accounting Act, the basis of depreciation is the

acquisition value less the estimated future residual value.

◆ To calculate recognised depreciation, the basis is the full

acquisition value.

If the rate of depreciation under commercial law is higher

than the one under tax law, depreciation at the rate provided

for under tax law applies.

The deviating rates of depreciation under commercial law

and tax law require that two schedules of assets be kept.

3.6.2.3. Provisions / value adjustments

Tax law does not recognise provisions set aside under

commercial law for early retirement, severance payments and

guarantee obligations.

Value adjustments for overdue receivables are in fact the

only such provision recognised by tax law if the expected loss

appears to be permanent and significant.

The amount recognised under tax law for the provision

for bad debts is:

◆ 90 to 180 days overdue: 2 %;

◆ 181 to 360 days overdue: 5 %;

◆ more than 361 days overdue: 25 %.

These low rates which are recognised by tax law provide

no cover for the default risk. A special problem here is that

uncollectible receivables can only be written off in certain

specific cases set forth in law.

Examples of such cases:

If enforcement proceedings against a debtor fail or the

receivable is only partially covered; if the creditor forgives the

debt in the course of composition or bankruptcy proceedings

as part of an agreement; if the cost of enforcement

proceedings are not proportional to the receivable expected to

be obtained; or if the debtor cannot be found at the address

he / she indicated and the search for him/her has “verifiably”

failed.

3.6.2.4. Loss carry-forwards

Unlike the previous regulation, which permitted loss carry-

forwards for tax purposes to be deducted generally for a

period of five years and – in contrast to Austria – to be offset



16 % on the profit realised in Hungary. If provisions of a

double taxation convention provide otherwise, those

provisions apply.

The basis of taxation for a foreign enterprise is the

difference between the revenues and expenses allocable to that

establishment. The basis of taxation must be at least 12 % of

the costs of the permanent establishment. If transactions

between the foreign company and Hungarian firms come about

through the agency of the domestic permanent establishment,

5 % of the net sales (not directly offset at the permanent

establishment) are considered to be sales realised by that

permanent establishment; costs of running the operations of

the foreign enterprise are only allowed as expenses of the

permanent establishment on a proportional basis.

If double taxation conventions are in force, they are given

precedence.

The foreign enterprise is not subject to the provisions of

the Accounting Act, but to determine its basis of taxation, it

must keep an account of revenues and expenses in line with

the legal provisions for double-entry bookkeeping.

A foreign enterprise can in Hungary moreover generate

proceeds without founding a business establishment or

company (= foreign organisation). Since 1 January 2004 the

taxation of a foreign organisation is however no longer subject

to the provisions of the Corporate Income Tax; as from this

date, the provisions of the “Act on Taxation Ordinance” (Act

no. 92 /2003) apply. This Act is similar to Austria’s Federal Fiscal

Code, except that its Annex contains special regulations for the

taxation of non-residents in Hungary (Annex 4 of the Act).

3.6.2.8. Dividend tax

Dividends received by private persons are subject to

income tax (withholding tax), whereas dividends paid to

taxpayers liable to corporate income tax are subject to

dividend tax. “Dividend” is a more broadly defined term than

“profit distribution” and includes, for example, the debt

forgiven by another taxpayer. Resident dividend recipients (this

refers to legal persons) are exempted from the dividend tax.

The dividend tax amounts to 20 %, with international

agreements to be duly taken into account.

Dividend tax is withheld by Hungarian payers from the

dividend distribution and remitted to the tax office.

For non-resident dividend recipients, dividend tax was, until

1 May 2004, not required to be withheld for that portion of the

dividend used to increase the subscribed (stated) capital of

domestic (Hungarian) economic entities or to establish a new

resident company. This regulation has now been rescinded.

A lower tax rate based on a Double Taxation Convention

may only be applied to the withholding of tax if the relevant

on an optional basis, the losses which have been sustained

since 1 January 2004 (except in agriculture with retroactive

effect) can be carried forward without limitation. This practice

is restricted, however, if the company’s revenues from the

fifth year of its existence onwards are less than 50 % of the

expenses and /or the assessment basis for corporate income

tax was negative in the two preceding years. The tax loss

cannot be offset in this case. The tax authority can allow a

loss carry-forward if the loss referred to above occurred due

to an unavoidable reason outside the company’s control.

For newly established companies, losses sustained in the

first four fiscal years can be carried forward without

limitation. Losses due to a dissolution with legal succession

cannot be claimed by the successor in certain cases; the same

applies to mergers.

3.6.2.5. Tax prepayments (Section 26 of theCorporate Income Tax Act)

Tax prepayments must be rendered either quarterly (by

the 20th day of the month following the end of the quarter) or

monthly by the 20th day of the month. The tax prepayment is

due quarterly if the tax payable in the previous fiscal year was

HUF 5 million or less. The taxpayer is also obligated to adjust

his /her tax prepayments by 20 December of the current fiscal

year to ensure that 90 % of the ultimate tax payment is

covered; failure to do so results in a 20 % default penalty

being levied on the difference between 90 % of the ultimate

tax liability and the prepayments already made.

3.6.2.6. Tax concessions

Tax concessions are granted in general under tax law for

the 16 % corporate income tax. Relief is currently provided, in

particular, for situations supporting structural policy goals

(major investments, investments in underdeveloped regions or

in specially defined business / industrial areas; please refer to

Chapter 3.7.).

3.6.2.7. Business establishments of foreigncompanies

The taxability of a business establishment in Hungary (for

tax purposes: permanent establishment) depends on whether

it is registered with the Commercial Registry Court [a) (branch

establishment) ] or not [b) (foreign enterprise) ].

In regard to a) Branch establishments are subject to the

provisions of the Accounting Act; the general provisions of the

law are authoritative in determining the corporate income tax.

In regard to b) Foreign companies which conduct a

commercial activity in Hungary with a permanent

establishment (= foreign enterprise) must pay tax at a rate of



confirmation from the foreign authority (confirmation of

residence) has been submitted, and provided the tax office has

granted the said application. Otherwise, the non-resident

dividend recipient can file an application with the Hungarian

tax office to obtain a refund of the difference between the tax

withheld and the actual tax owed.

