Pünder Volhard Weber & Axster
The 1988 Act on Foreign Investment has been amended to reform the previous legal regime which forced foreigners to conduct business activities in Hungary either through a Hungarian subsidiary or through a Hungarian branch office. Basically, it had not legally been permitted to carry on business directly from a foreign country on a cross-border basis which was in some respects very disadvantageous for foreigners. They raised, difficulties for temporary business activities and additionally for some cross-border real estate transactions it was less favourable under the relevant tax treaties to establish a registered organization (subsidiary or branch office) in Hungary than having a mere permanent establishment without any corporate form.
It can only be welcomed therefore that the Act on Foreign Investment was amended with effect of February 1 1999. According to the new rules, foreigners are entitled to conduct certain business activities in Hungary without having a subsidiary or registered branch office. The permitted cross-border activities are listed and include construction activities.
Moreover, foreigners are allowed to conduct cross-border business activities as sole traders pursuant to the rules of a separate statute (Act no. 72 of 1998 on business activities of foreign sole traders).