What is HIPA?
HIPA cannot be limited to construction-related matters, but it is an important institution related to construction as investment in Hungary begins.
Its purpose is to attract foreign investors to Hungary, and to do so, it provides incentives such as corporate tax reductions, support for training and education expenses, and investment cost payback programs. These incentives require EU guidelines and approval.
Another task led by HIPA is introducing sites, which is connected to local governments and real estate companies, prioritizing economically underdeveloped areas and regions with high unemployment rates.
Recently, due to an increase in foreign investment, many areas near Western Europe have reached saturation. As a result, HIPA is now recommending sites in the eastern and southern regions.
What is VIP Status?
Initial investments, including construction, require permits and approvals, and the review period for permits is legally designated. Building permits are handled by the local government, and the standard review period is set at 60 days from the date of application.
Therefore, to promote and support foreign investment and reduce this idle time, a system called VIP Status is implemented, in which individual projects are reviewed, and the central government designates and manages specific projects.
If a project is designated as a VIP Status Project, it is announced through the media, and from that point, the permit review period is significantly shortened, providing momentum for reducing the construction timeline.
However, VIP Status only shortens the review period and does not simplify the permitting process. In particular, since the central government may conduct stricter reviews, additional modifications or corrections may be required, so VIP Status is not necessarily always advantageous.
Therefore, it is necessary to determine whether the investment involves legally strict processes such as an environmental impact assessment, whether the project can proceed smoothly even if handled by lower administrative authorities, and whether there is a strong relationship with the local government before deciding whether to apply for VIP Status.
What is E-Diary?
In Hungary, for construction projects exceeding a certain area, the daily progress must be recorded by accessing the Hungarian government’s website and updating the construction status. This system is called E-Diary, and it must include all contractors involved in the construction project.
The project owner registers the General Contractor, and the General Contractor registers the construction activities in the E-Diary while also registering subcontractors. In turn, subcontractors must also register in the E-Diary, following a top-down process.
There are no specific qualification requirements for company E-Diary administrators.
Legal Construction Supervisor(Technical Supervisor)
A Technical Supervisor in Hungary is equivalent to a legal construction supervisor in Korea. The project owner must either hire a qualified individual directly or enter into a service contract with a company that employs a certified Technical Supervisor for the role to be valid.
By law, the number of required Technical Supervisors depends on the size, nature of the project, and the number of construction companies involved. In the case of a Greenfield Project, three qualified supervisors are required: a civil (structural) supervisor, a mechanical supervisor, and an electrical supervisor. If multiple General Contractors are working on the project simultaneously, a separate Safety Manager is also required.
A Technical Supervisor is not legally required to be present on-site at all times, but they bear legal responsibility for construction quality and can oversee multiple construction sites simultaneously. In many cases, the Technical Supervisor also manages the E-Diary.
FMV
FMV, in Hungarian “Felelős műszaki vezető,” is equivalent to a site representative or construction manager in Korea. It is a mandatory personnel requirement that the contractor must have for construction, and like the Technical Supervisor, the contractor must either hire a qualified individual or enter into a service contract with a company that employs a certified FMV.
Since the Technical Supervisor and FMV have different qualifications, they cannot be held by the same person.
FMVs are not required to be on-site at all times, but they bear legal responsibility for construction quality.
Escrow Account Management - Trustee Payment
Trustee Payment refers to payments made through a trust account, and it is a system implemented to enhance transparency in construction payments and protect subcontractors. It is a system frequently used in Western real estate transactions.
It does not apply to all construction projects, but for projects designated as VIP Status, it is a mandatory system. Under this system, the project owner and contractor do not directly transfer or receive payments; instead, the project owner makes an advance deposit into a designated bank account, and after verification by the Technical Supervisor, the bank disburses the payment to the contractor.
To operate the Trustee Payment system, the payment schedule must be finalized in advance. Due to this process, the percentage of work completed and the actual payment amount may differ, so a detailed payment plan must be carefully reviewed and established in advance through discussions between the project owner and the contractor.
VAT Reverse Charge
In Hungary, the VAT rate is 27%, but a VAT exemption system applies to construction projects, allowing free trade between construction companies within EU countries.
