Why locate your business in Hungary?

Zürich, 2014

Why Hungary?

2

1) Infrastructure

2) Labor force

3) Grant opportunities

4) Current economic and manufacturing landscape

5) Swiss companies in Hungary

6) Investing in Hungary – step-by-step

7) Our references

Agenda

3

Hungary’s central location and road infrastructure enables you to connect to your clients and suppliers cost-effectively

To Helsinki

(Finland)To Moscow

(Russia)

Hungary is at the crossroad of

four main pan-European road

transportation corridors

Neighbouring Central European

countries, Poland, Ukraine and

the Balkans are all easy to

access

Hungary has one of the highest

motorway densities in Europe

allowing easy access to all

regions and industry hubs within

the country

Hungary is also a member of the

Schengen Area enabling border

control-free travel among 26

European countries

GERMANY

THE

BALKANS

POLANDUKRAINE

RUSSIA

ITALY

Sources: HITA Investing Guide 2013.; http://en.wikipedia.org/wiki/Pan-

European_corridors

AUSTRIA

http://en.wikipedia.org/wiki/Pan-European_corridors

4

Hungary is connected to strategic Rail Freight Corridors (RFC) opening access to the main European ports and the East

RFC connection does not only

enable quick and cheap

transportation to and from the

neighbouring countries, but...

Direct connection to the main

European ports enables water

transportation across the Northern

Sea, the Mediterranean Sea and

the Atlantic Ocean.

Záhony is one of the few stations

which allow quick change of

freight trains when crossing the

border between the EU and the

Post-Soviet countries (this change

is necessary due to the different

rail gauge used in the Russian

region)

Záhony also connects RFC 6 to the

shortest contintental way

between China and Europe

Sources: HITA Investing Guide 2013.; Mosóczy (2013.10.09.): Changes in

Hungarian Rail Freight Market; European Rail Freight Corridors Conference

2012.

RFC 6

RFC 5

RFC 7

Athens

Marseille

Trieste

Koper

Constanta

Hamburg

Bremen

Rotterdam

GdanskTo / From:

RUSSIA

KAZAKHSTAN

CHINA

Záhony

The geographical advantages makes Hungary a popular logistics location even for companies which have no direct

production facilities in the country.

5

Hungary has excellent waterway connections, including access to the Rhein – Main – Danube canal

Sources: HITA Investing Guide 2013; www.cspd.sk/page6.php

The Canal enables cheap transportation to and from the most industrialized areas of

Germany

Goods can be transported to Switzerland and France over the

Rhine

The Canal also links Hungary to ports on the North Sea (e.g.

Rotterdam) and the Black Sea (e.g. Constanta)

The Rhein – Main – Danube Canal ( www.cspd.sk/page6.php )

http://www.cspd.sk/page6.php

http://www.cspd.sk/page6.php

6

Hungary can be conveniently reached from Switzerland by car, train and plane

High quality motorways

through Germany and Austria

Distance: 1000 km

Avg. travel time: 10 hrs

Daily direct and indirect (via

München) rail connection

(RailJet and EuroNight)

Avg. travel time: 11 to 12 hrs

Direct flights (non-stop)

Avg. travel time: 1,5 hrs

Source: Google Maps

7

1) Infrastructure

2) Labor force





7) Our references

Agenda

8

▪ A well-qualified labor force is available in the country, about two-thirds of the workforce

has completed secondary, technical or vocational education

▪ Particularly strong fields: engineering, medicine, economics and science training

▪ University students regularly receive their practical training at companies - in 2012

more than 50 000 students signed student contracts with companies and acquired

practical skills through on-the-job training

▪ The renowned Hungarian universities focus on establishing partnerships with

international companies in various cooperation agreements (R&D&I, process

development, prototyping etc.) and regularly become members of high-tech clusters

(such as the IKT Cluster, managed by PMC, having the Budapest University of Technology

and Economics and the Hungarian affiliate of Deutsche Telekom among its members)

▪ English and German are the most widely spoken foreign languages in Hungary, but

knowledge of other Western European and Slavic languages is also common

▪ Due to these factors, Hungary is regularly chosen as a location to establish regional

Shared Service Centres (SSCs). So far, around 70 companies have established their

regional SSCs in Hungary (including Givaudan, IBM, ExxonMobil, GE and Morgan

Stanley). These centres employ more than 30 000 people and usually offer a wide range

of knowledge intensive services (typically finance, accounting, call centres, HR and IT).

