Hungarian Permanent Residency is Attractive for Investors

Tamás Wiedemann // appeared in the Hungarian daily newspaper “Magyar Nemzet” // 13th November 2012 // english translation by Barbara Szabó.

However, the new regulation has not yet been adopted, the opportunity to obtain a Hungarian permanent residence permit by purchasing Hungarian government bonds has certainly attracted the attention of foreign investors. Such method of attracting investors is also known in other countries, although such opportunities are usually much more expensive in other places.

According to experts, the proposed Hungarian regulation encouraging capital inflows from third countries (i.e. countries outside the European Union) to Hungary, is considered quite favourable in international comparison. In accordance with a bill submitted to Parliament a foreign national, who have purchased Hungarian government bonds worth at least EUR 250,000 (approximately HUF 70 million) with a minimum 5-year maturity will be granted permanent residence permit in Hungary in a preferential procedure within six months instead of three years being applicable in non-preferential procedures.

“Although the final version of the bill is not yet adopted, there is an increasing number of enquiries from foreign nationals in relation to investment-based permanent residence permits, in particular from China, the Middle East and Russia”, said János Tamás Varga, Managing Partner of VJT & Partners law firm. According to Varga there has been a competition amongst the Member States of the European Union for third country investors, which the Hungarian government has just joined.

“It was a general opinion amongst foreign nationals that due to the strict requirements, it was rather difficult to obtain permanent residence permit in Hungary for business purposes. There is an undoubted demand for the preferential treatment policy of the government” added János Tamás Varga. Further to the expert’s professional experience the proposed regulation is attractive for investors, because it would provide Hungarian permanent residency for significantly lower costs compared to other European countries and without requiring prior continuous physical residence in Hungary.

“In accordance with the original bill, the applicant could have the opportunity to arrange his/her application from outside Hungary, if a Hungarian legal representative was retained, however, a later submitted amendment to the bill aims to change this scheme. In accordance with this amendment, the applicant would be obliged to appear in person before the Office of Immigration and Nationality three times”, emphasized Varga. According to the available information, the original proposal submitted by a few representatives of the ruling party generated heated disputes in the cabinet. The Ministry of Interior suggested that foreign nationals should not be granted permanent residence permit automatically, but a temporary residence permit for a period of one year. A compromise has been finally reached to the effect that foreign nationals could be able to obtain the final permanent residence permit half year after the commencement of the procedure. “Since in accordance with current regulations, three years of prior continuous physical residence in Hungary is required with the condition that during this three-year period, foreign nationals are allowed to leave the country for a maximum period of 270 days altogether, it is an important aspect for enquiring foreign nationals that there is no need to previously reside in Hungary continuously, almost without any interruption”, said Varga. However, according to the proposed new regulation, the applicants will be obliged to appear in person before the Hungarian consulate located in their residence country. In the subsequent stages of the procedure, the applicants will also be obliged to appear personally before the Hungarian Office of Immigration and Nationality to receive their temporary residence permit and then six months later to file for their permanent residence permit and receive it upon its approval.

“The wording of the submitted amendment to the bill leads us to such conclusion”, emphasized the attorney-at-law, but at the same time highlighted that it is important to wait for the decree to be issued by the Minister for National Economy, which will specify certain conditions of purchasing government bonds.

According to our government-related sources, the final version of the regulation is rather uncertain. As far as we know applicants remain subject to national security control, although this procedure will be preferential. It is also an outstanding issue what type of government bonds shall be purchased by foreign investors, who intend to reside in Hungary. It is planned to issue foreign exchange bonds denominated in Euro with lower interest rates compared to the market yields. Further to our sources, it is an important question what will happen five years after the purchase of the bonds, when the bonds expire. It is also debated in the government whether foreign nationals should be obliged to either purchase government bonds again or invest their capital into the Hungarian economy. It may also be an alternative scenario, if no further obligation is imposed on foreign nationals. In the latter case it may be envisaged that the Hungarian state will purchase back the expired bonds on their nominal value, consequently the bonds would not bear any interest and the Hungarian state would use them free of charge. Financial experts argue that this specific form of attracting investors may convey a negative message to ordinary investors and lead them to presume that the Hungarian budget is actually in trouble.

Experts said that the proposed Hungarian regulation provided attractive opportunities for foreign nationals. In Austria, citizenship may be obtained by investing millions of Euros, although such investments are not expected to directly finance the government budget. In Bulgaria, a permanent residence permit, similar to the proposed Hungarian one, may be obtained for EUR 500,000, which is twice as much as the amount payable in Hungary. Hungarian permanent residence permit does not either ensure foreign nationals an unlimited mobility in other Member States of the EU since such Hungarian “green cards” entitle foreign nationals to a maximum stay of up to 90 days within every 6 months in any other Member State of the EU. However, it is easier to succeed within the EU with a Hungarian permanent residence permit, Hungarian permanent residency may accordingly serve as a springboard.