In documentation, VAT is recorded, but in actual payment transactions, it is excluded. If necessary, the final VAT amount can be settled during the final reconciliation process.
Therefore, when planning investment funds, there is no need to consider VAT expenses for construction costs.
Permitting
Permits and approvals refer to the authorization process related to construction projects, requiring prior approval from government offices or relevant departments. They are prerequisites for both the start and completion of construction projects.
In a narrow sense, permits and approvals refer to specific approvals directly related to construction work. However, in a broader sense, they encompass all administrative procedures from land acquisition to factory operation, including collaboration with relevant authorities and the completion of necessary contracts.
The importance of permits and approvals in construction projects is undeniable, as they are a mandatory requirement. Permits and approvals follow an all-or-nothing principle, meaning they are either fully approved (100%) or not at all (0%), with no partial approvals. Any delay in the approval process directly impacts costs and schedules, often beyond the actual delay period itself.
The key considerations when handling permits and approvals can be summarized as follows:
Types of Permits and Approvals
Permits and approvals can be categorized based on the timeline into three stages: before construction, after construction completion, and before factory operation. The key approvals for each step are:
1.Building Permit
As in Korea, construction can only begin after obtaining a Building Permit.
The Building Permit requires the following:
Since these documents depend on the basic design, the permit application can only be prepared after the basic design is completed.
Typically, the Building Permit is issued by the city hall, requiring reviews from more than 10 related departments, with a general processing time of approximately 60 days.
Before applying for a Building Permit, some preliminary approvals or procedures must be completed. The following items must be finalized before submission or before final approval and should be planned in advance.
1.1 Environmental Impact Assessment (EIA)
This is required before obtaining a building permit and is also necessary when negotiating with the Hungary Investment Promotion Agency (HIPA) for the initial investment. The EIA must receive prior approval regarding what product will be manufactured, what process will be used for production, what utilities and chemicals will be used, and whether safety measures have been secured.
In some cases, insufficient information is provided due to internal security concerns, which can be a cause of permit delays. Therefore, sufficient data should be provided and discussed within the possible range of disclosure.
1.2 Land Contract
Unlike in Korea, Hungarian industrial zones are not developed and sold by the national or local government with all infrastructure already completed. Many plots are privately or commercially owned, and in many cases, infrastructure development occurs simultaneously with factory construction. Therefore, verification of these conditions is necessary.
Depending on the situation, additional procedures may be required, such as land purchase and ownership transfer, land parcel consolidation or division, and even regulatory changes by authorities due to permit issues.
Before purchasing land, it is essential to review factors such as the land purchase price, cadastral map verification, the utility supply status and pricing set by the landowner, and the legal regulations of the region while considering priorities.
1.3 Archaeological Survey (ERD)
This survey must be completed before a building permit is issued and involves investigating whether any historical artifacts are present on the construction site. The process is divided into two stages. The first stage is a preliminary assessment of the site through documentation to determine if any artifacts have historically been found in the vicinity. The second stage involves excavating specific areas of the site to verify the presence of artifacts. Afterward, an official report is issued, which serves as a required document for obtaining the building permit.
1.4 Hazardous Material Survey
Hungary was a major battleground during World War II, and in some cases, unexploded ordnance such as bombs or artillery shells have been discovered on construction sites. To mitigate this risk, a hazardous material survey is conducted similarly to the archaeological survey. The process includes scanning the site with metal detectors, followed by targeted excavations to confirm the presence of hazardous materials. In most cases, excavation is conducted simultaneously with the archaeological survey, but different governmental departments oversee each process.
2.Occupancy Permit
In Korean terms, this corresponds to the "completion approval." It verifies whether the conditions of the building permit have been met while also requiring the following tests and certificates. Therefore, all related documents and certificates must be prepared before the completion of construction.
2.1 CE (Conformité Européenne) Certification
All materials used in construction must have CE certification. This applies not only to equipment but also to all bulk materials.
2.2 Fire Resistance and Explosion-Proof Certification
Among CE-certified materials, those subject to fire ratings must comply with the appropriate fire resistance classification. If designated as an explosion-proof zone, the materials used must meet the ATEX certification standards under European regulations.
