Open a Company in Hungary - Assisting Foreign Investors
Open a Company in HungaryUpdated on Wednesday 21st July 2021
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What are the types of legal entities I can register in Hungary?
Investors who would like to set up a company in Hungary should know that Hungarian economic entities can be divided into companies and partnerships. A private limited liability company is formed by at least one founder and it’s suitable for medium and small businesses. The management of this type of company is performed daily by at least one manager while the major decisions are taken by the general meeting of the shareholders.
Foreign businessmen who want to set up a company in Hungary can receive personalized advice from our team of Hungarian lawyers. Discover more details on how we can help you open a company in this country in our video below:
Foreign investors who decide to open a company in Hungary should know that for large businesses is advisable to use another economic instrument: the joint stock company, established by at least one founder. Unlike the limited liability companies, the daily management is assured by a board of managers composed by at least three members. The major decisions are taken just like in the case of the private limited liability companies by the general meeting of the shareholders.
There are two types of Hungarian joint stock companies: open and closed. The main difference between them is that the stocks from the closed joint stock companies cannot be freely transferable to the public, while the stocks of an open joint stock company can be registered at the Stock Market. This is a method to increase the company’s capital.
The members of the companies have liabilities for the company’s actions in the limit of their contribution to the capital, unlike the members of partnerships who do not have their personal assets protected in case of liquidation. A Hungarian general partnership is formed by partners who actively take part into the operating business.
All the partners have decisional powers and can lose their assets in case the partnership have uncovered claims. No minimum capital is required in case of a general partnership. If you want to set up a company in Hungary as a general partnership, our team can help you.
A Hungarian limited partnership is formed by two types of individuals of corporate bodies: the general partners with an unlimited liability in the partnership and a silent one, limited by his/her capital contribution. The silent partner cannot be involved in the process of management but has his/her personal assets protected in case of uncovered claims belonging to the partnership. Our Hungarian lawyers can help you open a company in Hungary, no matter the type of legal entity you choose for incorporation.
What is the law on opening a company in Hungary?
The procedure through which local and foreign investors can register any of the legal entities available in Hungary is given by the Companies Act (Act 4 of 2006 on Business Associations). This represents the primary source of law regulating the types of companies that can be registered here, their characteristics, the requirements for incorporation and the rights and obligations of the founders.
Provided that the activity of a company has to be closed down to due various reasons, bankruptcy included, another source of law will apply – the Company Procedures Act (Act V of 2006 on Public Company Information, Company Registration and Winding-up Proceedings). Our Hungarian lawyers can offer more details if you need legal advice on these two main rules of law. Specific regulations that can be related to the registration of local business are also given by the Hungarian Civil Code.
What are the steps for incorporation of a company in Hungary?
In the process of company registration, the founders must be represented by an attorney. This attorney will receive for his/her contribution a commission fee, which depends on the complexity of the registered entity. In the beginning of the registration process, at least half of the company’s capital has to be deposited in a bank account. The bank will release a certificate related to this deposit, which will be used during the incorporation process. The other half of the contribution must be deposited no later than one year after the registration.
The applicant must then register at the Registration Court, which will also deliver the specific information to the Tax Authorities, which will check the financial aspects of the company and who will issue the corporate tax number. The Court will issue a certificate containing the company’s name, address, temporary tax and statistical number and the number of reference of the registration.
Also, the Court will inform the State Tax Authority (for VAT and income tax purposes) and the Statistical Office regarding the newly formed company. If you need details about the taxes that must be paid by a company in Hungary, our lawyers can help you. The last step of registration is the enrollment for the social security.
What is the minimum share capital of KFT and RT in Hungary?
A Hungarian limited liability company (KFT) requires a minimum share capital of at least HUF 3,000,000. A joint stock company (RT) must deposit at least HUF 20 million. If you want to open a company in Hungary as a KFT, you can rely on our team of corporate lawyers. They can also help you register a trademark in Hungary.
Who can register a sole trader in Hungary?
A sole trader in Hungary represents another way to develop a business activity in this country, in accordance with the regulations of the Company Law. The right to open a sole trader is limited solely to natural persons who want to develop a business in their own name.
Typically, this legal entity (which does not have a legal personality and this implies that the owner is fully responsible for the company) is designed to help individuals develop a simple business activity, and this is why there are only few reporting requirements.
Although the sole trader can provide a set of advantages, in the case in which the business will grow, it is recommended to change the legal entity to a structure that can offer to the fonder a certain level of protection against corporate liabilities. If you want to start a business through a sole trader, our Hungarian law firm can provide legal representation.
What documents are required for the incorporation of a company in Hungary?
In order to incorporate a company at the Registration Court, a founder must deliver a proof that the initial capital was deposited at the bank, the decision of opening a company, the company’s articles of association and the representatives ID’s and specimen signatures.
How easy is it to open a company in Hungary?
The process of setting up a company in Hungary usually takes five working days if all the documents are properly submitted at the right authorities. The process is usually simplified by the fact that the company must hire a lawyer in order to take care of all the procedures.
The newly established company has to pay only a half of the share capital at registration which is very advantageous for the entities that do not dispose of the entire capital during the initial phases of company registration. The registration with the Commercial Register is made very simple with the help of the electronic system. The only step that has to be performed (and it’s not online) is the registration for the social security which is made in just one day from the depositing of the correct documents.
How easy is it to hire personnel in Hungary?
Foreign investors who want to set up a company in Hungary should know that the Hungarian young workforce is highly trained in the many Regional Knowledge Centers of Universities where many students come from all European Union countries. That’s the reason why many of the courses are in English so this makes the graduated suitable for working in foreign owned companies.
