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How to Set Up a Company in Hungary: Your Step-by-Step Guide

How to Set Up a Company in Hungary: Your Step-by-Step Guide

Setting up a company in Hungary offers a strategic advantage given its central location in Europe and business-friendly climate. Initiating the process requires a clear understanding of the legal requirements and the procedural steps involved. A significant appeal for investors is the country's favorable tax environment and its membership in the European Union, which provides access to a broader market.

To form a company in Hungary, an investor needs to decide on the type of business entity that best suits their objectives. The most common forms are the Limited Liability Company (Kft.), Joint Stock Company (Zrt. or Nyrt.), and the General Partnership (Kkt.). Each type has distinct regulations regarding shareholders, directors, and minimum capital requirements.

Navigating the complexities of the Hungarian corporate landscape necessitates compliance with local laws and regulations. Registration at the competent court, preparing foundational legal documents, and fulfilling tax obligations are critical steps in the process. Hungary’s streamlined incorporation procedures allow for a relatively quick and efficient company setup, provided all requirements are satisfied.

Understanding Hungarian Business Regulations

Navigating Hungarian business regulations is essential for any entrepreneur looking to establish a company in Hungary. One must comprehend the intricate details of Company Law, Taxation Policies, and Employment Laws to ensure compliance and successful business operations.

Company Law Basics

In Hungary, company establishment begins with drafting corporate documents, an activity that requires a Hungarian attorney-at-law. Founders must also sign the company's constitutive document. There is flexibility regarding the structure of the entity, with options including a private limited company (Kft.), public limited company (Nyrt.), and other forms. A crucial aspect noted in Starting Up in Hungary is the thorough preparation of all legal documents.

Taxation Policies

Hungarian taxation policies are highlighted by a favorable corporate tax rate, one of the lowest in Europe. It is crucial for companies to understand their obligations regarding VAT, as Hungary enforces a standard VAT rate with the possibility for registration exemption in certain cases. 

Choosing the Right Business Entity

When starting a business in Hungary, selecting the appropriate business structure is crucial. It determines the legal obligations, tax liabilities, and the amount of administrative work required. Each entity type has unique advantages and regulatory frameworks that cater to different business needs and sizes.

Sole Proprietorship

In Hungary, a Sole Proprietorship is the simplest form to establish. This entity is best for individuals planning to start small-scale operations. They provide a streamlined process for registration and require less capital. However, the owner bears unlimited personal liability for the business's debts and obligations.

Limited Liability Company

A Limited Liability Company (LLC), known as 'Korlátolt felelősségű társaság' (Kft.) in Hungary, is the most popular choice for small to medium-sized enterprises (SMEs). LLCs offer a balance between operational flexibility and limited liability protection for their owners. Shareholders are only liable up to the amount of their invested capital.

Joint Stock Company

Joint Stock Companies (JSC), 'Részvénytársaság' (Rt.) in Hungarian, are preferred by those who aim to launch larger businesses and may consider going public in the future. A JSC can raise capital through the sale of shares and offers limited liability. However, they are subject to more stringent reporting requirements and regulatory oversight.

Registering Your Company 

In Hungary, setting up a company involves a streamlined procedure that requires a minimal number of stakeholders and adherence to specific documentation requisites.

Trade Registry Process

The process to register a company in Hungary initiates with filing an application at the competent court of registration that corresponds to the company's registered office. Typically, the process can be completed within 1-2 weeks, subject to the court's workload. VAT registration is concurrently handled with the company registration, signifying a bundled approach to bureaucratic formalities.

Required Documentation

To successfully register a company, one must prepare and submit a set of mandatory documents. These include:

  • Articles of Association or Deed of Foundation
  • Proof of Company Address (e.g., lease agreement)
  • Identification documents of shareholders and directors
  • Bank account confirmation for the company's initial capital deposit

Specific requirements might extend depending on whether the stakeholders are domestic or foreign entities, possibly prolonging the registration timeframe for the latter.

Opening a Corporate Bank Account

When setting up a company in Hungary, registering a corporate bank account is a crucial step. This process is straightforward and generally requires the company's manager to be present.

Required Documents:

  • Proof of company registration
  • Identification for the account signatories
  • Company's Articles of Association
  • Minimum deposit (varies by bank)

Procedure:

  1. Choose a Bank: Research and select a financial institution that suits the business needs.
  2. Personal Visit: Schedule a meeting at the selected bank. A personal visit by the company's manager is often mandatory.
  3. Documentation Submission: Provide all required documents to the bank's representative.
  4. Account Approval: Wait for the verification and approval process, which may take several days.