The available Hungarian workforce suits the needs of international businesses

Sources: HITA Hungary Today 2013; HITA Investment Guide 2013;

http://www.state.gov/e/eb/rls/othr/ics/2013/204657.htm#

http://www.state.gov/e/eb/rls/othr/ics/2013/204657.htm

9

Hungary provides 90% lower hourly labor cost compared to Switzerland without compromising location or infrastructure

7.5

14.94.4

68.3

8.3

10.6

7.4

30.4

27.43.7

5.8

6.0

8.7

30.5

34.2

14.9

37.2

32.0

21.0

Avg. labor costs per hour are approx. 90% lower in Hungary than in Switzerland (EUR 7.5

vs. EUR 68.3)

Hungarian labor costs are lower than in case of EU

members with similarly central location (Austria, Slovakia,

Slovenia, Croatia)

Only Romania and Bulgaria offer significantly lower labor costs, but less than optimal location and less developed infrastructure would incur

other type of costs (e.g. transport, equipment, training)

and risks

Hourly labor costs in EU countries - source: EUROSTAT, www.bfs.admin.ch/bfs/portal

Above EUR 50 EUR 20 - 50 EUR 10 - 20 EUR 7 - 10 Under EUR 7

http://www.bfs.admin.ch/bfs/portal

10

The labor law regulation in Hungary is very similar to the labor laws of other EU countries, providing a safe legal environment

▪ Regular working hours: 40 hours per

week (variable work schedule allowed,

additional premium must be payed for

shifts, night work and overtime)

▪ Annual paid leave: min. 20 days (max. 30

days, increasing with the employee’s age)

▪ Termination of contracts: mutual

agreement and unilateral notice are both

possible

▪ Mandatory minimum gross monthly

wage of unskilled workers / workers is

approx. CHF 390 / CHF 450

▪ Average gross salary of employees with

tertiary education is CHF 1200

▪ Please see the table on the right for an

overview of average gross monthly

salaries per sector

Field

Average gross

monthly salary

(CHF)

Healthcare and Social Services 610

Agriculture, forestry and fishing 660

Administration and Support 670

Construction 700

Education 830

Real Estate 830

Arts 840

Commerce 850

Logistics 870

Industry 960

Science and Technology 1 250

Finance, insurance 1 900

Sources: HITA Hungary Today 2013; Act I of 2012; www.ksh.hu

http://www.ksh.hu/

11

1) Infrastructure

2) Labor force





7) Our references

Agenda

12

„VIP” package

Smaller

Hungarian

Funds

New

Széchenyi

Plan

Exclusively Hungarian

Funds

Hungarian budget sources European Union Funds

Co-financed grants &

incentivesDirect EU grants

European Agriculture

Fund for Rural

Development Program

Community

Programs

A variety of grant schemes are available for investors, provided by the Hungarian government and / or EU funds

13

Cash subsidies

» Hungarian Government

» EU Funds

Tax incentives

Low-interest loans

Land available for free or at reduced prices

These incentives can be both refundable and non-refundable and take different forms

1.

2.

3.

4.

Main types of incentives related to investments

Aid intensity depends on region (varying between 10 to 50%) and it is higher for SMEs by 10 to 20%

Sources: HITA Investing Guide 2013; Hungary Today 2013

14

Implementing investments, creating new jobs and training employees are aided by significant cash incentives

I.

a.

b.

c.

d.

e.

II.

III.

