Merchandise Trade

• Hungary has been a member of the World Trade Organization (WTO) since January 1, 1995 and a member state of the EU since May 1, 2004.


• Hungary's main trade partners are in the EU, and the absence of customs charges supports large volumes of trade. All EU member states adopt common external trade policy and measures. The country's trade policy is largely identical to that of the wider regional bloc.


• Hungary applies the EU's Common External Tariff, which means that goods manufactured and imported from within the EU are not subject to customs charges. The EU updated its trade policy (and by extension its import tariffs, customs, duties and procedures) in 2017 and 2018. The average tariff rate for EU states is just 1%, among the lowest globally, although goods imported from outside the EU incur duties of between 0% and 17%. Most of the country's major trade partners are within the EU, and risks are thus less pronounced, such that Hungary's average tariff rate stands at 1.5%. Once goods are cleared by customs authorities upon entry into any EU member state, these imported goods can move freely among EU member states without any additional customs procedures.


• In December 2016, EU states agreed on a proposal to modernise the EU's trade defence instruments with a view to shielding EU producers from damage caused by unfair competition. The proposed regulation amends current anti-dumping and anti-subsidy regulations to better respond to unfair trade practices and furnishes Europe's trade defence instruments with more transparency, quicker procedures and more effective enforcement. In exceptional cases, such as in the presence of distortions in the cost of raw materials, it will enable the EU to impose higher duties through the limited suspension of the lesser duty rule. This will provide some protection to Hungary's secondary and tertiary sectors.


• In 2016, the European Commission (EC) introduced an import licensing regime for steel products exceeding 2.5 tonnes. The regulation will be active until May 15, 2020. In Q215, the EC issued regulations on trade restrictions with Turkey on cattle, beef, watermelons and prepared tomatoes. This will help protect domestic agriculture and regional farming businesses.


• In June 2018, the EU imposed import duties on 182 goods from the United States in reaction to the steel and aluminium import duties imposed by Washington on the EU. Daimler AG and BMW have stated that they will be putting their Hungarian investments on hold in response to lower demand and fears of a disproportionately large impact on the autos industry resulting from auto tariffs from the United States.


• The EU is party to about 50 free trade agreements (FTAs) and, consequently, access to other markets of the countries concerned is currently mediated through those agreements. The EU's Generalised Scheme of Preferences (GSP) came into effect on January 1, 2014. Under the scheme, tariff preferences have been removed for imports into the EU from countries where per capita income has exceeded USD4,000 for four years in a row. Regarding Hong Kong, the territory has been fully excluded from the EU's GSP scheme since May 1, 1998.


• A number of products orginatingfrom Mainland China are subject to the EU's anti-dumping duties, including bicycles, bicycle parts, ceramic tiles, ceramic tableware and kitchenware, fasteners, ironing boards and solar glass. As of December 2017, the EU did not apply any anti-dumping measures on imports originating from Hong Kong.
• In December 2019, the EU issued a regulation imposing additional import tariffs on a number of fruits and vegetables for the period 2020 to 2021.

Sources: WTO – Trade Policy Review, Global Trade Alert, Fitch Solutions

Trade Updates

• As a member of the EU, Hungary is part of the same trade agreements as its 27 peer states. The region negotiates and enters into trade agreements as a collective owing to the single market nature of the union. In total, the EU has approximately 70 preferential trade agreements in place.
   
• Hungarian Prime Minister Viktor Orbán met with Mainland China’s President Xi Jingping in April 2019 in Beijing in order to promote the development of relations and cooperation between Mainland China and the countries of the Central and Eastern European region. Orbán was in Mainland China in order to attend the second international forum on the Belt and Road Initiative, from which Hungary is set to benefit, in addition to conducting bilateral talks with Mainland China.

Multinational Trade Agreements

Active

1. Hungary has been a member of the EU since May 1, 2004, adopting the EU's common external trade policy and measures. The EU is a political and economic union of 27 member states that are primarily located in Europe. Within the Schengen Area, passport controls have been abolished. A monetary union was established in 1999; it is composed of 19 EU member states that use the euro currency. However, Hungary maintains its own currency – the forint.


2. EU-Canada Comprehensive Economic and Trade Agreement (CETA): This has provisionally been applied since September 21, 2017, having been signed in October 2016. CETA is expected to strengthen trade ties between the two regions. The agreement is expected to boost trade between partners by more than 20%. Hungary expects CETA to improve trade in goods and services between the two countries while also boosting FDI. According to Hungarian authorities, USD11 billion in FDI has already arrived in Hungary from Canada, highlighting the importance of further market and trade liberalisation. CETA also opens up government procurement. Canadian companies will be able to bid on opportunities at all levels of the EU government procurement market and vice versa. CETA means that Canadian provinces, territories and municipalities are opening their procurement to foreign entities for the first time, albeit with some limitations regarding energy utilities and public transport.