With the harmonisation with the EU Directive 90 /435/EC

on a common system of taxation applicable in the case of

parent companies and subsidiaries of different member states,

the dividend paid to the parent company domiciled in a

member state is no longer subject to tax as from 1 May 2004.

This exemption from tax applies if the parent company has

maintained an equity interest in the subsidiary for at least two

years as of the dividend payment date, and if the interest

amounts to at least 25 %.

The dividend paid is also not subject to tax if the equity

interest of the parent company has not yet been maintained

for two years, but if a third party agrees to act as surety for

the payment of dividend tax in case the equity interest should

not be maintained for at least 2 years. The suretyship must be

approved by the Ministry of Finance.

3.6.3. Value-added tax law

Hungary’s accession to the European Union on 1 May

2004 has resulted in a revision of the most significant

components of Hungarian value-added tax law, and in this

being harmonised with EU law.

The changes basically mean that as from 1 May 2004

imports and exports between the member states will be

governed by the European Union’s regulations for the traffic

of goods, i. e. the taxation of the country of destination will

then take effect. The provisions for exports and imports now

apply only to third countries (located outside the EU).

In certain cases – depending on the type of product, the

buyer’s tax status and the total value of goods procured – the

taxation of the country of origin shall apply.

Special provisions consequently apply to:

◆ new vehicles, vessels and aircraft,

◆ products for which revenue stamp tax is levied (monopoly

tax – see chapter 4.6.4.5.),

◆ assembly and sale under a contract for goods and services

◆ a certain category of recipients

◆ taxable entities, which exclusively perform activities for

which deductions of input tax cannot be enforced,

◆ taxable entities, which enjoy subjective tax exemption,

◆ taxable entities, which have special status in agricultural

terms,

◆ legal persons, which are not taxable entities.

In the case of “a certain category of recipients” listed

above, an intra-Community purchase is in any event deemed

take place if the total amount of consideration in the previous

year or in the reporting year exceeds EUR 10,000 (net, not

including value-added tax). This is the “acquisition threshold”.

New vehicles, aircraft or vessels and products which are

subject to revenue stamp tax are not to be included in the

computation of the “acquisition threshold”.

The buyer is not subject to a gainful activity tax below this

threshold; the seller pays the value-added tax in accordance

with the regulations prevailing in his country (the country of

origin).

(The buyer may in any event also opt for liability to

(gainful activity) tax if the “acquisition threshold” is not

reached. The buyer is however in such a case bound to his

choice for two calendar years.)

Tax liability is incurred in the following cases:

◆ on domestic deliveries and the performance of services

domestically,

◆ on imports from third countries (if the exports were not

subject to tax),

◆ and on intra-Community acquisitions from member states

of the European Union.

Tax is also levied on gratuitous transfers of title to

products and physical objects to third parties, with certain

exceptions, e.g. non-profit foundations. Another significant

feature is that contributions in kind to a company’s capital, the

investment in one’s own enterprise and dissolution of a

company without a legal successor are all to be treated as tax-

relevant situations.

The place of performance for services is set by law. It is

basically deemed to be the place where the registered office

of the service provider is located. In the specifically listed

cases, the place of performance is deemed to be:

◆ the place where the real estate is located

◆ the place where the service was rendered (e.g. educational,

scientific and artistic services)

◆ in transportation, the route taken

◆ the place where the customer has its registered office (e.g.

leasing out of products, advertising and marketing activity,

legal, accounting and tax consulting services, radio and

television services, services provided electronically, etc.)

The regulations governing the reverse charge system (in

the case of the provision of certain services, tax liability is

transferred from a foreign business owner to the Hungarian



evidencing that the holder is authorised to conduct a

business, and a declaration to the effect that the applicant

has not developed any further business in Hungary

(exception: branch, trading agency).

The taxpayer is obligated to issue an invoice or simplified

invoice for products sold or services performed. The simplified

invoice may be issued only for cash-based payments and

need not, for example, include the amount of value-added

tax separately; only the gross amount must be stated).

The requirements for invoices are specifically listed in the

law and are strictly monitored by the tax office. Invoices have

a serial number, they state the name and address of the buyer

or seller, the tax number of the performing party, date of

performance, the service rendered, the quantity unit and

quantity of the product or of the service rendered (in case this

can be stated as a natural unit), unit price, net, gross, the

corresponding tax rate, net and gross amount, and the value-

added tax to be paid, as well as the date of issue, method of

payment and time limit for payment.

The following information is also required if a new

vehicle, vessel or aircraft is sold within the European Union: a

reference to the purchase agreement, the date on which the

vehicle, vessel or aircraft was first registered, and the number

of kilometres /nautical miles already covered by it.

The VAT identification number of the performing party

and of the buyer must also be stated for shipments within the

European Union.

The tax account is settled with the tax office periodically,

with the total input tax being deducted from the total value-

added tax. The period for which VAT returns must be

submitted (month, quarter, calendar year) depends on the tax

balance and sales of the previous year.

If the taxpayer has a positive tax balance, the balance is

due for payment by the 20th day of the following month or

by the 20th day of the month following the end of the

quarter or by the 15th of February of the following year,

depending on the return period involved.

If the taxpayer has a negative tax balance, this means

that it has a tax credit. This tax credit can be taken into

account in the next return period, or the taxpayer can apply

for refund, provided the legal conditions are met.

The following requirements for tax refunds went into

effect on 1 January 2004 if a tax credit is deemed to exist

(applies only to actual refunds, not to the general deduction

of input tax):

◆ In determining the tax balance, the input tax payments not

rendered by the taxpayer up to the submission of the VAT

return must be excluded.

recipient of services) and intra-Community triangular

transactions (deliveries involving 3 different companies from 3

different EU countries) which apply under Community Law

now also apply in Hungary.

The regulations governing mail order business for the

delivery of goods from Hungary to (mainly) private persons in

the EU region are now also applicable in Hungary. The limit

for sales, above which the invoice must include the value-

added tax of the country of destination, is EUR 35,000 in

Hungary.