„VIP” investment subsidy

Manufacturing investments

R&D investments

Shared Service Centres

„VIP” training subsidy

„VIP” job creation subsidy

Vocational training facility subsidy

Research and technology innovation fund


15


I.

a.

b.

c.

d.

e.

II.

III.



R&D investments






• Negotiation based

• Rapid procedure – grant offer even within 1-2

months

• For investments greater than EUR 10 M

• Preferred areas:

• Manufacturing

• Shared Service Centres

• R&D

• Tourism

• Certain number of new jobs must also be

created (10 to 200 based on the type of

investment)


16


I.

a.

b.

c.

d.

e.

II.

III.



R&D investments






• 45 companies have submitted subsidy

applications for a combined investment value of

CHF 5,6 billion

• Eligible costs include:

• Purchase of the plot

• Construction costs or rental fee

• Infrastructure

• New equipment and assets

• Intangible assets

• Investment period determined by the investor

• Commitment period: 5 years


17


I.

a.

b.

c.

d.

e.

II.

III.



R&D investments






• World-class scientific knowledge available

• Tradition of cooperation between Hungarian

universities and multinationals (e.g.

Telecommunications, Automotive sector)

• Eligible costs:

• Purchase of the plot

• New equipment

• Intangible assets

• Salary and contributions for new

employees


18


I.

a.

b.

c.

d.

e.

II.

III.



R&D investments






• Eligible costs:

• 24 months’ salary and contributions for

new employees


19


I.

a.

b.

c.

d.

e.

II.

III.



R&D investments






• Eligible costs:


new employees

• Provided for both general and special training

• Aid intensity between 25 – 60%, higher in case

of SMEs

• Condition: at least 50 new jobs


20


I.

a.

b.

c.

d.

e.

II.

III.



R&D investments






• Eligible costs:


new employees



of SMEs


• Additional subsidy for investments creating at

least 250 new jobs in disadvantaged or least-

developed micro-regions


21


I.

a.

b.

c.

d.

e.

II.

III.



R&D investments






• Eligible costs:


new employees



of SMEs





• Available for establishing vocational training

facitilites and the development of the equipment

for practical training


22


I.

a.

b.

c.

d.

e.

II.

III.



R&D investments






• Eligible costs:


new employees



of SMEs





• Available for establishing vocational training

facitilites and the development of the equipment

for practical training

• Primarily aimed at R&D activities

involving a broad cooperation of

companies, universities and research

institutions (e.g. clusters)


23

Investments of less than EUR 10 million can also qualify

Several priorities

• Supporting R&D activities

• Creation of new workplaces

• Environmental investments

• Technological investments

Aid of small and medium-sized enterprises is a high priority!

A wide range of tender opportunities is also available from EU Funds...

... and since the 2014 – 2020 programming period has just started, the budget for subsidies is still almost intact!


24

Up to 80% of corporate income tax („CIT”) normally due can be deducted for a period of maximum

10 years (beginning after the completion of the development).

Eligibility conditions:

• The current value of the investment is at least CHF 12 million (however, in certain designated areas the tax

incentive is guaranteed if the current value of the investment is at least CHF 4 million)

• The investment results in the creation of new facilities or the extension of existing facilities; or...

• ... substantially changes products or production processes (excluding investments in basic research,

applied research and experimental development); or...

• ... the investment substantially contributes to the growth of the average annual number of employees or

significantly increase the total annual wage costs

Various tax allowance opportunities are also available for investments that create new facilities or jobs

Development tax allowance1.

Tax incentives available for investments that create new jobs2.

Tax incentives are calculated based on 24 months’ salary for new employees employed within a

three-year period.

There are no limitations on the amount of the eligible costs nor the number of newly created jobs.


25

An employer who employs researchers (with at least a Ph.D.) can apply a social tax allowance

regime (100%) on the gross wage up to CHF 2000 per month.

Various tax allowance opportunities are also available for investments that create new facilities or jobs

Tax allowance for researchers3.