2.3 PED (Pressure Equipment Directive)
This is a certification for pressure vessels, comparable to Korea’s Occupational Safety and Health Agency regulations. Examples include boilers, air receiver tanks, and filters.
2.4 Elevator
This corresponds to Korea’s elevator safety management regulations.
2.5 Fire Protection System Test
This is one of the most critical tests, verifying whether fire hydrants, sprinklers, fire water tanks, fire detection systems, and evacuation routes have been installed according to the approved plans and whether certified materials have been used.
2.6 EDR (Endpoint Detection and Response)
This is a broader category of fire protection system testing. It involves ensuring that, in the event of a fire, the fire department can establish stable radio communication within the building. If communication is insufficient, additional communication facilities (signal amplifiers) must be installed.
These tests and certificates must be completed before applying for an Occupancy Permit, and the approval process typically takes about 15 days.
3.Operation Permit
This process is equivalent to the factory operation commencement approval in Korea. It is a separate permit from the occupancy permit and must be obtained before beginning product manufacturing.
While the occupancy permit focuses on the safety of the building, the operation permit pertains to the safety of production equipment.
Compliance with the previously approved Environmental Impact Assessment (EIA) is essential, and in some cases, authorities may request more detailed EIA documentation.
The approval process is reviewed from two perspectives: the first is environmental aspects, including air treatment, wastewater, and sewage management, and the second is worker safety and related risk factors.
Another important point is that even if production equipment is manufactured and supplied from Korea, it must still comply with EU standards. Therefore, all equipment must have CE certification.
Once this process is completed, all necessary permits are obtained, allowing for the official commencement of production.
Interface
Interface is not a permit but refers to the administrative procedures and contracts with external agencies or companies for the use of utilities necessary for factory operation. This includes electricity, water supply, wastewater, sewage, gas, stormwater, and the supply of other chemicals.
These utilities are mentioned in the building permit process, but their actual usage must be arranged separately. This process significantly impacts not only construction costs but also the overall project schedule.
As mentioned earlier, industrial land may not always be supplied with completed utility infrastructure. Therefore, conducting a thorough preliminary investigation is crucial.
Types of Interface
• Electricity
Hungary’s electricity supply network is divided into five regions, managed by two private companies. Although multiple power suppliers exist, each company holds exclusive rights to its designated regional grid, making the system effectively a monopoly, similar to Korea’s Korea Electric Power Corporation (KEPCO).
A key issue is that electricity may not be supplied in the timeframe required by investors. Depending on supply capacity, it can take approximately one year from application to actual power delivery, making it an even more critical factor than the building permit for factory operations.
If a site lacks an existing power supply infrastructure, the investor may be required to cover the cost of power line installation, leading to an unwanted increase in construction costs. Additionally, the administrative process is slow, so it is essential to verify power availability before selecting a site. This is especially crucial for factories requiring large-scale electricity usage, and future scalability should also be considered.
• Water Supply, Wastewater, Sewage, and Stormwater
These utilities fall under the jurisdiction of the local government where the site is located, and the availability of these services depends on the capacity of the government-owned main facilities. Wastewater management is particularly sensitive.
Unlike in Korea, industrial zones in Hungary do not have centralized wastewater treatment plants, so in some cases, an on-site wastewater treatment facility may need to be installed.
For water supply, if there is no existing infrastructure, groundwater extraction may be used. Therefore, the capacity of these facilities must be carefully reviewed in advance to ensure sufficient supply.
• Natural Gas
Natural gas, primarily used as a boiler heat source, is supplied through regional gas pipeline networks. It is necessary to contact the relevant gas company in advance to confirm the supply scheme.
• Other Gases and Chemicals
Gases commonly used in industrial plants, such as N₂ (nitrogen), O₂ (oxygen), Ar (argon), He (helium), and H₂ (hydrogen), are supplied by global companies like Air Liquide, Praxair, and Messer, which have production facilities in Hungary.
However, the distance to the site and guaranteed usage volume are the key factors that determine the cost. Therefore, it is crucial to negotiate the contract terms carefully in advance to finalize the supply agreement.
