Hungary: Hungary Doing business

Business opportunities

Business tips

Hungarians prefer to develop a relationship on which to base a business connection. Meetings often involve extended lunches. Be aware that even though most appearances are becoming more Westernised, some business managers who have spent the most influential part of their education and careers under Communist rule, will find some Western ways still relatvely new.

Business dress is conservative, so the rule is to wear a suit and tie (men) and a suit (women) to meetings.

Hungarians address each other by their family names first, followed by their first names, eg. Smith John. Business cards are presented in this manner unless they are printed in English. Have plenty of business cards available as Hungarians are insatiable networkers.

Endeavour to provide any marketing, promotional or negotiating materials in Hungarian.

Greeting is conducted in the Eastern European manner – men and women alike shake hands. Always follow the lead of the host.

The Hungarian language is considered one of the world’s most difficult to learn, so even minimal efforts are appreciated by potential Hungarian business partners. English and German are regularly used in business contexts but, in general, Hungarian command of English is at a much lower level than in Western Europe. There are still smaller companies whose principals do not speak English. It is therefore essential to use a translator or interpreter (unless you have a good knowledge of Hungarian). It is prudent to always ask what interpretation provisions have been made for a meeting.

Generous gestures may be reciprocated by an appropriate and good quality gift.

Hungarians customarily do not clink beer glasses when toasting.

Avoid discussing religion with your Hungarian hosts, as it is often a sensitive subject. The practice of any religion was illegal under Communism and many people remain uncomfortable discussing this topic with casual acquaintances.

Avoid asking questions about the Roma (gypsies), who are considered an ethnic minority in Hungary. Grave offence can be taken when foreigners associate gypsy with Hungarian culture (or vice versa).

Hungarians are proud people and enjoy discussing their wines, their national heritage and their cultural contributions to the rest of the world (eg. Bartok, Liszt).

Enjoyment of food and Hungarian wine plays an important role in business relations and negotiations. Post-meeting invitations to restaurants are common, and acceptance of these invitations is important for building the relationship. Refusing an invitation to dine with your Hungarian hosts is often construed as an insult and can damage the potential relationship.

While there are a few prominent women in both public and private organisations, generally the traditional male and female roles remain strong and female participation in business is relatively low. This means that often female professionals as mistaken for the junior members of the team, and in effect women may need to work harder to be taken seriously in a business context.

Please also note: Bribery of foreign public officials is a crime. Australian individuals and companies can be prosecuted in Australia for bribing foreign officials when overseas. For more information, go to the Attorney General's Department on foreign bribery.

Tariffs and non-tariff barriers
Tariff

The tariff system is the EU's TARIC system whereas Australian products belong to 'Third country origin'. Duties are ad valorem, assessed in harmony with GATT conventions.
Non-tariff barriers

Hungarian customs regulations comply with those of the European Union. Hungary uses the EU's TARIC systems, which maintains a global quota on imports of consumer goods.

The Customs Law (1995) eliminated duty-free importation of capital goods by foreign-owned companies. An import licence is not required except for a small number of consumer goods on the negative list, which include:

• * Arms and ammunition
• * Military equipment
• * Hazardous materials
• * Materials for biological weapons
• * Psychotropic products
• * Nuclear products
• * Uranium ore

The Hungarian customs regulations comply with those of the European Union, except for regulations on customs zones, bonded warehouses and customs bonds.

Customs authority contact details:

Hungarian Customs and Finance Guard
Tel: +36 1 456 9500
Fax: +36 1 456 9525
Email: [email protected]
Web: www.vam.hu

Hungary strictly enforces international regulations on drugs, psychotropic materials and precursors.

Importers are usually not required to be registered with the Ministry of Foreign Affairs, which oversees international trade in Hungary.

Hungary is a signatory to the international conventions:

* ATA Carnet System
* Transit
* On trademarks
* On copyright
* On intellectual property

Product certification, labelling and packaging

Hungary follows the European Union’s requirements in product certification. CE mark is necessary.

Depending on the item the following information may be required:
product name, ingredients, place of origin, producer, importer and the licence numbers , if any. In case of health products and medical device the relevant permission number is required too.
Labelling

Strict rules apply to labelling and marking of food, cosmetic and household products.

There are specific marking and labelling requirements for human and animal pharmaceuticals.

The primary requirement for food is that labelling information must be in Hungarian. This involves placing a sticker printed in Hungarian over existing packaging.

Cosmetics are regulated by the National Institute of Food Hygiene and Nutrition (OETI) and also must adhere to similar labelling requirements. Labelling must include approval symbols from the OETI or the Commercial Quality Testing Institute (KERMI) as well as:

• * net quantity
• * name and address of producer and the importer
• * consumption expiry date
• * recommended storage temperature
• * listing of ingredients and additives
• * energy content
• * country of origin

Special labelling regulations apply for the retail sale of food and some other products:
Labels bearing directions for use in Hungarian must be attached to the individual packing.

Specific references on technical (eg. electric) certificates issued by Hungarian authorities must be attached to the individual packing.

Specific instructions on packing, marketing and labelling must be outlined in the contract.
Packaging

No general requirements. Any specific requirements will be stipulated in the contract.

Goods should be securely packed, having due regard to the nature of the goods, means of transport and likely climatic conditions during transit and delivery. If hay or straw is used as a packing material a phytosanitary certificate, issued by the appropriate uthority in the country of origin, must accompany the shipment papers (see also 'Special certificates').

Outer containers should bear the consignee's mark and port mark and be numbered (in accord with packing list) unless the contents can be otherwise readily identified.