The experience can also be gained in the R&D centers of the Hungarian subsidiaries of multinational companies opened in here. Because of the EU membership, the employees are free to work in any EU countries and the opposite is also valid, the EU workers can find suitable jobs here. The companies are often using the help of recruitment agencies in order to find suitable candidates for the vacant places or publish announcements regarding these vacancies in local newspapers and job related websites.
What are the reasons for investing in Hungary?
The main points of interests for the foreign investors who want to open a company in Hungary are represented by the private services, which accounts around two thirds of the GDP. The private service is represented by the trade, finance and tourism sectors. The exports of telecommunication, automotive industry, and computer technology are highly developed, while the exports of agriculture products are not so successful even though various incentives were granted on those. The agriculture is also a developed segment of the economy due to the favorable climate conditions but again, not so developed in order to export goods.
What are the advantages of a holding company in Hungary?
The advantages of the holding companies in Hungary is that the tax system specifies that there is no tax on dividends received from EU subsidiaries (or from other subsidiaries located in countries which have signed treaties for the avoidance of double taxation with the Hungarian authorities) and no dividend tax on outgoing dividends.
Also, the capital gains provided by the sale of the “declared participation” are 100% exempted from company tax in the Hungarian holding company. According to the provisions of the law, all the profits realized from the subsidiaries sellout can be exempted of corporate tax on income, and can be forwarded free of any withholding taxes to the owner of the Hungarian holding.
Why open a company in Hungary?
A central location for business - Hungary is a Central European country that shares borders with Austria, Croatia, Romania, Serbia, Slovakia, Slovenia and Ukraine. Its geographical position is an important advantage: the country has good connections with Central Europe and can access a market consisting of more than 500 million people. Hungary has good transportation networks: an extensive railway network, good waterway connections and a number of international airports. Hungary became a EU member state in 2004.
Reasons to invest in Hungary - the tax environment is competitive and supportive. Foreign investors in Hungary can benefit from refundable and non-refundable incentives. The Hungarian government offers special support for the research and development (R&D) sector. Our Hungarian law firm can provide in depth information about taxes in Hungary and special cash subsidies for companies and can assist you in case you want to set up a company in Hungary.
When investing in Hungary, investors can expect lower labor costs compared to other European countries in its region, and one should also be aware that Hungarian companies can be registered in a matter of days. One of the most developed economic sectors in Hungary is the industrial sector - the country has more than 200 very well developed industrial sites around the country. A number of leading technology and logistical parks are available for business investors who want to invest in industry or manufacturing in Hungary.
Besides the aspects presented above, our team of Hungarian lawyers has also prepared a short list that can be considered as attractive reasons for investing in this country. Below, you can find interesting information on the main investors of Hungary, the top investment sectors and other economic indexes:
- the main investor of Hungary in 2018 was the Cayman Islands, accounting for 11,6% of all the investments performed in that year;
- the following top investors were EU member states – the Netherlands (10,9%), Ireland (10,8%) and Germany (10,7%) in 2018;
- a large share of all the investments concluded by foreign investors was in the financial and insurance sector, accounting in 2018 for 52,3% of all the investments registered in that year;
- manufacturing was also of importance, leading as the 2nd most developed FDI sector with only 21,1%;
- according to the Hungarian Investment Promotion Agency, in 2019, the gross domestic product growth was of 4,9%;
- the GDP per capita in 2019 was of EUR 21,898, in a country where the population is of 9,7 million.
Can one purchase a shelf company in Hungary?
Yes, if you are a foreign investor interested in purchasing a shelf company (or a ready-made company), you have this possibility. Through it, you will avoid the time required for the incorporation of the company and preparing the extensive file of documents that have to be submitted with the local institutions, following the legal procedure for incorporating a company.
A shelf company can be an ideal solution if you want to start as soon as possible your business activities in Hungary and you want to fast-forward the legal formalities. The advantage of a shelf company is represented by the fact that the legal entity has already been incorporated, meaning that it has all the basic components required for a local company.
The shelf company has a legal entity (generally, the limited liability company, as this legal entity is a common way to start a business here), it is registered with the Commercial Register, its statutory documents are also signed and registered. Thus, all that the investors have to do is to purchase the company.
Here, our attorneys in Hungary can represent you and it is highly recommended to address to a local law firm, as, although generally speaking everything should be fine with a shelf company available for purchase (from a legal point of view), it is recommended to make the due diligence procedures and verify the company thoroughly. This can be done through specific measures, which are very familiar to our Hungarian lawyers.
The presence of an attorney is necessary as the main procedure investors have to complete is the change of ownership of the shelf company and specific documents will have to be registered with the local institutions as well, showing this modification. The investor can choose to change the object of activity of the company, its trading name and other initial components and, if you want to start a business here through this option, our Hungarian law firm can assist you.
Business opportunities in Hungary
The types of companies that can be set up in Hungary are the limited liability company, the joint stock company, the limited shares company, the limited partnership and the unlimited partnership. Each type of legal entity has a set of advantages and obligations for their founders, as presented in this article. Investors also have the possibility of opening here branch offices and subsidiaries. Our law firm in Hungary can provide detailed information about each legal entity in Hungary.
One of the most developed business sectors in Hungary is the automotive sector, which generates approximately 21% of all the country’s exports. More than 600 companies and 100,000 employees work in this business sector in Hungary. The electronics industry is another very well developed sector and Hungary is an important electronic producer in the Central and Eastern Europe region.
The information and communication technology sector and the food industry are also very well developed. If you want to open a company in Hungary, please contact our Hungarian law firm. We can provide specialized legal services and consultancy for foreign investors starting their business in this country.