Engineering
In overseas construction projects, design is the most critical aspect and often the starting point for the trial-and-error mistakes made by Korean project owners.
Although design fees account for only 3-4% of the total construction costs, the impact of delivering a high-quality design on time is immeasurable, influencing subsequent processes such as procurement, construction, schedule, and cost.
In other words, a 1% design error can result in a 10% increase in construction costs and delays.
The design process can be divided into three main stages: Concept Design, Basic Design, and Detailed Design, and each stage is interdependent and complementary.
Importance of Design
One of the most frequently cited reasons for project failure is design failure. The key causes include:
These issues all stem from a lack of overall project management capabilities.
Design is an early-stage activity in a project, but when local conditions are not well understood and proper management is lacking, it often results in isolated design work that is not properly validated. This leads to late-stage discovery of design errors, causing unnecessary rework, increased redesign costs, procurement and construction delays, and excessive construction expenses, ultimately impacting all subsequent processes.
The most critical factor in overseas construction is the timely delivery of high-quality design documents.
At the same time, design failures often arise due to differences in design perspectives.
Are Korean Design Firms Superior?
Design must prioritize local permits, regulations, and construction characteristics; otherwise, it is merely a drawing, not a functional design.
Korean design firms are undoubtedly efficient and quick in responding to investor requests, often outperforming local firms in speed and flexibility. However, the real question is whether the design is practically applicable or if it is so Korea-specific that it requires major revisions.
Additionally, every design must be optimized for construction duration and cost efficiency. To achieve this, local regulations, construction methods, and know-how must be incorporated from the early stages.
- Can Basic Design Be Done in Korea and Detailed Design Locally?
As previously mentioned, design stages exist, but they are complementary.
If the concept and basic design do not adequately reflect local conditions, the detailed design phase will require extensive modifications, leading to significant rework and delays.
- Are Korean Design Drawings Universally Applicable?
Design drawings are a form of visual representation, so they can be understood to some extent. However, this does not mean they are fully interpreted in detail.
Hungarian design documentation does not incorporate all information directly into the drawings. Instead, it relies on General Descriptions and Specifications, which follow a unique local interpretation system. Without clear guidelines, there is a high potential for misunderstandings.
Furthermore, Korean design drawings are not suitable for permitting or construction use in Hungary.
- Do Designers Handle Permits on Their Own?
Design fundamentally prioritizes stability. This means that even if a design is somewhat over-engineered, it is often considered the safest approach.
If this principle is overlooked and the accuracy and appropriateness of the design are not reviewed, and if design documents written in the local language are used for building permit applications without proper validation, it can lead to irreversible over-engineering, resulting in excessive costs and inefficiencies.
- Can Construction Be Carried Out with Basic Drawings?
In Korea, numerous verbal work instructions are issued beyond the design drawings, and construction can proceed based on them.
This is a unique aspect of Korean construction culture, but such practices are not accepted in Hungary.
Any information not explicitly stated in the design documents is considered a Work Order, which can lead to additional costs and delays. To prevent this, detailed drawings with precise information must be provided.
- Can Design Drawings Be Changed If Construction Has Not Started?
Hungary is not an advanced manufacturing country like Korea. The construction sector represents a relatively small portion of the Hungarian economy, meaning that material procurement and workforce availability are not as flexible as in Korea.
Even if construction has not yet started, modifying design drawings can lead to unnecessary schedule delays and cost impacts. Furthermore, changing design documents is classified as a Work Order, which can result in additional costs and administrative processes.
Design Cost and Design Period
The fact that Hungary has a lower GDP than Korea does not mean that design costs are cheaper. This misconception likely stems from Korea's relatively lower recognition of the importance of soft work compared to other countries. In reality, design costs in Hungary are similar to those in Korea.
The design period varies depending on the project size, but it typically takes around 3 to 4 months. Unlike in Korea, quick actions and rapid progress should not be expected.
Design from the Project Owner’s Perspective
To prevent design errors and establish a clear design guideline, the following key elements must be finalized before starting the design process. These are collectively referred to as BEDD (Basic Engineering Design Data). Providing this information before design initiation ensures a high level of design quality.
