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Hungary Company Formation: A Guide To Setting Up Your Business

Hungary has emerged as an alluring destination for business ventures, drawing entrepreneurs globally with its favorable corporate framework. Boasting the lowest corporate tax rate in the European Union at 9%, Hungary provides a cost-effective environment for company formation. The efficient registration process, typically completed within a few business days, makes it a strategic gateway for companies aiming to access the EU market. Additionally, Hungary allows for immediate EU VAT number acquisition, which simplifies the trading processes within the member states.

The Hungarian government has established a straightforward procedure for foreign investors, encompassing market research, legal structure selection, company name registration, and potential visa and residency options for various nationalities. This inclusive approach to company formation is complemented by a supportive regulatory environment, which provides a foundation for business sustainability and growth. With access to a skilled labor force and a convenient geographic location in Central Europe, Hungary presents itself as a compelling option for both startups and established businesses seeking to expand their footprints.

Key Takeaways

  • Hungary offers the lowest corporate tax rate in the EU at 9%, appealing for company formation.
  • Company registration can be completed swiftly, often within a business week, enhancing market entry.
  • The formation process includes steps like legal structure selection and EU VAT registration.

Understanding Company Formation in Hungary

In Hungary, forming a company involves choosing the appropriate legal entity, understanding the streamlined registration process, and obtaining the necessary licenses and permits. This section navigates these core aspects.

Types of Legal Entities

Hungary offers various legal entities to suit different business needs. The most common types include:

  • Sole Proprietorship (Egyéni vállalkozó): Ideal for individual entrepreneurs with full liability.
  • General Partnership (Kkt): Established by two or more individuals sharing unlimited liability.
  • Limited Partnership (Bt): Consists of at least one member with unlimited liability (general partner) and one member with liability up to their contribution to the partnership (limited partner).
  • Limited Liability Company (Kft): Requires a minimum capital of HUF 3,000,000; liability of the shareholders is limited to their equity contribution.
  • Joint-Stock Company (Rt), which can be further divided into:
    • Private Limited Company (Zrt): Requires a minimum capital of HUF 5,000,000.
    • Public Limited Company (Nyrt): Requires a minimum capital of HUF 20,000,000 and can offer shares to the public.

The Registration Procedure

The company registration process in Hungary is characterized by the following steps:

  1. Reserve and Register a unique company name.
  2. Prepare and Notarize the founding documents, which include the articles of association.
  3. Open a Hungarian bank account to deposit the required capital.
  4. Submit the registration application to the Hungarian Court of Registration. The documentation often includes:
    • Founding documents
    • Evidence of capital deposit
    • Specimen signatures of managing directors
    • Lease agreement for the company's headquarters

Hungary's efficient system often enables completion of the registration process within 4-5 business days.

Necessary Licenses and Permits

Depending on the business activity, certain licenses and permits may be necessary. Major considerations include:

  • Trading License: For retail and wholesale operations.
  • Food and Beverage License: For restaurants and food-related services.
  • Environmental Permits: For manufacturing industries impacting the environment.
  • Health and Safety Certifications: For businesses involved in activities that can affect health and safety standards.

It is imperative for companies to comply with local regulations and to secure these documents prior to commencing operations. The relevant Hungarian authorities offer guidance on the specific licenses and permits required for different sectors.

Initial Setup and Documentation

The initial setup of a company in Hungary requires careful preparation of legal documents, setting up financial infrastructure, and embracing the country's electronic administration system.

Articles of Association

A company in Hungary must draft Articles of Association, a fundamental charter that outlines the company's structure, governance, and operational guidelines. These documents must specify:

  • Company Name and Address: The legal name and registered office.
  • Business Activities: The main and ancillary activities the company intends to conduct.
  • Shareholders: Names, nationalities, and addresses of the founders.
  • Share Capital: The minimum share capital is HUF 3,000,000 for a private limited company (Kft.), which must be fully paid up in case of in-kind contributions, while at least 50% should be paid up in cash upon foundation, with the remainder paid within a year.

Bank Account Opening

To establish a company, one must open a corporate bank account in Hungary where the share capital can be deposited. The process includes:

  • Identification: Shareholders and company representatives must be identified by the bank.
  • Initial Share Capital: Document the deposit of the initial share capital which varies based on company type.

Electronic Administration Setup

Companies are required to manage their affairs through the electronic administration system in Hungary. This includes:

  • Company Registration: Electronic submission of registration forms to the Hungarian Court of Registration.
  • Tax and Governmental Proceedings: Conducting tax registration and other official matters electronically, facilitated by the use of a special client gateway known as 'Ügyfélkapu'.

