Hungary Offshore Company

Overview of a Hungary Offshore Company

Although Hungary is not widely known as an offshore financial centre, it is an ideal jurisdiction for foreign investors to set up an offshore company. It has the lowest corporate tax rates in Europe, offers easy, fast and affordable incorporation for foreigners, and has a prime location as a European Union nation.

Hungary is particularly attractive to non-EU investors who want to gain access to the European market through a cost-effective and tax-friendly EU jurisdiction. 

Offshore investors have the choice between a few different corporate structures for their Hungarian Offshore Company. The options include: Limited Liability company (Kft), Unlimited Partnership (Kkt), Limited Partnership (Bt), and a company limited by shares (Zrt, or Nyrt). Each type of corporation has its own shareholder/ownership requirements, fees, share capital requirements etc.

Out of the aforementioned corporate structures, the Hungarian Limited Liability company (Kft) is the most popular and preferred investment vehicle for foreigners. It offers a high degree of flexibility and a number of benefits compared to the other types of companies. It is also the most cost-effective option. 

Note: For the remainder of this article, all information will pertain specifically to the Hungarian Kft unless otherwise stated.

 

Advantages & Top Uses of a Hungarian Kft

Key advantages of a Hungarian Kft:

• It requires only a single shareholder/member and director, who can also be the same person/entity. The members/directors can be any non-resident or resident natural person, legal person or corporate entity.
• Hungary is well located in the center of Europe, and is a member of the European Union. This opens up many trade and business opportunities throughout the EU. 
• Since 2017, Hungary’s corporate tax rate is a flat 9%, which is the lowest in the European Union. This applies to both trading and investment income.
• Hungary offers a variety of other tax advantages; such as zero dividend tax, zero withholding tax (if correctly structured), many double taxation treaties etc. 
• Hungary has a strong economy and good infrastructure, along with a skilled workforce.
• Hungary has a stable government and political system, which makes it safer for foreign investment.
• Foreign incorporation in Hungary is fast, affordable, and easy. Incorporation usually takes a total of 2-3 weeks or less. Shelf corporations are available for even faster incorporation.
• Hungary offers easy visa and residency options for most foreign nationals.
• Low formation costs as there is a zero government fee for incorporation, and the minimum share capital of HUF 3,000,000 (approx. USD 9,600) can be immediately withdrawn after incorporation. 

 

A Hungarian Kft is ideal for many of the standard uses of an offshore company, as well as some unique to the jurisdiction. Some of its top uses include:

• International trading and access to the EU market (this is especially attractive for non-EU investors)
• Access to a strong economy with good financial returns
• Asset protection
• Minimisation of taxes
• Protection and ownership of intellectual property
• Estate planning
• Confidentiality of assets through the use of a corporate ownership vehicle or nominee ownership services
• Investment holding

 

Key Corporate Features of a Hungary Offshore Company

 

Hungarian Kft	Corporate Details
General
Type of Entity	Hungarian Limited Liability Company (Kft)
Type of Law	Civil Law
Governed by	Act V of 2013 in the New Civil Code of Hungary
Registered Office in Hungary	Must have registered local address
Shelf company availability	Yes
Our time to establish a new company	1 week
Minimum government fees (excluding taxation)	Exempt from fees
Corporate Taxation	9%
Access to Double Taxation Treaties	Yes
Share capital or equivalent
Standard currency	Hungarian Forint (HUF)
Permitted currencies	All
Minimum paid up	HUF 3 million (approx. USD 9,600)
Usual authorized
Bearer shares allowed	No
No par value shares allowed	No
Directors
Minimum number	1
Local required	No
Publicly accessible records	Yes
Location of meetings	Anywhere (at least one AGM in Hungary)
Corporate directorship allowed	Yes
Shareholders/members
Minimum number	1
Publicly accessible records	Yes
Corporate shareholder allowed	Yes
Location of meetings	Anywhere (at least one AGM in Hungary)
Company Secretary
Required	Yes
Local or qualified	Local required
Accounts
Requirements to prepare	Yes
Audit requirements	Only in some cases
Requirements to file accounts	Yes
Publicly accessible accounts	Yes
Requirement to file annual return	Yes
Migration of domicile permitted	Yes

Requirements for Incorporation of an Offshore Company

Incorporation of a Hungarian Kft requires submission of the following:

• Passport or European ID (in the case of a natural person).
• Details and address of the member/members.
• In the case of a legal entity or corporate owner, an extract of that company’s register showing the name of the representative person is required. This document should be less than 3 months old, and must be apostilled in the original country and translated into Hungarian. 
• The founders must sign and submit the company’s constitutive documents, which can be either:
  • The articles of association, or
  • Deed of foundation, or
  • Other statutes depending upon the specific corporate structure.
• The relevant registration fee, if any (this depends on the type of company)

A Hungarian registered attorney must countersign all necessary documents and submit them to the appropriate Court of Registration .

 The registration can be done electronically, but the representative person should sign the articles of association in front of a consul at their nearest Hungarian consulate if they do not physically sign the papers in Hungary. 

 The registration request can be filed in two ways:

• Simplified electronic filing: In this case, the companies must use a standardised template for the constitutive documents. The Court of Registry will make a decision within 1 working day from the submission of the application. Public Limited Companies can not use the simplified electronic filing procedure. 
• Standard electronic filing: In this case, the company is not restricted by the standard templates for constitutive documents, and are free to alter its contents appropriately, as long as it is in accordance with all relevant corporate laws. In this case, registration can take up to 15 days. 