A summary report on shipments (European Sales Listing)

in the EU region and on the procurement of products from

the EU region must be sent to the finance office in Hungary,

too, by the 20th of the month following the quarterly period.

Two forms are to be used for this purpose: No. 0460 on sales,

no. 0461 on purchases. (As in Austria, the forms should

include the name, VAT identification number and assessment

basis).

The Directive 77 /388/EC has resulted in changes in tax

rates as from 1 January 2004, and consequently also in the

pigeonholing. The standard tax rate is 25 %, the reduced

rates are 12 % and 5 %. All products and services previously

taxed at 0 % are now taxed at 5 %. The reduced tax rate of

5 % is applied mostly to pharmaceutical products, medical

products, medical equipment, schoolbooks, certain services

(e.g. publishing, energy supply, hotel services, delivery) and

food. The export of products is exempted from tax.

There are a number of tax-exempt products and services,

including, inter alia, financial services, instruction (with the

exception of private tuition), health care, the letting out of

residential real estate, and gambling. In these cases, it is not

possible to deduct input tax.

Nor can input tax be deducted for passenger vehicles not

acquired for business purposes, for fuel used in passenger

vehicles and for taxi rides, or if the acquired products and

services are not used for the taxpayer’s business activity. As

from 1 January 2004, it is furthermore not possible to deduct

input tax for repairs to or the maintenance of passenger cars,

or for parking fees and motorway toll charges.

Foreigners who are not taxable in Hungary only receive

(in the cases just cited) a refund of value-added tax if their

country has a reciprocity agreement in this regard with

Hungary. The tax office will transfer the refund to the

domestic or foreign bank account indicated by the taxpayer.

The application for refund of the input tax must be

submitted by foreign business owners by 30th June of the

year following that in which Hungarian input tax was paid.

The application must be accompanied by the original

invoices, copies of confirmations of payment, certificate



◆ Revenues subject to VAT must be higher than HUF 4 million

(approx. EUR 15,500), or if equipment is purchased, the

input tax must exceed VAT by HUF 200,000 (approx. EUR

775) and the pertinent bills must have been paid.

◆ If a company is dissolved, there are restrictions as regards

the VAT refund.

Certain activities are subject to special regulations in

regard to taxation:

◆ commercial letting out of accommodations

◆ agricultural production

◆ retail business

◆ resale of used goods

◆ tourism

3.6.4. Other tax law

3.6.4.1. Local taxes

Taxes that can be levied by self-governing entities (local

authorities, e.g. municipalities) up to the maximum rates set

down in law include the following: trade tax, real-estate tax,

building tax, municipal tax and tourist tax. Self-governing

entities are entitled, according to their best judgement, to

waive introduction of such taxes or to set a lower tax rate or

to grant a tax concession.

Anyone engaging in commercial activities falling within

the scope of competence of the self-governing entities is

liable to pay trade tax.

The basis of assessment for trade tax consists of the net

revenues as defined by the Accounting Act plus interest

income less expenses for purchased goods (merchandise),

expenses for arranged services and cost of materials.

Companies with annual proceeds of less than HUF 4

million can determine the basis for payment of trade tax in a

simplified manner.

The computed trade tax can be reduced by 50 % of the

(eligible) interest received from financial investments and by

the interest and similar income.

If the business owner conducts a commercial activity

falling under the purview of several self-governing entities,

the owner must divide the basis of assessment in the manner

prescribed by law.

The maximum admissible rate is 2 %.

Building and real estate owners are subject to municipal

tax for private persons. The maximum amount per property is

HUF 12,000 per year.

Municipal tax for business owners is set at a maximum of

HUF 2,000 (approx. EUR 8) per person and year. This tax must

be paid on the basis of the average number of employees

within the area of competence of the self-governing entity.

Real-estate tax for undeveloped land is determined

either on the basis of the area involved or the adjusted

market value. The self-governing entity that levies the tax

determines the method to be used. The maximum is set at

HUF 200 per square metre if the basis of assessment is the

area or 3 % of the adjusted assessed market value if the tax is

to be based on the adjusted market value. The adjusted

market value is 50 % of the market value.

Building tax is levied on buildings, including residential

buildings. To establish the basis of taxation, the self-

governing entity can choose between two methods, similar to

the situation with real-estate tax. The ceiling for this tax is

HUF 900 per square metre or 3 % of the adjusted market

value.

Tourist tax is levied on tourists and the owners of hotels,

bed & breakfasts, etc. The basis for taxation is the number of

guest overnights or the accommodation costs for these guest

overnights or the useful floor area of the building.

The ceiling for this tax is HUF 300 per person and guest

overnight or 4 % of accommodation costs or an annual

amount of HUF 900 per square metre.

3.6.4.2. Motor vehicle tax

This tax must be paid by the owner (operator) to the

municipality. The basis of taxation is weight. There is a

uniform tax rate of HUF 1,200 per 100 kg per annum.

3.6.4.3. Fees, charges and levies

The law governing fees, charges and levies covers levies

on assets as well as charges for proceedings, and

administrative and court services. The fee, charge or levy is

generally paid in the form of fee stamps or cash.

The most important levies on assets are as follows:

◆ Inheritance tax: the rate ranges from 11 % to 21 % for an

amount up to HUF 18 million depending on the degree of

kin (for the acquisition of housing: 2.5 % to 8 %), 15 % to

30 % for an amount up to HUF 35 million (housing:

6 – 12 %), and 21 % to 40 % for an amount in excess of

HUF 35 million.

◆ Gift tax: this is the same as the inheritance tax with the

exception of dwellings, for which the gift tax is 5 % to

10 % for an amount up to HUF 18 million, 8 % to 21 % for

an amount up to HUF 35 million, and 12 % to 30 % for an

amount in excess of HUF 35 million.



Although Hungarian legislators are gradually closing the

gap to the minimum tax rates and tax amounts set forth in

the EU Directives, drastic increases could not be avoided in

some cases (e.g. tobacco products).