3. Europe Free Trade Association (EFTA): the EFTA includes Switzerland, Norway, Liechtenstein and Iceland. The European Economic Area (EEA) unites the EU member states and the three EEA EFTA states into an internal market governed by the same basic rules. These rules aim to enable goods, services, capital and persons to move freely about the EEA in an open and competitive environment, a concept referred to as the four freedoms.


4. EU-Turkey: The EU and Turkey are linked by a customs union agreement which came into force on December 31, 1995. Turkey has been a candidate country to join the EU since 1999 and is a member of the Euro-Mediterranean partnership. The customs union with the EU provides tariff-free access to the European market for Turkey, benefitting both exporters and importers. Turkey is the EU's fourth largest export market and fifth largest provider of imports. The EU is Turkey's largest import and export partner. Turkey's exports to the EU are mostly machinery and transport equipment, followed by manufactured goods. At present, the customs union agreement covers all industrial goods but does not address agriculture (except processed agricultural products), services or public procurement. Bilateral trade concessions apply to agricultural as well as coal and steel products. In December 2016, the EC proposed the modernisation of the customs union and the extension of the bilateral trade relations to areas such as services, public procurement and sustainable development.


5. EU-Japan Economic Partnership Agreement (EPA): In July 2018, the EU and Japan signed a trade deal that promises to eliminate 99% of tariffs that cost businesses in the EU and Japan nearly EUR1 billion annually. According to the EC, the EU-Japan EPA will create a trade zone covering 600 million people and nearly a third of global GDP. The result of four years of negotiation, the EPA was finalised in late 2017 and came into force on February 1, 2019, after the European Parliament ratified the agreement in December 2018. The total trade volume of goods and services between the EU and Japan is an estimated EUR86 billion. The key parts of the agreement will cut duties on a wide range of agricultural products and seeks to open up services markets, particularly financial services, e-commerce, telecommunications and transport. Japan is the EU's second biggest trading partner in Asia after Mainland China. EU exports to Japan are dominated by motor vehicles, machinery, pharmaceuticals, optical and medical instruments, and electrical machinery.


6. EU-Southern African Development Community (SADC) EPA (Botswana, Eswatini, Lesotho, Mozambique, Namibia and South Africa): An agreement between EU and SADC delegations was reached in 2016 and is fully operational for SADC members following the ratification of the agreement by Mozambique. The remaining six members of SADC included in the deal (the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Zambia and Zimbabwe) are seeking EPAs with the EU as part of other trading blocs – such as with East or Central African communities.

Signed, Awaiting Ratification

1. EU-Central America Association Agreement (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Belize and the Dominican Republic): An agreement between the parties was reached in 2012 and is awaiting ratification (30 of the 34 parties have ratified the agreement as of October 2019). The agreement has been provisionally applied since 2013.
    
2. EU-Vietnam FTA: In July 2018, the EU and Vietnam agreed on final texts for the EU-Vietnam FTA and the EU-Vietnam Investment Protection Agreement. As of October 2019, the final text of the agreement has been finalised and is awaiting signature and conclusion. On March 30 2020, the EU Council concluded the FTA between the EU and Vietnam. Once the Vietnamese National Assembly also ratifies the FTA, the agreement will enter into force before end 2020.


3. EU-Mercosur: The EU and Mercosur (Argentina, Brazil, Paraguay and Uruguay) signed a trade deal on June 28, 2019, after 20 years of negotiations. The trade agreement for goods and services will cover nearly 25% of global GDP and almost 800 million people. The deal is expected to cut duties on EU exports to Mercosur by EUR4 billion annually and eliminate tariffs on 93% of Mercosur's exports to the EU and 91% of EU exports to Mercosur states. The deal will also include access to public procurement contracts. Mercosur states will greatly benefit from increased access to the EU for agricultural goods, which has resulted in opposition to the deal by European farmers. European firms, especially those in the manufacturing and industrial sector, will have an advantage over other competitors after the removal of high tariffs. Along with other Central and Eastern European countries, Hungary is likely to benefit substantially from the deal as high valued-added automotive and other mechanical parts are a significant export to South America.

Under Negotiation

1. EU-Australia: The EU, Australia's second largest trade partner, has launched negotiations for a comprehensive trade agreement with Australia. Bilateral trade in goods between the two partners has risen steadily in recent years, reaching almost EUR48 billion in 2017 with bilateral trade in services adding an additional EUR27 billion. The negotiations aim to remove trade barriers, streamline standards and put European companies exporting to or doing business in Australia on equal footing with those from countries that have signed up to the Trans-Pacific Partnership or other trade agreements with Australia. The Council of the EU authorised opening negotiations for a trade agreement between the EU and Australia on May 22, 2018. Negotiations were still underway as at March 2020.
    