These documents form the basic reference materials required to start the design process.
Procurement
Purchasing refers to equipment and materials that the project owner can directly supply. In a narrow sense, purchasing is limited to production equipment and utility equipment, while in a broader sense, it also includes exterior panels, structural components, and other materials.
The key factor is which equipment to purchase, but unlike in Korea, there are fewer manufacturers (vendors) available.
Not all vendors have manufacturing plants in Hungary. If a vendor does not have a factory in the country, they typically operate through distributors, and the actual production takes place in another European country, after which the equipment is shipped to Hungary.
Utility Equipment Vendor
Steel material prices are not cheap across Europe. Therefore, most equipment and materials are more expensive than in Korea, and for order-made products like tanks, the price difference can be significant.
As a result, some equipment is imported from Korea due to cost considerations and vendor communication convenience. However, in such cases, it is essential to thoroughly review multiple factors, including permits, customs clearance, installation, and long-term maintenance costs.
Customs duties for imported goods are determined based on EU guidelines for each item category.
When importing from Korea, shipments are typically transported by sea to Hamburg, Germany, and then delivered overland to Hungary. The entire logistics process generally takes about two months.
Imports
Steel material prices are not cheap across Europe. Therefore, most equipment and materials are more expensive than in Korea, and for order-made products like tanks, the price difference can be significant.
As a result, some equipment is imported from Korea due to cost considerations and vendor communication convenience. However, in such cases, it is essential to thoroughly review multiple factors, including permits, customs clearance, installation, and long-term maintenance costs.
Customs duties for imported goods are determined based on EU guidelines for each item category.
When importing from Korea, shipments are typically transported by sea to Hamburg, Germany, and then delivered overland to Hungary. The entire logistics process generally takes about two months.
Construction
There is no distinction between general construction and specialized construction in Hungary, as seen in Korea. There are no specific licensing requirements for such classifications, and business categories can be conveniently added or removed, meaning companies do not actively differentiate between them.
Strictly speaking, while there are no classification or restrictions based on project size or industry type, companies tend to specialize in specific fields based on their business policies, similar to Korea's specialized construction firms.
Companies that focus on comprehensive construction include global firms headquartered in Western Europe and large Hungarian construction companies, though their numbers are limited. However, when considering experience in industrial plant construction, collaboration with Korean companies, and general contractor capabilities, only a few companies meet all the necessary criteria.
Recently, with Korean companies expanding into Europe, many Hungarian construction firms have shown interest in working with them. However, it is crucial to carefully assess whether they understand Korean corporate culture, have the necessary systems in place, and are not simply looking to operate as subcontractors.
Construction in Hungary differs somewhat from Korea in several aspects, as seen in the following examples:
Selecting a contractor is just as important as the completeness of the design. From the project owner's perspective, construction should be approached with a mindset of "managing" rather than simply "assigning" the work.
The choice of contractor depends on the construction strategy set by the project owner, and the construction period and costs can vary significantly depending on the participating contractor.
Even if the scope is clearly defined, the nature of construction work means that circumstances inevitably change, often leading to a shift in the traditional "client-contractor" relationship.
Therefore, contractor selection should not be based solely on price. To minimize trial and error, a comprehensive evaluation must consider factors such as company reputation, shop drawing capabilities, current workload, documentation skills, and communication abilities that go beyond simple translation to understanding cultural differences.
To achieve this, a prequalification process for selecting contractors should be conducted in advance, and an RFP (Request for Proposal) must be detailed and well-prepared. The contents of the RFP should be clearly specified and later used as a coordination tool during contract execution and construction management.
The above information serves as a mechanism to prevent unnecessary misunderstandings and communication errors between the project owner and the contractor after bidding and contract execution. As a result, it acts as a minimum safeguard to prevent potential disputes that may arise during the construction process.
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PLANTECH I BOAM BLDG 7F, 104, Apgujeong-ro, Gangnam-gu, Seoul, Korea I Business Registration Number: 458-87-03639 | Fax : 02-542-5425 | Tel : 02-542-5702
ⓒPLANTECH 2025. All Rights Reserved. Hosting by DETASTE.