The most important tax rates and tax amounts are as

follows:

◆ mineral oil: gasoline HUF 103.5 – HUF 111.8 / litrepetroleum HUF 111.80 / litre gas and heating oil HUF 85.00 / litre

◆ alcohol: HUF 1,920 /hectolitre degree

◆ beer: HUF 420/hectolitre

◆ wine: grape wine HUF 8 / litre, other wine HUF 80 / litre

◆ sparkling wine: HUF 91.20 / litre

◆ intermediate alcohol products: HUF 132.20 / litre

◆ tobacco products: cigarettes HUF 6,450 /1,000cigarettes +23 % of sales pricecigars 25 % of sales price

3.6.4.6. Innovation Tax

An innovation tax was introduced in Hungary on 1

January 2004. This has to be paid by all companies which

were registered in Hungary. Companies which are in the

process of being established and which are in their first fiscal

year are exempted from this tax.

The assessment basis corresponds to that used to

compute the local trade tax.

The tax rate is 0.2 % in 2004, 0.25 % in 2005, and 0.3 %

in 2006. There is a reduced rate for small companies, which is

0.05 % in 2004, increasing to 0.2 % by 2007.

3.7. Special Provisions (Obstacles, Tips) for Imports, Customs and LandAcquisition

3.7.1. Acquisition of real estate by foreigners

A foreign natural or legal person may acquire title to real

estate with the approval of the head of the competent capital

city or county administrative office (farmland can generally

for the first time be acquired after 7 years as from 1 May

2004). (No approval is required for acquiring real estate

through succession by inheritance.)

The administrative office can grant approval, provided

the acquisition does not impair the interests of the

community or other public interests. A statement to this

effect must be obtained from the mayor of the community

concerned.

◆ Levy on non-gratuitous transfer of assets: this levy is charged

on real estate, certain movable assets and rights representing

asset value. The transfer of company shares to a Hungarian

person or a conversion to a Hungarian economic entity (if the

new entity (entities) is (are) legal successor(s) to the earlier

entity (entities)) is a procedure not subject to fees, charges

and levies. The bringing in of real estate into a company as a

contribution in kind is subject to a levy.

The levy must be paid by the acquiring party.

The general levy on real estate is 10 %, for housing 2 %

or 6 % depending on the market value. For real estate dealers

who resell real estate within two years the levy is reduced to

2 %. The fee charged in connection with the acquisition of a

passenger car is HUF 15 per cubic centimetre.

3.6.4.4. Excise tax

The Act on Excise Tax has been rescinded as of 1 May

2004 with Hungary’s accession to the EU.

In the area of passenger cars it is replaced by the

Registration Tax (which is similar Austria’s NoVA), which is

payable after a vehicle has been registered in Hungary for the

first time, depending on the cubic capacity of the engine and the

vehicle’s emissions (approx. HUF 150,000 for an average vehicle).

As from 1 May 2004, the vehicle is considered to be new

under the Value-added Tax Act if it has not covered more than

6,000 kilometres at the time of purchase, or if no more than 6

months have passed since it was first registered abroad.

3.6.4.5. Revenue stamp tax (monopoly excise tax)

The revenue stamp tax is an indirect tax charged to the end

user. The taxpayer calculates the tax into the sales price,

whereupon the tax paid in the sales price is then paid into the

government coffers. Tax liability is incurred on the production

and importation of revenue-stamp products. These products

include:

◆ mineral oil,

◆ alcohol products,

◆ beer,

◆ wine,

◆ sparkling wine,

◆ intermediate alcohol products,

◆ tobacco products.

The authority in charge of matters relating to revenue

stamps is the customs office. Tax liability is incurred if the

revenue stamp product is domestically produced or imported.

The party liable to pay the tax is the manufacturer or the

importer.



Approval must be given to the acquisition of real estate

as long as the interests of the self-governing entity or other

public interests are not violated and

a) the foreigner has received permission to immigrate or

b) the foreigner acquired the title to the real estate as a result

of expropriation or

c) the foreigner trades the piece of domestic real estate he

owns for another piece of domestic real estate or

d) the purpose of acquiring ownership is to dissolve a joint

title or

e) the foreigner was given a piece of domestic real estate as a

gift or

f) the foreigner has verifiably already lived in Hungary for at

least five years for the purpose of working.

Approval can be refused if the country of which the

foreigner is a citizen does not ensure, on the basis of an

international treaty or reciprocity, the same treatment to

Hungarian citizens or Hungarian legal persons as that enjoyed

by residents.

Branches of foreign companies are allowed to acquire the

properties they need to conduct their business (except

farmland and protected-nature areas) without permission, but

are not entitled to engage in real estate transactions. A further

restriction is that this right of business branches to own

properties is granted only if a reciprocity agreement exists with

the country in which the company has its registered office.

The list of countries with which such reciprocity agreements

have been concluded has been publicly disclosed.

Applications of foreign sole proprietors duly established

in Hungary to acquire property must receive permission if this

property is directly required for the conduct of the

commercial activity for which the proprietor has established

himself /herself. The property is not deemed to be required

for the commercial activity if it is acquired for the purpose of

real estate dealings, letting out or exchange.

Companies in which foreigners have an interest (even if

this interest amounts to 100 %) can freely acquire real estate

(except farmland and protected-nature areas) if this real

estate is required for conducting the business activity set

forth in the articles of association /partnership agreement.

3.7.2. Imports

With Hungary’s accession to the EU, the country’s imports

are regulated by Community Law. Imports are defined as the

import of a product from a third country outside the EU into

the single market.

The European Union is also a customs union. The duty on

products imported from third countries is therefore the same

in each member state, regardless of the member state in

which the importer pays the duty. (The value-added tax rates

are however not uniform. For this reason, the value-added tax

on imports is paid in the country of destination (principle of

country of destination)). The practice whereby the customs

office determined the value-added tax on imports and

notified the importer by means of a written decision has in

principle been discontinued since 1 May 2004 (with a few

exceptions); the tax entities must now compute and report

this themselves. If a tax entity is entitled to deduct input tax,

then this right to deduction and the obligation to pay tax

arise in the same tax registration period.

3.7.3. Customs

Community tariff law immediately and directly took

effect with Hungary’s accession to the EU.