Maintaining detailed records and compliance with these initial procedures is integral to the successful setup of a business in Hungary.

Regulatory Compliance and Administration

When forming a company in Hungary, it is crucial to navigate the country's regulatory framework and adhere to the necessary administrative obligations. Early compliance ensures operational legitimacy and smooth functioning within the Hungarian market.

Tax Registration

A newly established company in Hungary must register for taxes, including VAT (Value Added Tax). Hungary facilitates a swift process for EU VAT number issuance, which is automatically assigned within 4-5 business days, enabling companies to start their operations promptly.

To register for taxes:

  • Submit an application to the National Tax and Customs Administration.
  • Obtain a unique tax number, which serves as an identifier for all tax-related matters.

Social Security Administration

Upon forming a company, enrollment in social security is mandatory for employers and employees. The company must register with the Hungarian Health Insurance Fund (NEAK) and comply with contribution requirements.

Key steps include:

  • Registering and regularly reporting the social security contributions.
  • Ensuring timely payment to avoid any penalties.

Corporate Administration

Ensuring proper corporate administration is fundamental for compliance in Hungary. A clearly defined internal structure should be established, along with strict adherence to reporting and corporate governance laws.

Important aspects of administration:

  • Maintaining accurate records of shareholders and stakeholders.
  • Keeping up-to-date with changes in corporate governance regulations for the 2023-2024 period.
  • Regular submission of required documents to the relevant authorities.

Each step in business administration must be managed with precision to meet Hungary's legal and regulatory standards.

Financial Management

Effective financial management is crucial for companies in Hungary, particularly in relation to accounting practices and understanding the taxation system. Companies must adhere to local financial regulations to maintain good standing and optimize their fiscal performance.

Accounting and Record-keeping

In Hungary, companies are required to maintain accurate and up-to-date financial records. These records should reflect all business transactions and must comply with the Hungarian Accounting Act. Companies are expected to prepare annual financial statements, which include the balance sheet, income statement, and cash flow statement. It is essential for companies to ensure that all accounting information is precise, as it forms the basis for determining taxation and financial health.

Key Accounting Obligations:

  • Compliance with the Hungarian Accounting Act
  • Preparation of annual financial statements
  • Accurate reflection of all business transactions

Understanding Taxes and Corporate Tax Rate

Companies operating in Hungary are subject to various taxes, with the corporate tax rate being one of the most significant. Hungary boasts the lowest standard corporate tax rate in the European Union at 9%. This competitive rate applies to the company's global profits and is intended to attract and retain businesses in the country.

Taxation Overview:

  • Corporate Tax Rate: 9%
  • Dividends: Taxation of dividends applies, but double taxation treaties may reduce rates.
  • VAT: Companies are typically required to register for VAT and comply with EU regulations.

Companies must manage their taxation effectively to ensure compliance and take advantage of Hungary’s favorable tax environment. Understanding the interplay of dividends, VAT, and the implications of the corporate tax rate is essential for financial strategizing and minimizing tax liability.

Legal Considerations and Structure

When forming a company in Hungary, adhering to the legal framework is imperative. Selecting an appropriate business legal structure and understanding immigration and residency requirements are two crucial steps in this process.

Choosing the Right Business Structure

In Hungary, business structures vary and have different implications for liability, tax, and administrative duties. The choice should align with the company's strategic goals and the level of personal liability the owners are prepared to assume.

  • Limited Liability Company (Kft.) is the most common choice for foreign investors due to its balanced structure. It requires a minimum share capital of HUF 3 million (~USD 10,000), and shareholders are liable up to the amount of their contributions.

  • General Partnership (Kkt.) is formed by two or more individuals who share unlimited liability for the obligations of the business. It's simpler to establish and operates based on mutual trust among partners.

Immigration and Residency Requirements

The formation process may necessitate the founders to have some form of legal residency in Hungary, especially for the role of the resident director.

  • Residency: Incorporators from outside the European Union must follow the relevant immigration laws. They may need a residence permit, which can be obtained through business investment under certain conditions.

  • Immigration: Hungary provides a straightforward immigration path for EU nationals, but non-EU investors may need to apply for a residence permit for the purpose of self-employment in order to legally conduct business in Hungary.

