Open a Branch vs.a Subsidiary in Hungary - Updated Guide 2021
Open a Branch vs.a Subsidiary in HungaryUpdated on Tuesday 05th October 2021
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If you want to open a branch or a subsidiary in Hungary, you should know that these entities are chosen according to the activity of the company and its specific needs. Both legal entities have their own particularities and while one may be suitable for certain businesses, it may not be the perfect business choice for other types of activities.
Our lawyers in Hungary are ready to offer you specialized counselling if you want to open a branch or a subsidiary in Hungary.
Branches in Hungary in 2021
A branch is flexible as compared to a subsidiary, the time needed to open a branch in Hungary and prepare it for business is much shorter. Another advantage of the branch model is a lower set up cost: generally, branches will require less capital than other business structures in Hungary.
The main disadvantage of the branch is that the parent company has unlimited liability for the actions and obligations of the Hungarian branch. Despite this negative aspect, international companies may find the branch model more suitable for providing services for clients around the world. If you are planning to open a branch or a subsidiary in Hungary, you can get legal assistance from our local lawyers.
How to register a branch in Hungary?
For branch registration, you need to provide the proof of:
- Existence of parent company;
- Names of directors;
- Share capital;
- Names of representatives who will act for you in Hungary;
- Registered office;
- Certified copies of the Articles of Association or Statutes.
Along with these pieces of evidence, some documents need translation. These documents include:
- The names of your company’s secretary and directors;
- The registration certificate of the parent company;
- Your company’s articles of association.
You can rely on the legal services of our Hungarian lawyers if you want to incorporate and register your branch in this country. They will help you open a branch or a subsidiary in Hungary.
Obligations for a branch in Hungary
If you open a branch in Hungary, then your parent company will be fully responsible for the branch liabilities. Your Hungarian branch must have the same name as the non-resident parent company. To fulfill tax obligations, the branch of a non-resident company is obliged to appoint a company or a resident individual to represent it in its dealings with the tax authorities.
Our law firm in Hungary will guide you about the obligations needed to be met for opening a branch in this country.
Subsidiaries in Hungary in 2021
Unlike branches, subsidiaries in Hungary have legal status and they are generally set up as a Hungarian limited liability company. Subsidiaries have their own share capital and the parent company is their main shareholder. Because the parent company is not liable for the actions of the subsidiary, these types of structures are independent.
Although the business costs may be lower for branches than for subsidiaries, the subsidiary structure has more stability and is generally more protected against the failure of an affiliate of the same company set up in another country.
The political stability in the country or other significant aspects, such as the easiness to open new structures may be key arguments when deciding to open a branch or a subsidiary in another country. The business model of the parent company is also an important aspect to consider.
Our Hungarian lawyers can present you detailed information about the percentages of branches and subsidiaries set up in different financial regions in Hungary. They will also provide you with legal assistance regarding opening a subsidiary in Hungary
How to set up a subsidiary in Hungary?
If you want to open a subsidiary in Hungary, you need to know that the setup of your subsidiary will vary depending upon the regulatory framework and the type of your business entity. Because the laws change as per the nature of your industry and nationality. For a swift set up of a subsidiary in Hungary, you can get in touch with our lawyers in Hungary. They will legally assist you in the establishment of your subsidiary. To open a subsidiary in Hungary, you first need legal representation from a legal professional in Hungary. Our lawyers will represent you, and you can get registered with the help of our local law firm in Hungary. After registration, you need to open a bank account and deposit a minimum of 50% of the share capital; our attorneys will assist you in this matter. They will also help you register for the municipal business tax with the Tax Department of Municipality and the Hungarian Chamber of Commerce and Industry. Lastly, you need to register for social security with the National Office for Health Insurance.
You can trust the legal services of our lawyers whether you want to open a branch or a subsidiary in Hungary. Our lawyers will provide you with legal assistance through the whole procedure of starting a business in Hungary.
Legal regulations for a Subsidiary in Hungary
In Hungary, the rules and regulations that govern the business in the country include, Act CCXXXII of 1997, Act XLV of 2004, Act X of 2006, Act V of 2013, etc. However, the regulations of these legal frameworks will differ depending on which type of business structure you choose. These business structures include general partnership, limited partnership, limited liability company, public limited company by shares, private limited company by shares, or commercial representative office. The Hungarian laws not only vary depending on the type of your business structure but also on the location of your business entity in the country. Companies usually prefer to incorporate an LLC, because it benefits all the parties involved.
As per the legal requirements, you will need to appoint a supervisory board (if applicable). To run the day-to-day operations of a subsidiary, the limited liability companies (LLC) need at least one managing director. Please note that the cost for opening a subsidiary in Hungary is relatively higher than in other countries. If you are ready for setting up a subsidiary in Hungary, you will need 500,000 HUF in investment capital and must pay a registration fee of 100,000 HUF.
You can get legal advice from our Hungarian lawyers if you are planning to open a branch or a subsidiary in Hungary.
Foreign direct investment (FDI) in Hungary
The branches and subsidiaries are incorporated by foreign companiesin Hungary by the foreigners. The main countries that invest in different sectors of Hungary include Netherlands, Austria, Canada, United Kingdom, and Germany. Please find below the percentage of foreign investments in different sectors of Hungary:
- In 2019, the FDI net inflows (% of GDP) in Hungary was reported at 56.37%;
- The foreign direct investment of 53.2% was made in financial and insurance activities;
- The FDI of 21.5% was made in the manufacturing sector;
- 2.6% of FDI was made in the information and communication sector;
- 4.2% of foreign direct investment was made in real estate.
If you want to open a branch or a subsidiary in Hungary and you are not sure on the advantages of each structure and how it will help your business grow, please contact our Hungarian lawyers. Our team can present the main regulations which are in force in 2021 and can offer advice on the tax obligations that you will have for each structure. For instance, both of them are charged with the corporate tax of 9% in 2021, but the branch is liable to taxation only for the income obtained on the Hungarian territory.
Our law firm in Hungary can offer you more information about the types of structures in Hungary and how to open a company. Our attorneys can also help you comply with the fiscal system in this country, from details about the taxes in Hungary that apply for your company to VAT registration.