The legal sources of Community tariff law (e.g. the

Community Customs Code and its implementing provisions)

partly require, and partly offer the opportunity for, a member

state to establish national regulations in regard to certain

issues such as the right of representation, conditions ensuring

customs security, etc. There is furthermore also a transitional

arrangement whereby transactions initiated before accession

and completed after accession (with the exception of customs

procedures) must be given the possibility of being executed in

accordance with the old, national regulations.

This for example means that the approvals given prior to

EU accession for e.g. passive and active processing for the

period for which they were originally valid, or for up to one

year after the accession date (whichever is the earlier), will

remain valid. The recipient of the approval is required to

comply with the Community regulations.

The relevant Community regulations (and the Community

customs tariff) apply to customs procedures initiated prior to

accession and completed after accession.

There is no transitional arrangement for duty-free zones

and bonded warehouses. This means that in the new member

states, the provisions of the Customs Code take effect with

the day of accession, whereupon the approvals and legal

provisions not regulated in the Community arrangements will

be rendered null and void. Duty-free zones and bonded

warehouses established by virtue of conditions and

prerequisites which correspond to the prerequisites of the

European Union in all respects on 1 May 2004 can continue

their activities after 1 May 2004.



country. If such a residence exists, revenues allocable to it

may be taxed in that other country.

◆ Income from the operation of sea-going vessels and

aircraft may be taxed only in the country of residence.

◆ In general, income from paid employment (i. e. non-self-

employment) may be taxed by the country of employment.

The right to tax is granted to the country of residence if

◆ the employee stays no longer than 183 days during the

fiscal year in the country of employment

◆ the remuneration is not paid by or for an employer with its

registered office in the country of employment and

◆ the remuneration does not represent operating expenses of

a business establishment or of a permanent residence of

the employer in the country of employment.

◆ Remuneration for supervisory boards or boards of directors

may be taxed in the country of residence (of the legal

person).

◆ Pension pay is likewise taxed in the country of residence.

◆ Operating assets of a company’s business establishment

may be taxed in the country in which the business

establishment is located.

To avoid double taxation in income and net assets tax,

the convention provides for an exemption of income with the

reservation that a progressive tax rate be applied. Only in the

case of dividend income is the tax levied in the source country

credited to the income tax of the country of residence –

based on the principle of standard crediting.

3.8.3. Double taxation convention betweenHungary and Germany

A company resident in both signatory states is deemed to

reside in the state in which its actual management is located.

The definition for the term “business establishment” is

basically the same as used in the OECD regulations.

Construction or assembly projects fall into this category only

if their duration exceeds 12 months.

◆ Income from real estate may be taxed in the signatory state

in which the real estate is located.

◆ Business profits can be taxed only in the state of residence

unless the company has a permanent establishment in the

other signatory state. If this is the case, the business profit

can be taxed in the other state yet only to the extent to

which the profit is allocable to the permanent

establishment in that other state.

◆ The state of residence is entitled to levy tax on dividends,

but the source state can levy a tax of up to 5 %, 15 % or

25 % on the gross amount of the dividends.

3.8. Double Taxation Conventions

3.8.1. General information

Double taxation conventions are currently in force

between Hungary and the following countries:

Albania, Australia, Austria, Belgium, Brazil, Bulgaria,

Canada, China, Croatia, Cyprus, Czech Republic, Denmark,

Egypt, Finland, France, Germany, Greece, India, Indonesia,

Ireland, Israel, Italy, Japan, Kazakhstan, Republic of Korea,

Kuwait, Luxembourg, Macedonia, Malaysia, Malta, Moldova,

Mongolia, Morocco, Netherlands, Norway, Pakistan,

Philippines, Poland, Portugal, Romania, Russian Federation,

Singapore, Slovakia, South Africa, Spain, Sweden,

Switzerland, Thailand, Tunisia, Turkey, Ukraine, United

Kingdom, Uruguay, USA, Vietnam, former Yugoslavia.

3.8.2. Double taxation convention betweenHungary and Austria

If a person is resident in both signatory states, he / she is

deemed to reside in the state in which he / she has his /her

permanent place of residence. If he / she has two places of

residence, he / she is deemed to reside in the state where the

focal point of his /her vital interests lies or where he / she

customarily stays. If this applies to both states, citizenship

becomes the determining factor.

If a company is subject to (unlimited) taxation in both

signatory states, the registered office becomes the

determining factor for unambiguously clarifying the issue of

residence.

The definition for business establishment largely

corresponds to that used in the OECD regulations.

Construction or assembly projects fall under this category

only if their duration exceeds two years.

If a company has its registered office in Austria and a

business establishment in Hungary, only the company profit

allocable to the business establishment in Hungary is liable to

tax in Hungary; the remaining profit is taxed in Austria.

◆ Income from immovable assets may be taxed in the

signatory state in which these assets are located.

◆ The country of residence is entitled to tax dividends, but

the source state can levy a tax of up to 10 % on the gross

amount of the dividends.

◆ Interest is taxed only in the country of residence.

◆ Licence fees are likewise taxed in the country of residence.

◆ Income from the sale of immovable assets may be taxed in

the state in which these assets are located.

◆ Revenues from a professional occupation or other type of

self-employment (artistic, scientific, literary, educational,

instructional, athletic) are taxed in the country of residence

unless the person has a permanent residence in another



The tax rate amounts to:

a) 5 % of the gross amount of the dividend if the dividend

recipient directly holds at least 25 % of the capital of the

company paying the dividend;

b) 25 % of the income of a dormant partner (precisely

defined as a person holding an undisclosed participation in

a firm without partnership status or liability);

c) 15 % of the gross amount of the dividend in all other

cases.

◆ Interest is permitted to be taxed in the state of residence.

◆ In general, income from paid employment (non-self-

employment) may be taxed by the country of employment.

The right to tax is granted to the country of residence if

◆ the employee stays no longer than 183 days during the

fiscal year in the country of employment and

◆ the remuneration is not paid by or for an employer with its

registered office in the country of employment and

◆ the remuneration does not represent operating expenses of

a business establishment or a permanent residence of the

employer in the country of residence.

◆ Remuneration for supervisory boards or boards of directors

are taxed in the country in which the company is

domiciled.