2. EU-United States (Trans-Atlantic Trade and Investment Partnership): This agreement was expected to increase trade and services, but it is unlikely to pass under United States President Donald Trump's administration against a backdrop of rising global trade tensions.

Sources: WTO Regional Trade Agreements database, European Commission, Fitch Solutions

Foreign Direct Investment

• Value Added Tax: 27%
• Corporate Income Tax: 9%

Sources: Hungary National Tax and Customs Administration

Important Updates to Taxation Information

• The government aims to further decrease the labour tax rate (especially the social contribution tax rate) over the period 2020 to 2022. The proposed reduced social tax rate is 15.5% for FY2020 down from 19.5% (if certain conditions are met) and further reductions are expected (the final proposed rate is 11.5%) by FY2022, subject to certain conditions.
   
• On December 12 2019, the Hungarian National Tax and Customs Administration issued a guide of value added tax (VAT) changes for 2020. The changes include: 1) a rate reduction for accommodation services to 5% from 18%, subject to a 4% tourism development contribution; 2) the harmonisation of intra-EU deliveries of goods; 3) the determination of the place of performance in a chain transaction; 4) rules for tax-free intra-EU sales; and 5) the allowance of VAT base reductions for bad debt claims. These changes took effect January 1, 2020. 

Localisation Requirements

Hungary's rules and regulations regarding labour mobility are broadly in line with EU directives. Most non-EU citizens require a work visa and permit in order to go and work in Hungary, which generally takes about a month to obtain.

Obtaining Foreign worker permits for skilled workers

There are certain requirements that businesses must meet when trying to bring in foreign workers from non-EU states. First, a workforce demand is required. The hiring company must advertise the job at the Hungarian Labour Office for a fixed period (around 15 days). This is to give unemployed Hungarian citizens a chance to apply for the position. Thereafter, a work permit may be processed. Most work permits and working visas are issued for two years. Both these documents can be renewed to extend the stay in Hungary if the employee continues to fulfil the application requirements. Generally, the highest number of foreign workers employed with a work permit at the same time in the territory of Hungary cannot exceed the number of announced applications in an average month in the year before the year in question. The quota is set at 57,000 work permits in 2019.

Blue Card

The Blue Card is intended for the stay of a highly qualified employee. A foreigner holding a Blue Card may reside in Hungary and work in the job for which the Blue Card was issued or change that job under the conditions defined. High qualification means a duly completed university education or higher professional education which lasted for at least three years. The Blue Card is issued with a term of validity three months longer than the term for which the employment contract has been concluded; however, this is for a maximum period of two years. The Blue Card can be extended. One of the conditions for issuing the Blue Card is a wage criterion – the employment contract must contain gross monthly or yearly wage at least 1.5 times the gross average annual wage.

Visa/Travel Restrictions

Nationals of Canada, Australia and the United States intending to stay in Hungary for more than 90 days need to apply for a long-term stay visa, whereas EU nationals staying for longer than 90 days need only register with the immigration department. In addition, citizens of many other countries may travel to Hungary without a visa and stay for a maximum period of 90 days. For Hong Kong, this exemption applies only to Hong Kong passport holders.

Schengen Visa

Hungary has been part of the Schengen Agreement as of since December 7, 2017, which has made traveling between member countries much easier and less bureaucratic. The Schengen visa and entry regulations are only applicable for a stay not exceeding 90 days. In the wake of the migrant crisis in Europe, the Schengen states have tightened controls at their common external borders to ensure the security of those living or travelling in the Schengen Area.

Sources: Hungarian Government websites, Fitch Solutions

Sovereign Credit Ratings

Sources: Moody's, Standard & Poor's, Fitch Ratings

Hong Kong’s Trade with Hungary

Export Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Telecommunications and sound recording and reproducing apparatus and equipment	563.1
Commodity 2	Office machines and automatic data processing machines	458.5
Commodity 3	Electrical machinery, apparatus and appliances, and electrical parts thereof	426.2
Commodity 4	Miscellaneous manufactured articles	72.4
Commodity 5	Photographic apparatus, equipment and supplies and optical goods; watches and clocks	19.3

Import Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Telecommunications and sound recording and reproducing apparatus and equipment	162.8
Commodity 2	Electrical machinery, apparatus and appliances, and electrical parts thereof	81.6
Commodity 3	Office machines and automatic data processing machines	35.6
Commodity 4	Meat and meat preparations	15.7
Commodity 5	Miscellaneous manufactured articles	12.8