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Hungary pursues flexible tax line to attract manufacturing

By Simon Warburton | 21 November 2017

“We have our own local currency [Forint] which we think is of strategic impact”- Hungarian Investment Promotion Agency president Robert Esik

“We have our own local currency [Forint] which we think is of strategic impact”- Hungarian Investment Promotion Agency president Robert Esik

Hungary's Investment Agency says highly competitive tax rates continue to attract automotive manufacturing to the country as the centrally-located countries of Central and Eastern Europe (CEE) jockey for access to labour.

The Visegrad 4 countries; Hungary, Poland, Czech Republic and Poland, have been highly successful at drawing in hundreds of OEMs and suppliers anxious to capitalise on their educated workforce and competitive wage structure, although they are increasingly seeing salaries rise as competition increases.

Hungary is a member of the European Union (EU), but Budapest has adopted more of a strident tone towards Brussels during the past few years, particularly with regard to flows of immigration, while also firmly retaining its independent currency and tax policies.

"We have our own local currency [Forint] which we think is of strategic impact," Hungarian Investment Promotion Agency president, Robert Esik told delegates at the Central and Eastern European Automotive Forum in Prague organised by Adam Smith Conferences recently. "We have a taxation system which aims to be the most competitive in Europe.

"Corporate income tax is a single digit flat rate. If you want to attract companies that is why you need to have a low tax rate. The other pillar of the tax system is to take away the burden from labour as much as possible. In terms of personal income tax, we are at 15% flat and the aim is to go to single digit."

Hungary is number five for worldwide high-value foreign direct investment, while companies such as Samsung have established a base for electric vehicle batteries and Audi for prototype electric engines.

Addressing the same Prague conference and illustrating the sheer pull of the region for automakers and suppliers, Slovak Investment and Trade Agency CEO, Robert Simonic noted how much the imminent arrival of Jaguar Land Rover would galvanise the country's GDP by a significant amount.

"JLR [is] the largest foreign direct investment project in the last ten years, which will bring 1%-1.5% GDP growth in the next ten years," said Simonic.

"Slovakia has the fastest growth in the EU [and] we have a network of 316 automotive suppliers."

The ripples of the Visegrad 4's success however, are starting to spread wider as the effect of labour competition triggering higher wages is seeing companies look to further flung regions.

Serbia, Slovenia and Romania are also attracting attention, with the latter directing a total of 50% of its State aid to the automotive sector using EU guidelines.