To avoid double taxation in income and net assets tax,

the convention provides for an exemption of income with the

reservation that a progressive tax rate be applied. This

procedure is to be applied to dividends only if the German

recipient of the dividend holds at least 25 % of the voting

rights in the Hungarian company.

In the case of other dividends and remuneration for

members of the supervisory board and board of directors, the

tax levied in Hungary is credited against the tax in Germany

according to the German regulations.

In the case of a Hungarian recipient of dividends the tax

levied in Germany is credited against the tax in Hungary. The

credited tax must not be higher than the Hungarian tax levied

against the dividend.

Annex

52

4. Annex

4.1. Standard Format of Accounts

CLASS 1 – FIXED ASSETS

CLASS 2 – INVENTORIES

CLASS 3 – RECEIVABLES, CASH & CASH EQUIVALENTS,

SECURITIES, ACCRUED AND DEFERRED ASSETS

CLASS 4 – EQUITY AND LIABILITIES

CLASS 5 – COST CATEGORIES

CLASS 6 – COST ACCOUNTING or COST OF SALES METHOD

(optional)

CLASS 7 – COST ACCOUNTING or COST OF SALES METHOD

(optional)

CLASS 8 – EXPENSES and transfer of account classes 5, 6 and 7

CLASS 9 – SALES REVENUES AND OTHER INCOME

CLASS 0 – OFF-BALANCE-SHEET ITEMS

4.2. Balance Sheet and Income Statement

4.2.1. Prescribed breakdown of the balancesheet – Version “A”

ASSETS

A. FIXED ASSETS

I. Intangible assets

1) Capitalized value of formation / reorganization

expenses

2) Capitalized value of research and development

3) Concessions, licenses and similar rights

4) Trade-marks, patents and similar assets

5) Goodwill

6) Advances and prepayments on intangible assets

7) Adjusted value of intangible assets

II. Tangible assets

1) Land and buildings and rights to immovables

2) Plant and machinery, vehicles

3) Other equipment, fixtures and fittings, vehicles

4) Breeding stock

5) Assets in course of construction

6) Payments on account

7) Adjusted value of tangible assets

III. Financial investments

1) Long-term participations in affiliated undertakings

2) Long-term credit to affiliated undertakings

3) Other long-term participations

4) Long-term loan to independent undertakings


5) Other long-term loans

6) Securities signifying a long-term creditor

relationship

7) Adjusted value of financial investments

8) Valuation difference of invested financial assets

B. CURRENT ASSETS

I. Inventories

1) Raw materials and consumables

2) Work in progress, intermediate and semi-finished

products

3) Animals for breeding and fattening and other

livestock

4) Finished products

5) Goods

6) Advances and prepayments

II. Liabilities

1) Trade debtors

2) Receivables from affiliated undertakings

3) Receivables from independent undertakings

4) Bills receivable

5) Other receivables

6) Valuation difference of receivables

7) Valuation difference of derivative instruments

III. Securities

1) Participations in affiliated undertakings

2) Other participations

3) Own shares and own partnership shares

4) Securities signifying a creditor relationship for

trading purposes

5) Valuation difference of securities

IV. Liquid assets

1) Cash, checks

2) Bank deposits

C. Accrued and deferred assets

1) Accrued income

2) Accrued expenses

3) Deferred expenses

TOTAL ASSETS

Annex


LIABILITIES

D. SHAREHOLDERS’ EQUITY

I. Subscribed capital

including: ownership shares repurchased at face value

II. Subscribed capital unpaid (–)

III. Capital reserve

IV. Accumulated profit reserve

V. Tied-up reserve

VI. Revaluation reserve

1. Valuation reserve for adjustments

2. Fair value reserve

VII. Profit or loss for the year

E. PROVISIONS

1) Provisions for forward liabilities

2) Provisions for forward expenses

3) Other provisions

F. LIABILITIES

I. Subordinated liabilities

1) Subordinated liabilities to affiliated undertakings

2) Subordinated liabilities to independent

undertakings

3) Subordinated liabilities to other economic entities

II. Long-term liabilitiesm

1) Long-term loans

2) Convertible bonds

3) Debts on issue of bonds

4) Investment and development credits

5) Other long-term credits

6) Long-term liabilities to affiliated undertakings

7) Long-term liabilities to independent undertakings

8) Other long-term liabilities

III. Current liabilities

1) Short-term bank loans

– including: convertible bonds

2) Other short-term loans

3) Advances received from customers

4) Accounts payable

5) Bills payable

6) Short-term liabilities to affiliated undertakings

7) Short-term liabilities to independent undertakings

8) Other short-term liabilities

9) Valuation difference of liabilities


G. ACCRUED AND DEFERRED LIABILITIES

1) Deferred income


3) Accrued income

TOTAL LIABILITIES

4.2.2. Prescribed breakdown of the balancesheet – version “B”

A. FIXED ASSETS

I. Intangible assets

1) Capitalized value of formation / reorganization

expenses

2) Capitalized value of research and development

3) Concessions, licenses and similar rights

4) Trade-marks, patents and similar assets

5) Goodwill

6) Advances and prepayments on intangible assets

7) Adjusted value of intangible assets

II. Tangible assets

1) Land and buildings and rights to immovables

2) Plant and machinery, vehicles

3) Other equipment, fixtures and fittings, vehicles

4) Breeding stock

5) Assets in course of construction

6) Payments on account

7) Adjusted value of tangible assets

III. Financial investments

1) Long-term participations in affiliated undertakings

2) Long-term credit to affiliated undertakings

3) Other long-term participations

4) Long-term loan to independent undertakings

5) Other long-term loans

6) Securities signifying a long-term creditor

relationship

7) Adjusted value of financial investments

8) Valuation difference of invested financial assets

B. CURRENT ASSETS

I. Inventories


2) Work in progress, intermediate and semi-finished

products

3) Animals for breeding and fattening and other

livestock

4) Finished products

5) Goods

6) Advances and prepayments

II. Liabilities

1) Trade debtors

2) Receivables from affiliated undertakings

3) Receivables from independent undertakings

4) Bills receivable

5) Other receivables

6) Valuation difference of receivables


Annex


I. PROVISIONS

1) Provisions for forward liabilities

2) Provisions for forward expenses

3) Other provisions

J. SHAREHOLDERS’ EQUITY

J I. Subscribed capital

including: ownership shares repurchased at face value

J II. Subscribed capital unpaid (–)

