Hungary

This web site aims to provide some useful legal information for those persons who are willing to enter into any kind of relationship with Hungary – by focusing on some aspects related to international law and to domestic commercial law.
Therefore, this web site is not intended to exhaustively describe international law or domestic commercial law, but simply to focus the attention on the most interesting and practical aspects for those persons who are willing to enter into business relationships with the Country.
This web site has no political content: it is free and open to all persons who intend to give a contribution in the field of civil, commercial and administrative law. For every information, clarification or advice, please contact us at: mail@decapoa.com

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About Hungary

Hungary is one of the most interesting and attractive of the EU member states and of Western-central Europe in general: it has reacted positively to the economic crisis of recent years, it has an economy currently in the process of recovery and it is now an important center of business, particularly appreciated by international operators.
Hungary has been a European Union member state since 2004 and a member of the Shenghen space since 2007, but, unlike other neighboring countries, it has not yet adopted the single currency, so the national currency remains the Hungarian Forint (HUF).
The reasons for the attractiveness of Hungary are varied: the country always presents itself as a natural interlocutor and bridge between Western Europe and the Eastern, as well as the Balkan area; from the logistics point of view, it is - because of its geographical position - an excellent platform for companies that are interested in operating in Eastern Europe and the Balkans, and vice versa; the banking system is excellent as well as the system of services, including those of a financial nature; it has an excellent system of incentives, both economic and tax, in order to attract foreign investors; it has a good level of education, and skilled labor, with a very low cost of labor; it has an efficient Public Administration, and the ability to interact with the Tax Administration, with the system of "prior ruling"; its legal framework is stable and in line with the latest European legislation.
Our site aims to provide comments and analysis - from the technical point of view – of the main legal institutions of the country, and, more generally, of the Hungarian Legal System, also regarding certain issues related to pre-trade and to true and proper negotiation, in order to offer some "guidelines", without any pretense of completeness, together with (hopefully) useful practical suggestions.

Agency

As you noted earlier, due to its geographical location in the center of Europe, and thus to the big communication networks, not only road and rail, but also the waterways, it is one of the most attractive countries as a "hub" for anyone who is preparing to achieve market penetration programs from the West to the East, and vice versa.
In this sense, one of the most natural and logical choices is to appoint agents on site that can take care of developing the marketing of a particular product or service, not only within the country but also in neighboring countries of interest.
Then we proceed to the analysis of this important type of contract. The main discipline of the agency agreement and of the relations with commercial agents was established, until March 2014, by Law no. CXVII of 2000 by which Hungary had substantially implemented the Directive 653/86 / EC on sales agents, aligning its national legislation with that of the other Member States, especially regarding the protective minimum standards of the commercial agent, who is considered as the weak part of the relationship.
Following the reform of the Civil Code, which entered into force on March 15th 2014, Law No. CXVII of 2000 was repealed and now the agency agreement is fully governed by the rules of the new Civil Code.
The new Hungarian Civil Code differs from the logic of CXVII Act of 2000 and of the European Directive on self-employed commercial agents, since it does not autonomously regulate the commercial agency contract. The new Civil Code provides, however, the existence of an agency contract ( "közvetitői Szerződés") whose discipline is general, regulating all relationships involving the performance of activities aimed at the conclusion of a contract between a principal and a third party.
The code now distinguishes between two types of intermediation contracts: a non-continuous intermediation agreement ( "nem tartós közvetitői Szerződés") to which the discipline of mandate is applied, and a continuous intermediation agreement ( "tartós közvetitői Szerződés") to which some special provisions are applied, that appear to be basically a transposition of Directive 653/86 / EC.
When a foreign company intends to enter into an agreement with an agent in Hungary, it must carefully assess the opportunity to use the Hungarian law as the applicable law to the relationship, by bearing in mind, however, that the new Civil Code has not transposed certain provisions of the Directive 653/86 / EC which are those relating to the fee payable to the independent commercial agent (articles 6-12 of the Directive). Today the discipline of the fee due to the independent commercial agent is provided for by the Decree of the Government 65/2014 (III.13.), which in general concerns the fee payable to the mediator in the framework of a continuous intermediation contract.

