FREE ESSAY ON HUNAGRY AS BUSINESS PARTNER

HUNAGRY AS BUSINESS PARTNER

SPEECH FOR HUNGARY AS A BUSINESS PARTNER
I thank you for this opportunity extended to speak to you about Hungary at this. Through
this, I am sure to reactivate traditional cooperation and open up new business channels
for the Indian partners in Hungary. 
Before I proceed further, let me brief you about the Hungarian economy - Hungary has
historically been a country of agriculture and small-scale manufacturing and has for a
long time belonged to the upper-middle income group of countries. In an effort to
encourage a self-sufficient economy, the former socialist government forced rapid
industrialization in the beginning of the 1950s. In 1968 this policy was abolished in
favor of the New Economic Mechanism. Foreign trade once again became an essential part of
the economy. Some freedom was given to the workings of the market, and a limited amount
of profit-oriented behavior was allowed in the official economy.
Economic liberalization in Hungary preceded full political liberalization. The basic
institutions of a market economy were already being established before complete
liberalization took place in 1989.
As in most Central European countries, privatization in Hungary started slowly, but the
pace has picked up considerably.
Even though Hungary started earlier than some of its neighbors in making the transition
to market economy, the changeover was not without some economic pain. In 1990, Hungary
was faced with the collapse of the Council for Mutual Economic Assistance (CMEA), which
was made up of former East-Bloc nations. The country experienced an almost over-night
disappearance of most of its Central and Eastern European markets. Just one year later, a
worldwide recession started which also affected the Hungarian economy. Now trade with
Central and Eastern European countries is on the rise again, but more significant trade
relations are being established with the EU-member states furthering Hungary along the
road towards European integration.
European integration
Hungary made an important step toward European integration with the conclusion of the
Europe Agreement in 1991. One part of this agreement, often appealed to as the
Association Agreement, deals with the breakdown of trade barriers.
Foreign trade liberalization
Around 90% of all goods, products and raw materials can be imported into Hungary without
a license. The Ministry of Economic Affairs maintains a list of all products, which do
require certification. Neither a customs clearance nor a statistical fee will be put on
imports from the EU, EFTA, GSP, and CEFTA countries.
Concerning the export of industrial products, no further liberalization was done in 1998
relative to 1997. Without altering the product range, the description and customs tariffs
numbers of a few chemical materials were more accurately defined.
As of January 1, 1998, export licenses for products of the food economy are issued by the
Ministry of Agriculture.
Hungary implemented liberalization concerning industrial products pursuant to the Europe
Agreement concluded with the European Community with effect from January 1, 1998.
Hungary's obligations were met by liberalizing new cars of more than 1500 cc, transmitter
and reception devices, baby food, human nutritional additives and non-woven coated
textile products not manufactured in Hungary.
In the Europe Agreement concluded with the European Community, Hungary and the Community
undertook the obligation to mutually liberalize the full range of trading in textile and
clothing products by December 31, 1997. In order to apply quantitative restrictions free
of any discrimination, the Hungarian government terminated the import licensing
obligation maintained on textile and clothing products and the global quota for consumer
articles with respect to all WTO member countries from January 1, 1998. For non-member
countries, however, the licensing obligation as well as the consumer articles global
quota continue to remain in force. With respect to textile and clothing products,
second-hand clothing and of the textile piece goods, base materials procured primarily
with a view to further processing were liberalized. The licensing obligation for
garments, other clothing and ready-made products, small wares and carpets was eliminated
for WTO member countries but the restriction is maintained with respect to non-WTO
members. 
In import, as in export, in order to reduce parallel licensing, the distribution
licensing of coca leaves, Indian hemp and poppy capsules was eliminated, as these are
already licensed as drugs by the Ministry of Welfare. 
In export regulation, the extend of liberalization is around 94 percent. Foreign Exchange
rules Revenue transaction foreigners employed in Hungary are allowed to convert their net
forint income into foreign currency without limitation
the use of a forint-based bank card is allowed abroad. Use of forint-based credit cars in
Hungary has already been possible for some years.
foreigners may keep a hard currency account, forint accounts and specifically stated
convertible forint accounts in Hungary.
Investment and trade protection
Hungary has concluded bilateral treaties on investment protection with many countries.
