Hungary golden visa scheme collected €1.4bn between 2013-2017

Hungary operated a golden visa scheme for the acquisition of Hungarian residency through investment between 1 January 2013 and 31 March 2017.  The scheme received €1.4 billion euros according to a report published by EU on citizenship and residence by investment schemes.

The scheme was then closed on 31 March 2017 and remains still closed till now.

The rules on the acquisition of Hungarian residency by investment were introduced into the Hungarian legal system by Act CCXX of 2012 on amending Act II of 2007 on the Admission and Right of Residence of Third-Country Nationals.

The general concept of the scheme was to provide investment opportunities through a National Residency Bond Programme to third-country nationals. Only businesses that received the permission of the Hungarian Parliament’s Economy Committee (Országgyűlés Gazdasági Bizottsága) could issue the residency bonds, and the applicants had to purchase these bonds to obtain temporary residency by investment.  The original scheme made it possible to those in possession of such temporary residence permits for the duration of at least six months to apply for a permanent residence permit based on their investment.

A temporary residence permit is valid only for five years and can be renewed thereafter, while the permanent residence permit entitles the beneficiary to stay in Hungary without limitation and under the same terms as Hungarian citizens.

The scheme that existed between 1 January 2013 and 31 March 2017 allowed the authorities to issue residence permits (both temporary and permanent) to third-country nationals in the interest of the national economy for reasons related to the investments made by these nationals in Hungary, including their spouses, the descendants and parents

Investment

The National Residence bond scheme (RBS) required purchase of securities (national residency bonds) with the maturity of not less than five years, of a nominal value of at least EUR 300,000 issued by a company authorised to subscribe such bonds by the Hungarian Parliament’s Committee for Economic Affairs

The Hungarian scheme did not require a specific fee to have been paid to the authorities. Instead, the applicants had to pay a so-called ‘intermediary commission’ to the companies authorised to issue the bonds. This commission was between EUR 45,200 – 58,100 depending on which company the applicant turned to in order to purchase the bond. The fee was the net profit of the companies authorised to issue the national residency bonds

Bonds were issued by companies authorised by the Hungarian Parliament’s Committee for Economic Affairs.

Both temporary and permanent residence permits were issued under the investors’ residence scheme:

• Temporary residence permit (TRP) entitled the beneficiary to reside in Hungary up to five years.
• Permanent residence permit entitled the beneficiary to reside in Hungary for an undefined period of time

Statistics

Before 1 July 2016, only those applicants were entitled to obtain permanent residence permits in Hungary who possessed temporary residence permits for the duration of at least six months. After 1 July 2016, the application for both forms of residence permit under the scheme could be submitted at the same time. Therefore, the statistics published by the Ministry of Interior are broken down by figures related to applications for temporary residence permits, and applications for permanent residence permits as demonstrated in Table 1 and Table 2 below.

Table 1 – Temporary residence permit

Table 2 Permanent residence permit

Table 3 Temporary residence permits for family members

Table 4 Permanent residence permits for family members

Citizenship

Beneficiaries of the National Residency Bond Programme may be eligible for Hungarian citizenship if they meet the general requirements set out in Act LV of 1993 on Hungarian citizenship. Given that the requirement for ordinary naturalisation in Hungary is eight years of effective residency, the investors’ residence scheme alone does not suffice for obtaining citizenship.2 While the beneficiaries of the scheme could enjoy the rights to free movement and residence in Hungary, they were not exempted from the requirements otherwise applicable to obtaining citizenship in Hungary.

Economic impact

The EU report stated that lack of publicly available information on the economic impact of the National Residency Bond Programme, only a rough calculation can be made on the overall expenditure the applicants had to face, and on the amount of funds the Government collected through the programme. According to the law, the exact amount of money required to invest in residency bonds was 300,000 EUR per applicant.

The invested amount was the same even if the applicant wanted to extend residency to his/her dependants. Between 2013-2017, 4,794 applicants were granted permanent residence permits. Assuming that all successful 4,794 applicants invested 300,000 EUR each, the overall investment of the beneficiaries of the programme was 1,438,200,000 EUR. Also, the applicants had to pay commission to the intermediary companies (the authorised companies that could issue the bonds). As stated above, the amount of commission ranged between 40,000-60,000 EUR per application depending on each company’s own policy.

For the sake of calculation, we assume each applicant had to pay 50,000 EUR to the intermediary company. Based on this assumption, the aggravated amount of commission the applicants had to pay beyond the investment was 239,700,000 EUR. Taking this example, and based on the altogether 4,794 successful applications made between 2013-2017, it is possible to state that this entails a total expenditure of EUR 1,677,900,000 broken down as follows:

• Investment (nominal value of the residency bonds): EUR 300,000 x 4,794 = EUR 1,438,200,000
• Commission paid to intermediary companies: EUR 50,000 x 4,794 = EUR 239,700,000

Following this calculation, the total amount of funds collected by the Government through the National Residency Bond Programme between 2013-2017 amounted to EUR 1,438,200,000.

The hungarian golden visa scheme was closed in March 2017, because the scheme did not provide any benefit to the hungarian economy.

There are no studies assessing the economic and financial efficiency of the residence scheme. There is, however, a media report based on an interview conducted with a member of the Hungarian Parliament. 24.hu, an online medium in Hungary, published the article that included information obtained from the member of the Hungarian Parliament on 19 May 2017.

The article states the Hungarian state did not benefit from the operation of the National Residency Bond Programme during the four years the programme was in place. While the original purpose of launching the programme was to find alternative ways of providing financial aid in the form of medium-term loans to the Hungarian Government,

Given that the duration of the residency bonds were at least five years, the general interest rates in the world market significantly decreased, especially around 2014-2016. While in 2014, the average interest rate on bonds with a 5-year maturity issued by the Hungarian Government in the world market was around 5.5%, it dropped to 3.3% by the end of 2016. The Hungarian Government nonetheless has to pay the originally promised interest rate on the residency bonds to the investor once the bonds expire. The article states that Hungary lost approx EUR 37.67 million on these bonds due to the high interest rates they paid to the investors.

The bond payoffs estimated at EUR 1.1 billion which commenced in 2018.