The following items must appear on the two vertical sides of each outer container:

• * the sales contract number
• * the consignee's instruction number
• * the import licence number (if applicable)
• * gross and net weights

Special certificates

The EU rules apply and EU plant and animal health regulations apply. Plants and their products require phytosanitary certification issued by the approved authority in the country of origin following the EU regulations. In Australia this is usually the Australian Quarantine and Inspection Service, Commonwealth Department of Primary Industries and Energy, or the State Department of Agriculture.

A veterinary certificate issued by the approved authority in the country of origin is required for imports of live animals (specific criteria apply as the veterinary agreement is not yet signed), meat and meat products.
 

Methods of quoting and payment

Quotes should be in convertible currencies (Euros, Pound Sterling, US dollars, and Australia dollars) and whichever freight parity is requested by the importer, however term CIF Hungary or European port is the most preferred (The latest Incoterms applies). The method of payment is usually stipulated in the contract.

Documentary requirements

Commercial invoice

No prescribed form. One copy in Hungarian is required by customs. Additional copies are stipulated in the contract. Invoices sent electronically will be accepted by customs.

Invoices must be signed by the shipper and show the following:

• * The names and addresses of shipper and consignee
• * The country of origin and purchase of goods
• * The number of packages and a description of the outer packing
• * The quantity and value of the goods
• * A precise description of the goods as per the combined customs nomenclature

Certificate of origin

May be required for customs tariff classification, where there may be doubt as to origin or when stipulated in the contract. Certification by an approved authority (see 'Guidelines', section 2.3) is prescribed.
Bill of lading

No specific requirements. To Order bills acceptable. Bills should be made out to Antwerp or other European ports only (ie. no through bills).

Packing list

Not compulsory but facilitates clearance.

Public health requirements

Specific plant and animal health regulations apply (see also 'Special certificates').
Medicinal products, cosmetics, foodstuffs and agricultural machines and equipment may require testing and approval by the Hungarian Authorities before import is allowed.
Specific requirements will be stipulated in the contract.

Insurance

Usually arranged by the importer through local insurance companies, however, it is necessary to outline the parties' obligations in the contract..

Weights and measures

The metric system.

Setting up in Hungary

Finding the right partner

Companies must carefully check possible partners. Small and medium size companies may identify small but enthusiastic Hungarian counterparts.
This is not an unusual request from the Hungarian side to ask for delayed payment, so this does not mean the prospective buyer is not genuine. However, bank transfer, Bank guarantee or L/C are accepted after clarification.

A lot of Hungarian companies belong to international chains or have foreign, eg. German, Austrian owners. It means that the company can enter the Hungarian market if already selling to the Hungarians’ mother company or through the Hungarian company (may have an easier introduction to another European market). On the other hand, however, the decision making process may be more difficult and slow because of foreign ownership.

In-market representation

In Hungary it is relatively simple to establish a company. Limited by share companies require only HUF500,000 (approximately A$3,000) as capital.
Joint stock companies can be either close, with a capital requirement of HUF5 million or open, with HUF20 million.
Since September 2007 companies can be registered online, however, involvement of a Hungarian law firm may be still necessary.

Taxation

In Hungary, the company tax rate is 16 per cent, which is the lowest of all OECD countries. This tax applies to the taxable profits of a company. The tax year usually runs from 1 January to 31 December although companies may now set different balance dates. Non-resident entities with permanent establishments in Hungary are subject to corporate income tax on the income earned through that permanent establishment. Representative offices are legally restricted from generating income. If they do, however, their profits will be taxable at the company rate.

At a level of higher than 41 per cent of the implicit tax on labour (all personal income and payroll taxes and compulsory social security contributions as a share of the total compensation of employees) in Hungary was among the highest in Europe. (Similar level of total tax must be paid by the employees, too).

Withholding tax (20 per cent) is payable on dividends, including profit distribution to shareholders, payments received without repayment obligation, and forgiven debts. It does not apply to dividends distributed to Hungarian entities. Repatriated profits are also subject to dividend withholding tax. However, most bilateral tax agreements override this regulation and do not allow Hungary to levy dividend withholding tax on such profits.

Value Added Tax (VAT) is payable by the end-user, and two different rates apply as a result of the austerity package of July 2006:

• * Most goods and services and the basic necessities – 20 per cent
• * Pharmaceutical products, vitamins, and hormones are five per cent
• * VAT is automatically added into the price of the item. For taxation purposes or tax refunds (if applicable), an ‘afa szamla’ (tax receipt) should be requested.

Visitors to Hungary are entitled to receive a refund of a proportion of the VAT for purchases above HUF50,000. The refund is available at the airport, border crossings or as a credit card refund. Visitors should ask for a special form plus receipt at point of purchase, and this must be stamped by customs on departure before a refund can be obtained.

Excise tax is levied on certain consumer goods including chocolate, coffee, alcohol, perfume, motor cars, and jewellery. Excise tax is levied in addition to VAT.

Environmental tax is levied particularly on packaging materials and oil products, irrespective of their use for substantial protection or operation.

Banking and finance

The Hungarian bank sector is well developed and reliable. Most of the banks belong to international financial groups from the globe.

There are approximately 40 business banks, and there are merges in both the banks and the credit institutions such as savings co-operatives sector.

Hungary's rate of three to four banks per million people is a good average by international standards, a moderate concentration ratio, as also shown by other indicators. The top seven banks account for 70 per cent of aggregate total assets in the banking sector.

It is relatively easy to take up loans but the banking services are very expensive, even in international comparison.

Credit cards are accepted in major city shopping malls, railway stations and higher quality restaurants, however, some types of credit cards (AMEX Diners Club) may not be widely accepted.

Traveller’s cheques are relatively uncommon and not widely used in Hungary. They can only be exchanged in banks or hotels, and are not accepted in shops. It is therefore advisable to use cash wherever possible. Cash machines (ATMs) are widespread and integrated.