 

Taxation of an Offshore Company

In 2017, Hungary decreased their corporate income tax rate to a flat rate of only 9%. This rate applies to all types of income (whether trading or investment). This is the lowest of all the EU nations. In addition, there are very favourable laws regarding tax deductions, and losses can be carried forward for five years for deduction, at a limit of 50% of the current year’s taxable income.  

Hungarian companies are also subject to a local business taxation on their cost-adjusted turnover. The local business tax rate is only 0 - 2 % depending on the location. Dividends, royalties and capital gains are exempt from the local business tax.

In fact, Hungarian companies incur zero withholding tax for dividends, interest and royalties which are paid to foreign corporate owners. However, there is a withholding tax of 15% on these distributions to individuals. For this reason, it is advisable for foreigners to invest in Hungarian corporations via holding companies (i.e. those wishing to incorporate in Hungary should do so through a corporate entity, and not as an individual). 

 

Corporate Details of an Offshore Company

Anonymity, Confidentiality and Disclosure

The details of the managing directors and shareholders of a Hungarian Kft, along with the company’s bank accounts, are publicly accessible in Hungary. Accounting information must also be disclosed, and audits are required in some cases.

It is therefore advisable to use a nominee service, or to invest via a separate corporate body so as to preserve confidentiality.

 

Company Shares

Hungarian Kft’s do not issue shares per se. Each member holds one “quota”, which represents that member’s proportional rights and ownership in the company.   

Only a company limited by shares (Zrt or Nyrt) has shareholders and can issue shares. A company limited by shares can issue the following share types:

• Ordinary shares.
• Preference shares.
• Employee shares.
• Interest-bearing shares.
• Redeemable shares.

 

Required Capital

The minimum initial paid up share capital for a Kft is HUF 3 million (approx. USD 9,600). Proof of bank deposit of this sum into the company’s account is sufficient for incorporation, and the amount can thereafter be withdrawn. For other types of corporate structures, the share capital requirements are higher: 

• HUF 5 million for a Zrt
• HUF 20 million for a Nyrt

 

Directors and Shareholders/Members

A Hungarian Kft requires only a single director and shareholder (usually referred to as a “member”), who can be the same person/entity. The members/directors can be any non-resident or resident natural person, legal person or corporate entity.

 

Trading Restrictions

Companies may freely partake in most standard business and trading activities. However, a special license is required for certain activities (e.g. banking, insurance, etc.) and only certain types of corporations may engage in such activities. For example, banks can only operate as a company limited by shares with the appropriate license issued by the Central Bank of Hungary. 

A Hungarian Kft can not sell shares or raise funds from the public.

 

Principal Corporate Legislation 

The most important corporate legislation which regulates and governs companies in Hungary is Act V of 2013 in the New Civil Code of Hungary. It sets out the regulations regarding incorporation, activity, termination and taxation. This replaced the Act IV of 2006 on Companies. 

 

Type of Law

Hungary has a civil law system which is based on German Law. Budapest is home to Hungary’s highest courts.

 

Powers of the Company

A Hungarian Kft is regarded as a separate legal entity from its members and directors. As such, it has all the same powers and rights as a natural person. Furthermore, a member’s liability is limited to their investment in the company and any additional contributions required under the Kft’s articles of association. 

 

Local Presence Requirements

Offshore companies must have a registered local agent/secretary as well as a local Hungary address to fulfil incorporation requirements. However, the primary company address can be outside of Hungary. 

An annual general meeting is also required in Hungary.

 

Language of legislation and Corporate Documents

The official language used for legislation and corporate documentation is Hungarian, but such documents would often have both German and English translations. 

 

Official Language

The native and official language is Hungarian, and it is the first language of about 99% of the population. The most widely spoken foreign languages are English (spoken by 16% of the population) and German (spoken by about 11%). English has become more widely used since Hungary joined the EU. 

 

Reporting and Audit Requirements

There are no standard mandatory accounting and auditing requirements which apply to all Hungarian Kft’s, only for those whereby the Accounting Act or the Articles of Association states that it is required. This is due to the company meeting certain criteria. For example, the act states that the appointment of an auditor is required if a Hungarian company’s average net sales is in excess of HUF 300 million for two consecutive business years. Companies may be required to pay a penalty of HUF 50,000 to HUF 900,000 if they fail to comply with reporting deadlines stated by the relevant legislation. 

 

Exchange Controls

There are no foreign exchange controls in Hungary.

 

Shelf Companies available 

Yes, Hungarian shelf corporations are available for faster incorporation.

 

Time required to form offshore company

The entire incorporation process usually takes about 2 - 3 weeks with standard filing procedure. This can be reduced to less than one week if the simplified registration filing procedure is opted for, and can be further shortened if a shelf company is bought.

 

Company Name Requirements and Restrictions

The name of the company must be unique and cannot be similar to any other existing Hungarian corporation. The name must end with either the full or abbreviated form it’s corporate structure, namely:   limited liability company (Kft), unlimited partnership (Kkt), limited partnership (Bt), or company limited by shares (Zrt or Nyrt)

 

Access to Double Tax Treaties

Hungary has over 70 double taxation treaties with many of the world’s most important jurisdictions (such as the EU, Belarus, Russia, India, Canada, China, Hong Kong, Singapore, Switzerland and the USA). This helps to prevent undue losses from double taxation.

 

Licence/Registration Fee

Hungarian Kft’s are exempt from registration duty fees and publication fees (the only two types of incorporation fees). In addition, companies which participate exclusively in offshore activities do not need a license to incorporate.