The EC said it has sent Hungary a letter of formal notice on the matter, which officially launches the procedure.
Hungary now has one month to respond to the commission’s concerns.
The law requiring civil groups to register with a court as foreign-backed groups once their foreign donations reach 7.2 million forints (EUR 23,400) was passed by parliament last month. European Union funds do not count towards the threshold.
The EC said in a statement that the law “interferes unduly” with rights enshrined in the EU’s Charter of Fundamental Rights, particularly the freedom of association. It also raises concerns regarding the protection of personal data, the EC said.
Further, the law applies “unjustified and disproportionate” restrictions to the free movement of capital through its requirements for NGOs to register and declare their registration as foreign-backed groups, the EC said. The body said these rules were discriminatory and “create an administrative and reputational burden” for civil groups.
The EC said the law could also prevent NGOs from being able to raise funds, thereby restricting their ability to carry out their work. The measures have a dissuasive effect on funding NGOs, the commission added.
“Civil society is the very fabric of our democratic societies and therefore should not be unduly restricted in its work. We have studied the new law on NGOs carefully and have come to the conclusion that it does not comply with EU law. We expect that the Hungarian government will engage in a dialogue to resolve this issue as soon as possible,” EC First Vice President Frans Timmermans said in the statement.
The EC also raised concerns over the requirement for NGOs to disclose the exact amount of donations they receive from individual donors along with the identities of their donors. The executive body said this stipulation does not strike a fair balance between the law’s aim to create transparent conditions among NGOs and donors and beneficiaries’ rights to privacy.
Under the law, civil groups that fail to disclose their source of foreign funding will be sent a notice by a public prosecutor calling on them to comply with their obligations. NGOs that fail to fulfil their obligations after a second notice are fined.