Employing young or old people, unskilled or long-term unemployed people or mothers with young

children, the employer can apply a regime of social tax allowances (50% or 100%) on the amount of

CHF 420 each month (per employee).

Tax allowance as part of the job protection plan4.

A Corporate Income Tax („CIT”) base allowance and Local Business Tax (“LBT”) base allowance

applies to R&D activities if the taxpayer carries out R&D activities itself. The cost of R&D is

deductible from the tax bases.

Tax incentive related to R&D5.

Jobs created by SSCs may entitle the companies to obtain CIT and LBT incentives. The amount of

the allowance may be up to 12 months’ total salary expenses and contributions for newly hired

employees. The LBT base may also be reduced by HUF 1 million (approx. CHF 4000) per each

additional employee in the year they are hired.

Tax advantages for Shared Service Centres6.


26

1) Infrastructure

2) Labor force





7) Our references

Agenda

27

Despite the financial crisis, almost all sectors experienced significant growth in Hungary in the last few years

Source: KSH

Manufacturing, Transporting and storage and Scientific

and technical activities provide excellent entry

opportunities because of (1) a trend of growth both in

productivity and employment and (2) being among the

sectors that benefit the most from the governmental

grant schemes.

The size of the Construction sector

has slightly decreased due to the

financial crisis, but it still has an

increasing productivity and the work

force available is cheap yet

experienced.

* GVA: Gross Value Added, difference between output and intermediate consumption (calculated as GVA = GDP + Subsidies – Taxes)

Change of productivity and employment by sectors (2009 – 2012)

G

RO

WT

H Z

ON

E

Size of the bubbles: GVA in 2012

28

Growth of productivity and employment is especially dynamic in manufacturing, extending to almost all industries

Source: KSH

* GVA: Gross Value Added, difference between output and intermediate consumption (calculated as GVA = GDP + Subsidies – Taxes)

Change of productivity and employment by branches of manufacturing (2009 – 2012)

Size of the bubbles: GVA in 2012

The size of the Vehicles industry

increased by almost 50%. One of the

greatest investments was made by

Daimler AG, who selected Hungary as the

location for its new Mercedes-Benz Plant.

Availability of skilled workforce, R&D activities and

implementation of state-of-the-art technologies enabled a

significant increase in productivity – a trend that is still ongoing.

29

Hungary is regularly selected as a manufacturing location by the largest multinational companies

CHF 5.1bn

Source: Dun & Bradstreet (based on revenues in 2011)

16800 emp.

CHF 1.5bn

2300 emp.

CHF 2.2bn

8500 emp.

CHF 3.4bn

2500 emp.

CHF 2.5bn

6500 emp.

CHF 1.1bn

5200 emp.

CHF 1.5bn

7000 emp.

CHF 7.5bn

10000 emp.

CHF 3.0bn

2900 emp.

CHF 2.1bn

3100 emp.

CHF 3.4bn

2500 emp.

Legend:

No. of employees in Hungary (2012)

Revenue of the Hungarian affiliate (2011)

Top 10 manufacturing companies by revenue

30

The largest electronics manufacturers add substantial valueto the Hungarian economy through employing the local labour

force at state-of-the-art workplaces

Source: HITA

Budapest

31

1) Infrastructure

2) Labor force





7) Our references

Agenda

32

Numerous Swiss companies are already present in Hungary

Legend:

Production, manufacturing

Sales, logistics

Shared Service Centre

The largest Swiss companies present in Hungary:

FMCG

Pharma

Pharma

IT (Software)

Railway Vehicles

Flavorings and Fragrances

Electromech. parts

Cables and sub-assemblies

Agriculture and tradePlastics

Constructionmaterials

Energy

Energetics and automation

Alternative energy

Construction systems

representing a great variety of industries and services

33

Not just the globals, but small and medium companies also have selected Hungary as a (primary) location for production

NOVOPLAST AG (founded in 1945) has its core

competencies in single and multi-component

injection moulding, extrusion and the assembly

and manufacture of assembly groups and system

solutions

NOVOPLAST HUNGÁRIA is NOVOPLAST’s first

and only subsidiary

Established in 1996, the Hungarian subsidiary

produces technical injection-moulded parts and

manufactures assembly groups and system

solutions

„With a well-trained team of specialists and a

modern infrastructure, NOVOPLAST

HUNGÁRIA Kft. forms an attractive addition to

its Swiss parent company, and is used in a

targeted manner for the benefit of our

customers in appropriate cases.”

