IT is essential for all industries including strategic ones like energy, public utilities, telecommunication, health care, finance, military which are usually captured by foreign investment screening regimes in several jurisdictions. Below we look at how IT assets and IT service providers are directly or indirectly subject to FIR in Hungary.
In Hungary there are two main regimes applicable to foreign investment screening. The Foreign Investment Screening Act (“FIR1“) was introduced in 2018 and it covers those investments where a non-European (outside of the EU, the European Economic Area and Switzerland) investor wishes to invest in Hungary in sectors set out in the regulation (e.g. energy, military industry, finance, communication, IT security). FIR1 is applicable to companies providing IT services containing system elements of national or European interest. These system elements are determined by National Media and Infocommunication Authority (“NMIA”). The NMIA is entitled to specify the system elements of national interest solely in certain subsectors set out in the Appendix of Act CLXVI of 2012 (e.g. internet, radio, television, space telecommunication, postal service providers in case of information technology). The scope of FIR1 covers investments in IT assets or IT service providers if these companies provide information technology services which contain system elements of national or European interest as determined by the NMIA.
Investors are obliged to notify the Ministry of Home Affairs in case where they plan to acquire 25% or more directly or indirectly in the relevant target company captured by FIR1 or 10% or more in public companies or if the investors acquire the majority control in such a company. The relevant investment transaction can only be finalized if the Ministry of Home Affairs gives its approval for the acquisition.
Act LVIII of 2020 (“FIR2“) was introduced in connection with the Hungarian Government’s COVID 19 restrictions and its scope covers acquisition in wide range of industries (pharma, logistics, health care, food industry, etc). One of the essential differences when compared to FIR1 is that these provisions are applicable not only to non-European investors but also to European (natural and legal persons from EU, EEA or Switzerland) investors in case they acquire majority control in a relevant Hungarian target company or over relevant assets. A separate Government’s decree specifies the business activities in relation to which FIR2 shall be applied. The appendix of the Government’s decree 289/2020 (VI.17) specifies those sectors in which operating legal entities are labelled “strategic companies”. Beside companies engaged in the chemical, energy and tourism sectors, FIR2 also covers the communication and information technology sectors. The appendix defines certain subsectors in every sector covered by tightened applicability of the regulation and cover exact activities undertaken by companies in the regulated subsectors as set out in the TEÁOR codes. Telecommunication (such as fixed and wireless telecommunication activity), information technology (such as program developing, data processing, web developing activities) are such sectors to which FIR2 is applicable. FIR2 applies both to transactions relating to the acquisition of relevant entities and also to asset deals.
In cases where the value of the investment reaches or exceeds HUF 350 000 000 and the investor acquires 10% or more of shares directly or indirectly in a “strategic company”, the investor must notify the Minister of National Economy within 10 days after the conclusion of the agreement and the investor may close the deal only if the Ministry gives its consent to the acquisition.