Timing: Ideally, the corporate bank account should be opened within eight working days following the company's registration.

Additional Tips:

  • Some banks offer the service of opening an account remotely or with additional support for foreigners.
  • It is recommended for companies to establish their bank account with a local bank to facilitate transactions within Hungary.

Obtaining Necessary Licenses and Permits

When setting up a company in Hungary, acquiring the appropriate licenses and permits is a crucial step. Different types of businesses may require specific permits; hence, it is essential to understand the exact requirements for one's industry.

Firstly, individuals need to identify the necessary documents and permits needed for their particular business activities. Essential permits can include, but are not limited to:

  • Trade Licenses for retail and wholesale activities.
  • Health and Safety Permits for businesses that operate in the food service or accommodations sectors.
  • Environmental Permits for companies involved in construction or activities that have an environmental impact.

The process generally begins with the submission of application forms, and may require the following:

  1. Documentation proving the applicant has the right to use the location where the business will be situated.
  2. Proof of professional qualifications, if necessary for the business sector.
  3. Certificates of compliance with local trade regulations and, if pertinent, industry-specific guidelines.

After submitting the requisite documents, businesses may also need to undergo inspections to ensure their operations comply with Hungarian standards. It is advisable for business owners to seek guidance through legal consultancies, like Gurcan Partners, which specialize in the nuances of local business law and can facilitate the process of securing all permits.

In conclusion, obtaining licenses and permits is a tailored process that varies by industry and should be addressed with due diligence and qualified assistance. Failure to secure the correct licensure can result in legal consequences and delays in starting business operations.

Staying Compliant with Ongoing Legal Obligations

When a company is established in Hungary, maintaining compliance with legal obligations is critical. A registered Hungarian company has a variety of ongoing responsibilities to ensure business operations align with national requirements.

Annual Reporting: Each company must submit an annual report to the Hungarian tax authority. This includes detailed financial statements and relevant business activities from the fiscal year.

Tax Obligations: Hungarian companies are subject to corporate taxation. It is essential that they regularly update their tax records, declare and pay corporate taxes, VAT, and other related levies in a timely manner.

Banking Requirements: A Hungarian Limited-Liability Company (KFT) must maintain a Hungarian business bank account and adhere to the banking regulations stipulated by Hungarian law.

Regulatory Updates: Businesses must stay informed of any changes in legislation or regulations that could affect their operations. This can mean adapting to new laws, filing additional paperwork, or restructuring certain aspects of the business to remain compliant.

Periodic Audits: Depending on the size and type of business, companies may need to undergo periodic audits to ensure financial compliance and transparency.

Frequently Asked Questions

Setting up a business in Hungary involves several steps, including choosing a business structure, obtaining the necessary licenses, and registering with the appropriate Hungarian authorities. The process can be managed online, and the associated fees vary depending on the type of company and required services.

Can one register a business online in Hungary, and what is the process?

Yes, one can register a business online in Hungary. The process includes electronic submission of documents, such as the articles of association and company information, to the Company Registration Court. E-signatures and an official company address are also necessary for the online registration process.

What are the expected expenses associated with registering a new enterprise in Hungary?

The expenses include a company registration fee, legal fees for document preparation, and potential costs for a notary or translation services if the entrepreneur does not speak Hungarian. Additional charges may include capital requirements for the chosen business form.

How much time is typically required to complete the company registration process in Hungary?

Typically, company registration in Hungary can be completed within 1 to 2 weeks after all necessary documents are submitted and the registration fees are paid. Delays can occur if there are inaccuracies in the submitted paperwork.

Why might Hungary be considered an advantageous location for starting a business?

Hungary might be considered advantageous due to its central location within Europe, membership in the EU and Schengen Area, competitive taxation policies, and a skilled but relatively cost-effective workforce.

Could you explain the concept of a Limited Liability Company (LLC) within the context of Hungarian corporate law?

A Limited Liability Company (LLC) in Hungary is a company form with a legal entity separate from its members where the owners' liability is limited to their contributions to the company's capital. LLCs are popular due to their flexible management structure and protection of personal assets.

   

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*Note for U.S. citizens: US citizens are limited in their tax reduction possibilities due to FATCA and CFC laws. Opening an offshore company can increase privacy and asset protection, but you can not eliminate your taxes without giving up your citizenship. If you are a US citizen you are obligated to pay taxes on all worldwide income. 

 

 


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