Strategic Advantages of Hungarian Company Formation

When forming a company in Hungary, investors are particularly attracted by its strategic location within Europe and its membership in the European Union, which present significant opportunities for market access and economic integration. Additionally, an available skilled workforce complemented by Hungary's geographical position serves as a gateway to business expansion across both EU and non-EU countries.

EU Market Access

By forming a company in Hungary, businesses gain direct access to the European Union's single market. This means they can benefit from the free movement of goods, services, capital, and labor. Hungary's membership in the EU not only simplifies the bureaucratic processes of trade but also opens up a market of over 450 million consumers. Furthermore, companies can enjoy the advantages of numerous EU trade agreements with external countries, providing a broader global reach.

Skilled Workforce and Geographical Location

Hungary offers a highly skilled workforce, with an emphasis on engineering, IT, and technical disciplines. Educational institutions in the country have placed a strong focus on science and engineering domains, contributing to a technically proficient labor pool. The country's central position in Europe, bordered by seven other countries, makes it a logistical hub for distribution and manufacturing. Additionally, Hungary's well-developed infrastructure supports efficient transportation by road, rail, air, and river, facilitating smooth domestic and cross-border transport essential for business operations.

Ownership and Management

When forming a company in Hungary, defining the ownership structure and appointing the management are critical steps. These elements establish both the directional control and operational leadership of the company.

Roles and Responsibilities of Shareholders

Shareholders are the owners of the company and play a crucial role in setting its strategic direction. They elect the board of directors and hold the ultimate authority over company decisions, especially in key aspects such as:

  • Capital contributions: They provide the initial capital for the company and may be called upon for additional funds.
  • Profit distribution: Shareholders decide on the appropriation of profits, whether to reinvest in the business or distribute dividends.
  • Major corporate decisions: This includes any decisions that fundamentally affect the company's operations, such as mergers, acquisitions, or dissolution.

Appointing the Managing Director

The managing director is appointed by the shareholders and is responsible for the daily operations of the company. Their responsibilities include:

  • Implementation of strategy: They execute the plans and policies as decided by the shareholders.
  • Leadership: They provide leadership and direction for the company's staff.
  • Representation: The managing director represents the company in legal matters, contracts, and negotiations.

Selecting a capable managing director is crucial as they directly impact the company's performance and compliance with Hungarian business laws.

Sector-Specific Company Formation

When forming a company in Hungary, it's crucial for potential investors to consider the industry-related regulations and requirements that may impact the incorporation process. This encompasses industry-specific considerations and the necessity of acquiring specialized business licenses.

Industry-Specific Considerations

Different sectors in Hungary might have distinct regulatory frameworks which necessitate a tailored approach to company formation. Stakeholders should be aware that:

  • The financial sector often requires adherence to stricter regulatory standards, including higher capital requirements and more comprehensive due diligence procedures.
  • For those looking to start a manufacturing company, industrial safety standards and environmental regulations will be significant in the setup process.
  • The technology and IT industry, while offering significant opportunities, may require companies to have specific data protection policies in place, complying with the General Data Protection Regulation (GDPR).
  • The food and beverage industry mandates compliance with national food safety and labeling regulations prior to operations.

Applying for Specialized Business Licenses

Securing the appropriate business licenses is necessary for legal operations in many sectors. Here is how an investor should proceed:

  1. Identify the Relevant Licenses: Each sector might have its own set of licenses or permits. Researching these specific requirements is pivotal.
  2. Understand the Prerequisites: Many licenses will have pre-conditions such as certain qualifications or premises inspections.
  3. Gather Necessary Documentation: Prepare all required corporate documents, which may include the company deed, proof of a registered office, and clean criminal records for the directors.
  4. File the Application: The application needs to be submitted to the competent Hungarian authority, which varies based on the industry.
  5. Compliance with Local Law: Ensure that the application and the subsequent business operations comply with local, EU, and industry-specific laws.

For instance, in the healthcare sector, a healthcare services license from the National Health Care Services might be required, and applicants must demonstrate proof of qualified personnel and appropriate facilities. In contrast, opening a retail business would typically necessitate a different set of permits related to consumer safety and local trading regulations.

Support Services and Additional Options

In the realm of company formation in Hungary, businesses benefit from a comprehensive array of support services and additional options that streamline the setup process. These services address legal intricacies and facilitate operational functions through specialized assistance.

Consultancy and Legal Services

Helpers and consultants provide expertise in navigating Hungary's corporate landscape, ensuring that entities comply with local regulations. Their services often include:

  • Company Formation Package: Tailored to address all procedural aspects of setting up a business in Hungary.
  • Legal Services: Essential for understanding corporate tax structure, employment laws, and obtaining the necessary permits.