The foreign company will have to consider also that the conclusion of an agency contract in Hungary may require the adoption of special formalities in certain sectors, such as the pharmaceutical and chemical ones, and will therefore be subjected to restrictions or requirements deriving from specific administrative and fiscal regulations.
It should be noted that the provisions of the new Civil Code and the Decree of the Government 65/2014 (III.13.) only apply to contracts which were concluded after 15 March 2014; the relationships of independent commercial agency born before that date continue instead to be governed by the provisions of CXVII 2000 Act and the 1959 Civil Code with its subsequent amendments; under the previous legislation, the parties could freely determine the content of the contract and the duration of their relationship, but there were certain rules of the Hungarian law - established in order to provide greater protection to the agent - that were mandatory and binding, including the duty to pay a severance benefit to the agent, calculated on the basis of the amount of commissions lost by the agent because of the interruption of the relationship and the obligation of the principal to pay a due commission to the agent when the contract negotiations had been concluded as a result of the agent's activities, or if the principal had concluded a contract with a customer previously acquired by the agent for a similar contract.
It must be underlined that a foreign company that enters into an agency agreement with a Hungarian agent, who is a legal person, should insert in the contract a clause that provides for the exclusive jurisdiction of an arbitrator to know and settle any potential dispute.
But when the contract is concluded with a natural person, you must remember that the agent will have to be sued in the court of the country in which he has his domicile, while the parties may establish the jurisdiction of a different judge only pursuant to an agreement concluded after their dispute.
In Hungary, unlike other states, especially European Union member states, disputes of commercial agency matters are not reserved to the functional competence of the labor courts, even if the agent acts as a natural person: the labor court will only be competent if it is an employee labor.

Distribution

Like many jurisdictions, until the recent reform of the Civil Code entered into force on March 15th 2014, Hungary did not have any law that specifically regulates the distribution contract; for this reason the discipline of the distribution agreement would necessary refer to contractual models used in the international practice, to the rules on general contracts which are already present in the Hungarian Civil Code and to the rules laid down by law in agency matters, as applicable.
Following the reform, the Civil Code has introduced a new section specifically dedicated to the distribution agreement, and indeed, a foreign investor who wants to conclude a contract with a Hungarian distributor, will have to consider well whether it is convenient to choose to apply to their contract the Hungarian law, which today includes some mandatory provisions giving specific obligations to the parties.
The new rules of the code define the distribution contract as a contract under which a supplier undertakes to sell movable tangible property to a distributor, which, in turn, agrees to purchase the supplier's products and to sell them in its name and on its behalf.
In response to this, the law provides specific obligations for the parties, including that requiring both to protect the good name and image of the product. The supplier has also disclosure obligations relating to the product and the right to give instructions to the distributor on how to promote the distribution. To this end he will also, after a payment, give the distributor the necessary advertising material to promote product sales. The distributor must instead follow the instructions of the supplier, even when they are unreasonable but the supplier insists (provided that if the dealer has previously warned the supplier of the unreasonableness of the instructions, the supplier will be responsible for all the damages caused to third parties).
If the instructions are rather in contrast with the law or with administrative regulations, or if they are dangerous or detrimental to property rights of others, the distributor has the right and duty to refuse to comply. The code also specifies that the provisions relating to distribution contracts shall also apply, mutatis mutandis, to the services supply contracts.
Finally, the content of the distribution agreement depends on the contractual freedom of the parties and does not require any particular formalities for its conclusion: the written form is not a condition of validity of the agreement. Whoever promotes the sale of a product in Hungary is also obliged to comply with the mandatory provisions of the law concerning advertising which prohibit certain forms of advertising, including that subliminal. Also in this case, it should be assessed whether to insert a clause in the distribution contract that provides for the exclusive jurisdiction of an arbitration board which will settle any potential dispute, or to avoid standing before a Hungarian court.