Hungary has signed -
Paris Industrial Property Convention
World Intellectual Property Organization Conventions
Madrid and Nice Agreement for the Registration and Classification of Trademarks
Hague and Locarno Agreement on Industrial Design
Patent Cooperation Treaty
International Court for the Settlement of Investment Disputes
Banking and finance
By the end of the 1980s, the Hungarian financial system was probably the most developed
of all Central and Eastern European countries. In 1987, Hungary was the first country in
the socialist world to establish a two-tier banking system. The Budapest Stock Exchange
was the first Western-style exchange to operate in Central and Eastern Europe. It was
re-opened in 1990 after its closure in 1948.
The payment system
In 1989, Hungary initiated a new national clearing system to regulate the businesses and
individuals pay each other through bank transfers. Overall, there are more cash
transactions in Hungary then are usually in Western Europe. Automatic teller machines can
now be found all around Budapest and in other cities in Hungary. The most widely accepted
systems are Cirrus, Plus and Eurocard/Mastercard. Visa-machine can be found as well. 
Checks are less convenient. For larger amounts, however, it may be better to use a bank
wire transfer, which is suppose to take three days, but may take longer in practice.
Legal forms that a business in Hungary can assume include Joint stock limited company is
a company limited by shares (Rt). It is the only company form where the company issues
securities (shares) in return for the capital contribution provided by its members.
Limited Liability company - By far most common legal form for business entities
established by foreigners in Hungary is the limited liability company, a company limited
by equity or (Kft)
General partnership and limited partnership A general partner may be a limited liability
company.
Other forms of businesses
The new law on the Hungarian Branch Offices and Commercial Representative Offices of
Business Entities Domiciled Abroad came into force on the 1st January 1998. Foreign
businesses are allowed to settle and operate in Hungary by opening a branch office.
The commercial representation of a foreign company is entitled to intermediate foreign
trade businesses, participate in preparing contracts and may be involved in publicity and
advertising matters. It cannot perform, however, any business activities and may not
provide any legal services either. Accounting and auditing Limited liability companies
such as Rt.'s and Kft.'s are generally required to have their annual accounts audited.
Audits will be required of double book keeping entities starting in 1998 if the average
annual net revenues in the past two years exceeded HUF 50 million. The accounting year is
the calendar year.
Taxation
Hungary has a comprehensive tax system, with income, corporate and value-added taxes, to
accommodate the relatively large private sector.
The corporate tax rate is 18. A withholding tax of 20% is payable on dividends.
Withholding taxes
Probably the most important fiscal incentive Hungary offers to foreigner investors is the
way it handles withholding taxes. For foreign owned companies, this may result in a low
effective corporate income tax rate of 18% plus dividend tax up to the amount provided
for in the respective tax treaties. 
Hungary has developed an extensive network of tax treaties. Currently it has concluded
treaties with 47 countries (including India). Personal income tax Hungarian residents are
subject to personal income tax on their worldwide income. They may be exempted from
taxation on foreign source income by domestic law and tax treaties. Non-residents are
only liable for tax on their Hungarian-source income. This includes income from
employment performed within Hungary. Individuals are considered to have a habitual abode
in Hungary if they stay for more than 183 days of a calendar year in the country.
Benefits in kind are gene-rally taxable at the rate between 20% - 40%.
Social security contributions
Hungarian employees must make healthcare contributions equal to 3% and pension
contributions of 8% of their gross salary, with a ceiling of altogether HUF 2,220,320
(aprox. USD 7.400 per year). From 1st January 1998, employees may choose to pay a part of
their pension contribution (6% of their gross salary) to a private pension plan and 1.5%
unemployment fund contributions.
Value added tax Called the general turnover tax in Hungarian, this is a conventional
value added tax (VAT), based upon the framework of European Union directives.
In addition to VAT, consumption tax is levied on certain goods. These goods include
coffee, jewelry, passenger cars and certain types of wine. Persons not subject to VAT
cannot be liable to consumption tax. 
Work regulations for foreigners
In general, foreign citizens who want to work either on the basis of a labour contract or
other legal relationships in Hungary need a work permit. This are issued by the Hungarian
Labour Center. In certain cases no work permit is needed.
Work visa
Foreigners who want to enter Hungary to work, as an employee must apply for a work visa
in advance. Those foreign citizens who would like to work but not as an employee must
obtain an income visa.
Residence permits
Once a foreign has obtained a work or income visa, he or she must apply for a residence
permit within at least 15 days before exceeding the legal residence period. Thanking you
all for your patience.