(NOVOPLAST AG)

CabTec AG offers more than 10,000 customer-

specific products from single cables to the

assembly of complex cable assemblies

CabTec AG has its HQ in Rotkreuz – however,

all production is done on three production sites

abroad: two in Hungary and one in China!

Kecskemét is CabTec’s production site for high-

tech cable and industry cable with 450

employees and a local HQ.

The Szekszárd plant primarily manufactures

automotive cable assemblies and wires.

„On a floor space of 5,600 sq m with state-

of-the-art machinery, manufacturing, and

office area, 450 employees work on the

solutions for our customers.”

(CabTec AG, about the site in Kecskemét)

34

1) Infrastructure

2) Labor force





7) Our references

Agenda

35

Step 1 - Preparation of corporate documents by a Hungarian Attorney-at-law. Time required: 1

day. Expected costs: depends on the attorney selected.

Step 2 - Opening of a bank account. Time required: 1 day. Expected costs: bank fees.

Step 3 - Registering the company at the Hungarian Court of Registry and obtaining a tax

identification number. Time required: 1 day (except public companies for which the process is

approx. 2 weeks). Expected costs: CHF 210 for an LLP, CHF 420 for an LLC and an Ltd. and

CHF 2 520 for a listed Plc.

Step 4 - Registration with the Hungarian tax authority, municipality, chamber of commerce and

the Hungarian statistical office. Time required: 1 day, Expected costs: free of charge.

Establishing a business in Hungary is a streamlined process that can be completed in just a few days

Starting a new

business

Dealing with Construction

PermitsRegistering Property Enforcing Contracts

Hungary 5 days 79.0 days 16.5 days 395 days

OECD 11.1 days 147.1 days 24.1 days 529 days

Benchmarked against the OECD average, the Hungarian administration allows significantly

shorter lead times for starting new businesses, facilities and enforcing contracts!

Sources: HITA, doingbusiness.com

36

1) Infrastructure

2) Labor force





7) Our references

Agenda

37

PMC is a result- and value-oriented consulting enterprise with strong backbone of both domestically and

internationally experienced employees

• M&A (either on the sell-side

or the buy-side)

• Due diligence

• National and EU grants

• Corporate finance

Strategy

• Strategy development

(entry, exit, acquiring

expansion)

• Strategy workshops and

know-how transfer

• Benchmarking & best

practice

• Strategic due diligence

• Optimization of ownership

structure

Attracting capital

Management

• Cluster Management

• Innovation Management

• Interim Management

• Supply Chain Management

• IT controlling

• Reducing Cost

• Crisis Management

• Project Management

• Quality assurance

• Monitoring

• Top management trainings

Our services are at the cross-sections of a virtual 3D cube:

38

Despite the financial crisis, our successful projects enabled us to continuously expand our company group and provide more

and more diverse, yet synergistic services for our Clients

Established in: 2003Profile: Strategic and management consulting

Established in: 2013Profile: Attracting capital; M&A projects; financial advisory

Established: 2012Profile: Consultancy related to R&D&I, EU funds, Hungarian Grant system, tendering and incubation for startup companies

Proactive Management Consulting

(PMC)

Proactive M&A(P M&A)

Biostatisztika(„Biostatistics”)

NapraForgó Non-Profit(„Sunflower”)

Established in: 2000Profile: Support the (re-)integration of disadvantaged employees to the labor market

