Independent voluntary organisations were not permitted in Hungary until the late 1980s, but thereafter the sector grew significantly. Laws regarding nonprofit organisations are generally supportive of this growth. While all nonprofit organizations must be registered and acquire legal personality to exist, registration cannot be refused if groups meet the basic legal requirements.

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There are five types of non-profit voluntary organisations in Hungary. Two types may only be established by government: public law foundations and public law associations, both of which undertake activities that would otherwise be state responsibilities. The other types of organisations are associations, foundations ("open" to other donors and contributions or "closed") and public benefit companies. Subject to meeting the requirements in the Law on Public Benefit Organisations, all of these organisations may qualify for "public benefit status" and be eligible for associated tax benefits.

Registration is overseen by courts and is a matter that is to be determined in a non-contentious and expeditious manner. If there has been no action on an application within 60 days, the registration is deemed approved. Following registration, oversight responsibilities are transferred from courts to the public prosecutor’s office. There is no significant limitation on the operation of foreign NGOs or individuals.

An additional registration process is provided for "public benefit organisations" (PBOs), groups that engage in one or more of a broadly defined groups of public benefit activities. An enhanced status -- "prominently PBO" -- is available to groups that undertake activities that would normally provided by government.

Hungarian law generally permits organisations to undertake any activities that are not prohibited by law. However, the activities of foundations must meet a long-term public interest. Political activity by organisations is permitted, but PBOs may not engage in "direct political activity" ("political party activity and nomination of candidates for Parliamentary and local governmental elections (…)") and must be independent of political parties. The Constitution and laws articulate a role for non-governmental organisations in the development of policy, but in practice, that role is often limited.

Economic activities by associations and foundations are permitted but they cannot be a primary purpose of a group and must support a group’s public interest purposes. Income from activities directly related to public benefit activities is tax exempt, but there are limits on exemptions available for income from other activities.

The law also provides exemptions or reductions on other kinds of taxes, with greater benefits available to PBOs. These taxes generally include company and local taxes, duties, property, and the VAT. There is no tax on grants or membership dues and tax deductions are available to individuals and companies for contributions to organisations, particularly those for public benefit purposes.

An innovative aspect of Hungarian law permits individual taxpayers to transfer 1% of taxes paid to PBOs and an additional 1% to religious organisations. Direct funding by government of PBOs is substantial, but some observers have raised concerns that financial dependence of organisations undermines the independence of the sector.

Other than the need to adopt formal procedures, Hungarian law provides few specific requirements regarding governance of non-governmental organisations. Greater scrutiny is required of groups that undertake public benefit activities and receive benefits or privileges as a result. For example, PBOs must make their records and reports, as well as a "public benefit report" on an array of financial and operational issues, open to the public. Prominently PBOs must publish this information. A recent law requires that meetings of the PBO’s "leading body" to be open to the public; some observers see this rule as an unjustified interference in the independence of PBOs.

While self-regulation by NGOs both within organisations and among NGOs will often advance important NGO interests, there are concerns that if imposed by the government, independence will be undermined.

The public prosecutor is responsible for overall supervision of voluntary organisations and may seek a variety of sanctions from courts for improper or illegal action. The end of an association, foundation or public benefit company may be either voluntary or involuntary. Courts have the ability to dissolve, suspend or terminate an organisation where justified by illegality, with remaining assets to be used for public benefit purposes or where this is not possible, to be transferred to the state.

Analysis provided by: Patricia Armstrong, a human rights consultant based in New York.

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