J III. Capital reserve

J IV. Accumulated profit reserve

J V. Tied-up reserve

J VI.Revaluation reserve

1. Valuation reserve for adjustments

2. Fair value reserve

J VII.Profit or loss for the year

4.2.3. Prescribed breakdown of the profit andloss account (total cost method)

Version “A”

1) Net domestic sales

2) Net external sales

I. Total sales (revenues) (01+02)

3) Variations in self-manufactured stocks

4) Own work capitalized

II. Own performance capitalized (+03+04)

III. Other income

including: loss in value marked back


6) Contracted services

7) Other service activities

8) Original cost of goods sold

9) Value of services sold (intermediated)

IV. Material costs (05+06+07+08+09)

10) Wages and salaries

11) Other employee benefits

12) Contributions on wages and salaries

V. Staff costs (10+11+12)

VI. Depreciation

VII. Other operating charges

including: loss in value

A. INCOME FROM OPERATIONS (I+ II+ III – IV–V–VI–VII)

13) Dividends and profit-sharing (received or due)

including: from affiliated undertakings

14) Capital gains on investments


15) Interest and capital gains on financial

investments


III. Securities

1) Participations in affiliated undertakings

2) Other participations

3) Own shares and own partnership shares

4) Securities signifying a creditor relationship for

trading purposes

5) Valuation difference of securities

IV. Liquid assets

1) Cash, checks

2) Bank deposits

C. ACCRUED AND DEFERRED ASSETS

1) Accrued income

2) Accrued expenses


D. LIABILITIES DUE AND PAYABLE WITHIN ONE YEAR

1) Short-term bank loans

– including: convertible bonds

2) Other short-term loans

3) Advances received from customers

4) Accounts payable

5) Bills payable

6) Short-term liabilities to affiliated undertakings

7) Short-term liabilities to independent undertakings

8) Other short-term liabilities

9) Valuation difference of liabilities


E. ACCRUED AND DEFERRED LIABILITIES

1) Deferred income


3) Accrued income

F. BALANCE OF CURRENT ASSETS – CURRENT LIABILITIES

(B+C–D–E)

G. TOTAL ASSETS LESS LIABILITIES DUE AND PAYABLE

WITHIN ONE YEAR (A+F)

H. LIABILITIES DUE AND PAYABLE AFTER ONE YEAR

H I. Long-term liabilities

1) Long-term loans

2) Convertible bonds

3) Debts on issue of bonds

4) Investment and development credits

5) Other long-term credits

6) Long-term liabilities to affiliated undertakings

7) Long-term liabilities to independent undertakings

8) Other long-term liabilities

H II. Subordinated liabilities

1) Subordinated liabilities to affiliated undertakings

2) Subordinated liabilities to independent

undertakings

3) Subordinated liabilities to other economic entities

Annex


16) Other interest and similar income (received or due)


17) Other income from financial transactions

including: valuation difference

VIII. Income from financial transactions

(13+14+15+16+17)

18) Losses on financial investments

including: to affiliated undertakings

19) Interest payable and similar charges


20) Losses on shares, securities and bank deposits

21) Other expenses on financial transactions


IX. Expenses on financial transactions (18+19+20+21)

B. PROFIT OR LOSS FROM FINANCIAL TRANSACTIONS (VIII– IX)

C. PROFIT OR LOSS OF ORDINARY ACTIVITIES (+A+B)

X. Extraordinary income

XI. Extraordinary expenses

D. EXTRAORDINARY PROFIT OR LOSS (X–XI)

E. INCOME BEFORE TAXES (+C+D)

XII. Tax payable

F. PROFIT AFTER TAXES (+E–XII)

22) Profit reserves used for dividends and

profitsharing

23) Dividends and profit-sharing paid (payable)

G. PROFIT OR LOSS FOR THE YEAR (+F+22 – 23)

4.2.4. Prescribed breakdown of the profit andloss account (total cost method)

Version “B”

EXPENDITURES

I. Decline in self-manufactured stocks


2) Contracted services

3) Other service activities



II. Material costs (01+02+03+04+05)

6) Wages and salaries

7) Other employee benefits

8) Contributions on wages and salaries

III. Staff costs (06+07+08)

IV. Depreciation

V. Other operating charges

including: losses in value

VI. Operating expenses

(I+ II+ III+ IV+V)

,A. OPERATING PROFIT (VI<XIV)

9) Losses on financial investments


10) Interest payable and similar charges


11) Losses on shares, securities and bank deposits

12) Other expenses on financial transactions


VII. Expenses on financial transactions (09+10+11+12)

B. INCOME FROM FINANCIAL TRANSACTIONS (VII<XV)

C. PROFIT FROM ORDINARY ACTIVITIES

[(A+B)> (H+ I)]

VIII. Extraordinary expenses

D. EXTRAORDINARY PROFIT (VIII<XVI)

E INCOME BEFORE TAXES

[(C+D)> (J+K)]

IX. Tax payable

F. PROFIT AFTER TAXES [(E– IX)>O]

X. Dividends and profit-sharing paid (payable)

G. PROFIT OR LOSS FOR THE YEAR

TOTAL (VI+VII+VIII+ IX+X+G)

REVENUES



XI. Total sales (13+14)

15) Increase in self-manufactured stocks

16) Own work capitalized

XII. Own performance capitalized (15+16)

XIII. Other income


XIV. Income from operations

(XI+XII+XIII)

H. OPERATING LOSSES (VI>XIV)

17) Dividends and profit-sharing (received or due)


18) Capital gains on investments


19) Interest and capital gains on financial

investments


20) Other interest and similar income (received or due)


21) Other income from financial transactions


XV. Income from financial transactions

(17+18+19+20+21)

I. LOSSES FROM FINANCIAL TRANSACTIONS (VII>XV)

Annex


4.2.6. Prescribed breakdown of the profit andloss account (turnover cost method)

Version “B”

EXPENDITURES

1) Prime cost of sales accounted



I. Direct cost of sales (01+02+03)

4) Sales and marketing costs

5) Administration costs

6) Other general overhead

II. Indirect costs of sales (04+05+06)

III. Other operating charges


IV. Operating expenses (I+ II+ III)

A. OPERATING PROFIT (IV<XI)

The following expense items correspond analogously to the

items 09 to 12 and VII to X as well as B to G in the “B”

Version presented in Chapter 4.3.4.

