One of Hungary’s defining foreign direct investment (FDI) attraction features is its corporate income tax rate of 9%, which has been in place since 2017. The Hungarian government has come out and said that the introduction of global minimum tax rate of 15% threatens its competitiveness and in June it blocked the EU-wide imposition of such a proposal.
Istvan Joó, CEO of the Hungarian Investment Promotion Agency (HIPA), tells fDi why the global minimum tax could endanger “hundreds of thousands of jobs” and why foreign investors are not deterred from coming to Hungary in spite of souring relations with the EU. In its Transition Report 2022-23, published on November 22, the European Bank for Reconstruction and Development (EBRD) scored Hungary the lowest in Central Europe for "well governed", "green" and "inclusive" in its assessment of transition qualities (ATQ) - a methodology used to define what makes a sustainable market economy.
Q: How important is staying competitive, even at the expense of the proposed global minimum tax rate?
A: The European economy is under a lot of pressure due to the energy crisis, high inflation, supply chain disruption and the threat of a looming recession. Hungary strives to be the local exception in a global downturn. A cornerstone of Hungarian competitiveness is our business-friendly tax regime which is one of the main driving forces behind the record FDI volumes of the past years.
A cornerstone of Hungarian competitiveness is our business-friendly tax regime.
Introducing the global minimum tax would put Hungary in a very difficult situation as well by endangering hundreds of thousands of jobs. Hungary is not alone in opposing the global minimum tax. For one, conservatives in the US are also against it, and given that Republicans have advanced somewhat in the midterms elections, Hungary could get more support from overseas in this respect.
Q: To what do you attribute Hungary’s success in forging an electric vehicle ecosystem?
A: Among others, two key trends have been shaping global FDI activity in recent years. Firstly, whereas the majority of investments used to originate from the West, this dominance has now shifted to the East. Meanwhile, electrification has become one of the main drivers of investment growth. The Hungarian foreign economic policy strategy strove to benefit from both developments early on.
Chinese battery producer CATL’s investment of $7.5bn illustrates the effectiveness of Hungary’s ‘Opening to the East’ policy, launched in 2010, but it can be attributed to the strong bilateral relations with China as well. Thanks to CATL’s project, by the end of the decade Hungary is expected to have 250 gigawatt hours capacity of electric vehicle battery cell manufacturing, which will propel the country to the top cell manufacturers in Europe.
Q: In September, the European Commission proposed a €7.5bn suspension of EU funds to Hungary over corruption allegations. How has this influenced foreign investors?
A: The investor community is not influenced by political disputes at the EU level. They make rational decisions based on long-term economic outlook and risk analysis. The figures speak for themselves: the FDI volume in Hungary is constantly growing, and in 2021 it hit a record €5.3bn. This year promises to deliver yet another all-time high influx of foreign capital.
The trust these investors place in our economy is also showcased by the fact that the majority of HIPA clients decide to reinvest and are here to stay. Neither the war in the neighbourhood, nor a potential recession will hold them back or make them change their mind.
Istvan Joó is the CEO of the Hungarian Investment Promotion Agency.
This interview has been edited for clarity and brevity. It took place before the results of the US mid-term elections were announced.