Swiss Company based in Zug Kanton

Established in: 1987To be acquired by PMC in 2014Profile: Swiss branch of the PMC Group, serving our Clients with our complete portfolio; also provides Trust Company services and Business incubation for startup companies (including expansion abroad)

Non-Profit For-Profit (based in Hungary)For-Profit (based in Switzerland)

While still working as Country Manager of the Boston Consulting

Group, Tibor Héjj founded NapraForgó Non-Profit to aid the

disadvantaged people in entering / returning to the labor market

In 2002 A.T.Kearney (ATK) decided to close its Budapest Office. In 2003 PMC

has been established by Tibor Héjj, former International Vice President of ATK, as a

new independent consultancy and the local representative of A.T.Kearney.

As a result of successful projects our „Attracting capital” business has

grown into an independent affiliate

under the name Proactive M&A

To serve our Swiss partners better and to strengthen our local

presence, we decided to acquire a Swiss Company

– this acquisition is currently ongoing and is

expected to be concluded in February – March 2014

In 2012 we established Biostatisztika to help our Clients taking advantage of the numerous R&D&I and

Grant opportunities in Hungary

1.

2.

3.

4. 5.

39

2013 Preparing and managing the sale of evopro group’s industrial software

development business (employing 600 Development Engineers in four countries) for

Accenture as sell-side lead consultant

2013 Conducting business analysis and preparing road show documents of a renewable

energy plant investment in Hungary for Grenor AS (Norway)

2012 Selling a branch of a private Hungarian leading company with about 100

electrical engineers to a German multinational company

2012 Selling a business line of a Hungarian IT company to the Hungarian affiliate of a

multinational company

2011 – 2012 Preparing a grant application for the National Directorate General for Disaster

Management in order to introduce the mobile dams in Hungary in flood protection.

The grant resulted in a cash subsidy of € 3.5 million; it is paid by the Swiss

Contribution fund, and it was approved by the Swiss State Secretariat for

Economic Affairs (SECO) and the Hungarian Ministry for National

Development.

2011 Market research of the Hungarian mobile-payment market and development of an

entry-strategy for the client of the Austrian Arthur D. Little

Proactive M&A

We have strong expertise in supporting our Clients in their expansion in(to) Hungary

40

2011 International investor-seeking (with the help of a ’road-show document’) during the

sales of ISVH, a leading Hungarian manufacturing company

2011 Liason in the sales of the largest (4 MW) Hungarian biogas plant (Szarvas) after its

launch

2009 Preparing the incentive strategy of the German Aurigon Life Science Group, who

founded the largest Hungarian toxicology company near Budapest. We supported

Aurigon in receiving tax allowance.

2008 Preparing a grant application for Gedeon Richter Plc the largest Hungarian

pharmaceutical company, what resulted € 3.3 million cash subsidy. The subsidy

was spent for R&D, mainly for building laboratories.

2006 Complete planning and organization of on-ground traffic of air passengers of

FlyBalaton Airport, Sármellék. FlyBalaton received cash subsidy and tax

allowance for reconstruction work and job creation.

2005-2006 Full-scope management of a Wind Power Plant investment for two Irish investor, J

J Fleming Holdings Ltd. and SWS Natural Resources Limited, from the realization

study to the acquisition of permissions, including the negotiations with the

representatives of the government on subsidies.

We have strong expertise in supporting our Clients in their expansion in(to) Hungary

41

We serve large multinational companies as well as SMEs from Hungary and abroad

Thank you for your attention!

The above information is intended to provide general guidance only. It should not be used as a substitute for professional advice or as the basis

for decisions or actions without prior consultation with your advisors. While every care has been taken in the preparation of the publication, no

liability is accepted for any statement, option, error or omission.

1126 Budapest, Szendrő u. 30.; Comp. Reg. No..: 13-09-092832;

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E-mail: [email protected]

Tel / Fax: +36 1 266 1778

Mobile: +36 30 350 0296

www.p-m-c.eu

Presentations & Public Speaking

Why locate your business in Hungary?