REVENUES



IX. Total sales (revenues) (11+12)

X. Other income


XI. Income from operations (IX+X)

H. OPERATING LOSSES (IV>XI)

The following income items correspond to the items 17 to 21

and XV to XVII as well as I to N in the “B” Version presented

in Chapter 4.3.4.

J. LOSSES FROM ORDINARY ACTIVITIES

[(A+B)< (H+ I)]

XVI. Extraordinary income

K. EXTRAORDINARY LOSS (VIII>XVI)

L. LOSSES BEFORE TAXES

[(C+D)< (J+K)]

M. LOSSES AFTER TAXES [(E– IX)<0] OR [(L+ IX)>0]

XVII. Profit reserves used for dividends and profit-sharing

N. LOSSES FOR THE YEAR

TOTAL (XIV+XV+XVI+VII+N)

4.2.5. Prescribed breakdown of the profit andloss account (turnover cost method)

Version “A”



I. Total sales (revenues) (01+02)

3) Prime cost of sales accounted



II. Direct cost of sales (03+04+05)

III. Net income from sales (I – II)

6) Sales and marketing costs

7) Administration costs

8) Other general overhead

IV. Indirect costs of sales (06+07+08)

V. Other income


VI. Other operating charges


A. INCOME FROM OPERATIONS

(+ I II – IV+V–VI)

The following items correspond analogously to the items 13

to 23 and VIII to XII as well as B to G in the “A” Version

presented in Chapter 4.3.3.

Annex


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G O O D A D V I C E I S A T H A N D : A U D I T I N G • T A X C O N S U L T I N G • B O O K - K E E P I N G •P A Y R O L L A C C O U N T I N G • C O N T R O L S • I T A U D I T S • B U S I N E S S V A L U A T I O N •C O M M E R C I A L L A W A D V I C E I N C O - O P E R A T I O N W I T H M E M B E R S O F T H E L E G A LP R O F E S S I O N • B U S I N E S S C O N S U L T I N G • P E R S O N N E L C O N S U L T I N G • A D V I C EO N F O R E I G N E X C H A N G E R E G U L A T I O N S • A S S I S T A N C E W I T H P A R T N E R S E A R C HA N D S E T T I N G U P J O I N T V E N T U R E S • S E M I N A R S F O R T R A I N I N G A N D A D V A N C E DT R A I N I N G • T R U S T E E S H I P • P E R F O R M A N C E O F S U P E R V I S O R Y A N D A D V I S O R YB O A R D D U T I E S

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� CONSULTATIO Wirtschaftsprüfungsgesellschaft m.b.H./ AuditorsMag. Gerhard PICHLERMag. Siegfried SCHEINERHolzmeistergasse 9,A-1210 WienTel: ++43 1/27775-0Fax: ++43 1/27775-279mail: [email protected]

[email protected]

� Co-operation with Androsch InternationalManagementberatung Ges.m.b.H. / Management ConsultantsOpernring I,A-1010 Wien

� Member of the International Associationof Independent Public AuditorsAGN INTERNATIONAL

� AGN CONSULTATIO Revizija in Svetovanje, d.o.o., Ljubljana Tax Consultant and AuditorMag. Maja BARISICJana Husa 1a, SLO-1260-LjubljanaTel: ++386 1/544 66 12Fax: ++386 1/544 66 13mail: [email protected]

� CONSULTATIO danovo-poradenska k.s./Tax ConsultantsDI Karol CSANYIStara Prievozska 2, SK-821 09-BratislavaTel: ++421 2/5341 11 41Fax: ++421 2/5341 13 90mail: [email protected]

� CONSULTATIO Kft.Gazdasági és Adóügyi Tanácsado/ Tax Consultants and AuditorsZsuzsa MAROSFALVIZugligeti ut 6, HU-1121-BudapestTel: ++36 1/391 4170Fax: ++36 1/391 0055mail: [email protected]

� CONSULTATIO danove-poradenska s.r.o./Tax ConsultantsDI Karol CSANYIKorunni 129,Vinohrady , CZ-130 00-Praha 3Tel: ++42 02/72732320Fax: ++42 02/67311086mail: [email protected]

� CONSULTATIO Wirtschaftsprüfungsgesellschaft m.b.H./ AuditorsMag. Gerhard PICHLERMag. Siegfried SCHEINERHolzmeistergasse 9,A-1210 WienTel: ++43 1/27775-0Fax: ++43 1/27775-279mail: [email protected]

[email protected]

� Co-operation with Androsch InternationalManagementberatung Ges.m.b.H. / Management ConsultantsOpernring I,A-1010 Wien

� Member of the International Associationof Independent Public AuditorsAGN INTERNATIONAL

� AGN CONSULTATIO Revizija in Svetovanje, d.o.o., Ljubljana Tax Consultant and AuditorMag. Maja BARISICJana Husa 1a, SLO-1260-LjubljanaTel: ++386 1/544 66 12Fax: ++386 1/544 66 13mail: [email protected]

� CONSULTATIO danovo-poradenska k.s./Tax ConsultantsDI Karol CSANYIStara Prievozska 2, SK-821 09-BratislavaTel: ++421 2/5341 11 41Fax: ++421 2/5341 13 90mail: [email protected]

� CONSULTATIO Kft.Gazdasági és Adóügyi Tanácsado/ Tax Consultants and AuditorsZsuzsa MAROSFALVIZugligeti ut 6, HU-1121-BudapestTel: ++36 1/391 4170Fax: ++36 1/391 0055mail: [email protected]

� CONSULTATIO danove-poradenska s.r.o./Tax ConsultantsDI Karol CSANYIKorunni 129,Vinohrady , CZ-130 00-Praha 3Tel: ++42 02/72732320Fax: ++42 02/67311086mail: [email protected]

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