Business Support Facilities

Beyond the initial setup, back office solutions optimize ongoing business operations. Companies may leverage:

  • Additional Services: Including but not limited to accounting, payroll, and tax planning to maintain statutory compliance.
  • Facilities Management: Services aimed at establishing a physical or virtual presence in Hungary, such as office space or virtual office services.

Expansion and Growth Opportunities

Hungary offers an appealing environment for companies looking to expand due to its open economy and strategic location in Europe. Foreign businesses can capitalize on growth opportunities by establishing branches or subsidiaries within this business-friendly ecosystem.

Branches and Subsidiaries

Subsidiaries in Hungary function as distinct legal entities from their parent companies, allowing investors to have a separate identity under Hungarian jurisdiction. This provides a level of autonomy and protection, giving the subsidiary the ability to adapt strategies specific to the Hungarian market.

  • Branch offices, on the other hand, are not separate legal entities but act as extensions of the parent company. They are suitable for companies looking to maintain closer control over the Hungarian operations and typically have lower formation costs compared to subsidiaries.
Entity TypeLegal IndependenceControl by Parent CompanyFormation CostsBest Suited for
Subsidiary High Moderate Higher Long-term Commitment
Branch Office None High Lower Close Management

Companies should assess their long-term business goals and the level of investment they wish to make to determine the most suitable type of entity for their expansion in Hungary.

Leveraging the Hungarian Economy for Growth

The Hungarian economy is known for being particularly business-friendly and boasts one of the lowest corporate tax rates in Europe at 9%. Foreign enterprises can leverage this proactive economic climate to foster growth, especially in sectors such as information technology, manufacturing, and renewable energy.

  • A subsidiary in Hungary can benefit from local incentives and full access to the European Union's single market, making it a powerful gateway for trade and expansion.

  • Branch offices benefit from the same favorable tax conditions but are often viewed as a more integrated part of the parent company, which may influence strategic growth decisions.

Growth FactorSubsidiaryBranch Office
Accessibility to EU Markets Yes Yes
Eligibility for Local Incentives Yes Limited
Independent Strategic Decisions Yes No
Corporate Tax Advantages Yes Yes

Companies seeking to maximize their growth potential in Central Europe may find Hungary to be a proactive choice due to these economic advantages.

Frequently Asked Questions

Setting up a company in Hungary involves understanding the legal framework, financial requirements, and procedural steps. This section provides concise answers to key questions on company formation in Hungary.

What are the legal requirements to establish a company in Hungary?

A company must be structured according to Hungarian law, typically as a Limited Liability Company (Kft) or Joint Stock Company (Zrt). Registration with the appropriate Hungarian authorities and the choice of business structure are mandated. A Hungarian attorney must prepare the corporate documents which are to be countersigned by the founder(s).

What is the process for opening a bank account for a new company in Hungary?

The founders of the new company need to collect the required due diligence documents and visit a bank in person. An application form along with documentation like the company registration, passports of the directors, and proof of address are typically necessary.

What are the costs associated with registering a company in Budapest?

Costs vary widely depending on the type of company and services required. Attorney fees, company registration charges, and fees for obtaining various licenses contribute to the overall cost of company registration in Budapest.

How can a foreigner start a business in Hungary?

Foreigners can start a business in Hungary by following the standard company formation process. This encompasses choosing a company structure, securing a registered address, obtaining necessary licenses, and registering with the Hungarian authorities.

What is the minimum share capital needed to form a company in Hungary?

The minimum share capital for a Limited Liability Company (Kft) is HUF 3,000,000 while for Private Company Limited by Shares (Zrt) is HUF 5,000,000. These amounts must be deposited in a bank account during the registration process.

What is the corporate tax rate for companies operating in Hungary?

Hungary offers a competitive corporate tax rate of 9%, which is among the lowest in the European Union.

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***Please Note: If you are a resident of a country that is a signatory of the Common Reporting Standard (CRS) (or a US citizen) your tax reduction possibilities are limited. Due FATCA, CRS, and CFC laws you may not be able to completely eliminate your taxes without moving your residence (or US citizenship.) While opening an offshore company can increase privacy and asset protection, your tax obligations remans tied to your ownership of overseas entities. Offshore company's are often not taxed in the country where they are incorporated, rather you as the owner are obligated to pay taxes in the country where you reside. Please make sure you know your tax obligations, as we are not tax advisors. Please seek a local tax professional for help regarding your situation. 

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