Franchising

The franchising contract has not been very used in Hungary for a long time, and only in recent years it has become gradually popular, especially for the most famous brands. In particular, Hungary has a good potential for the development of franchise networks in the clothing industry, which is much appreciated by the Hungarian consumers, especially from young people.
Today, the franchising contract is defined by the Hungarian Civil Code as a contract under which one person, called Franchisee, undertakes to manufacture and supply (in its name and on its behalf) the goods and services by courtesy of a subject called franchisor, through the use of intangible assets such as the brand image, know-how etc. owned by the latter.
In its turn, the franchisor is obliged to ensure the franchisee the right to use and distribute its brand for commercial purposes and to market its products by using the commercial method it has already experienced on the market. In return the franchisee agrees to pay periodically to the Franchisor a sum of money calculated on its turnover. In addition, the franchisor undertakes to ensure to the franchisee the uninterrupted use of the intangible assets mentioned above for the entire contractual duration, while the franchisees undertakes to take all necessary measures to protect the know-how which is made available.
The rules of the reformed Civil Code shall apply to all contracts concluded after March 15th 2014.
In any case, even before this recent reform, for a long time the Hungarian Franchise Association had transposed both the statute and the Code of Ethics of European Franchise Federation which had been incorporated in the "Code of Ethics Hungarian". On the basis of these acts, the Hungarian Franchise Association has issued, over the years, many regulations which can be classified as soft law instruments, including the n.2002 / 1 "Regulation on the duty to provide information about the system content before signing" which is particularly known.
It should be noted, however, that the new Civil Code, unlike the laws of Europe and of many countries outside Europe, does not provide for specific pre-contractual information requirements and disclosure for the Franchisor and to the advantage of the Franchisee. Therefore, from this point of view, it could be beneficial for a franchisor that wants to create a network of Franchising in Hungary to choose the Hungarian law as the one applicable to the contractual relationship.
Today the Hungarian Civil Code only provides for the obligation to act in good faith in the performance of the relationship and some specific security obligations concerning the network created. A further special feature introduced by art. 6: 381 of the Civil Code is to apply to fixed-term franchise agreements the same minimum notice periods in case of withdrawal, provided for by Directive 653/86 / EC in the field of commercial agency, that is: a notice of one month for the first year of the contract, two months for the second year and three months for the following years. Regardless of the reform of the Civil Code, the Franchising contract also provides for the rules laid down by the Community regulations on the limits to the conclusion of vertical agreements which contravene competition, and which maintain a mandatory nature. Today, therefore, people who want to create a Franchising network in Hungary will have to bear in mind that both certain European mandatory provisions and the Hungarian mandatory rules on Franchising will apply to the contract.
Finally it should be underlined that a foreign company that wants to create a franchising network in Hungary will agree to insert in the contract a clause that provides for the exclusive jurisdiction of an arbitration board which will know and settle any potential dispute.

Import & Export

1 - Whoever puts in place significant operations for VAT purposes in Hungary must create a Hungarian VAT registration number, and must bear in mind that in any case the standard rate in the country is one of the highest in Europe.

2 - People who want to export to Hungary must remember that Hungary has signed numerous free trade agreements with several countries and supranational organizations other than the European Union and its Member States. The trade with these countries usually takes place without the need for any license except in the case of export of some products (such as potentially hazardous chemicals), specified in a government decree, for which the license is requested.

3 - Those who want to export to Hungary goods which are classified as "dual use" must necessarily comply with the existing standards for the European Union, which over the years has adopted several clear regulations (see today the EU Regulation 388/2012) on the export of such technologies and / or products within the Community.

If the products and technologies qualified as "dual use" come from a Member State and are exported or transferred to Hungary, there is no need to get any permission. Only some products which are directly related to the production and management of military equipment, including chemical weapons, still need a prior authorization by the competent state authority.

Protection

The foreign entrepreneur who wants to invest in Hungary will first have to register their trademark or their patent, so they can fully enjoy the instruments recognized by the legal system which protect intellectual property.
Hungary has signed a number of agreements about the protection of intellectual property, including the Madrid Protocol; furthermore, as a European Union member state, it is a signatory of the European Patent Convention.
Under Hungarian law, trademarks are protected if they are registered to the national Patents and Trademarks Office or to the World Intellectual Property Organization. The protection of the registered trademark lasts for ten years, while the protection given to patents lasts for twenty years. The Hungarian law also recognizes the patentability of production processes.
Before registering the trademark, it is recommended to first verify the existence of another trademark which is identical or too similar and which is already registered in the country; then to carefully study its transliteration in Hungarian, in order to prevent that a mark considered particularly attractive in a language takes a totally different meaning in Hungarian.
Finally, it must be remembered that, in order to register the patent, both foreign citizens and companies must necessarily make use of a local representative who can also be a Hungarian lawyer.

Disclaimer

Please note the following:
This web site and the information contained hereto have been developed and provided by de Capoa Law Firm for informational purposes only.
This web site is not intended to be, and is not a substitute for, legal advice. Please do not rely on any information in these pages as a source of legal advice.
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