Company incorporation in Hungary

1. Economy and Legislation of Hungary: Excellent For Starting a Company

Hungary holds a great opportunity for investors to get access to the EU markets. Financial and fiscal stability, free flow of capital and workforce within the EU, government incentives, overall investment-friendly climate, developed transportation and logistics, well-trained low-cost labor force, quality of IT, all combined make Hungary a preferred destination of choice for investment for many international companies.

The corporate law in Hungary has been continuously evolving since the start of the country’s transition to a free-market economy. An important milestone was to bring the national legal system in line with the respective EU corporate law and enact a modern and effective regulation of legal entities. The latest substantial amendment came with the adoption of the new Civil Code of Hungary that governs civil law relations and provides an efficient legal framework for business operations.

2. General Requirements for Company Formation in Hungary. Business and Finance Regulations

There are various government-implemented financial and fiscal incentives aimed to encourage investors into the Hungarian domestic market and support the expansion of existing businesses. The main types of investment incentives include low-interest loans, cash grants, reduced tax rates, subsidized facilities and land.

Below are the mandatory steps to follow in order to set up a company in Hungary:

1. Prepare your company’s by-laws. Founders of the company must sign the by-laws, along with other incorporation documents, and get them countersigned by a Hungarian attorney.
2. Open a corporate bank account.
3. Get the company registered with the Hungarian Court of Registry. The Court issues an electronic certificate of registration.
4. Get the company registered with the National Tax and Customs Administration and receive a tax identification number.
5. Get the company registered with the Hungarian Chamber of Commerce and Industry, the Central Administration of National Pension Insurance, and a local municipal office,
6. Submitting data on employees to the tax authority.

3. Advantages of Hungarian law for a new Company Formation. Types of Companies in Hungary

The Civil Code of Hungary lays out the fundamental mandatory rules for all business forms incorporated in Hungary and determines five major business structures to be formed by both resident and non-resident founders. These business structures are:

- A limited liability company: a popular choice for SMEs; shareholders’ liability is restricted to the amount of the investment in the share capital; a minimum share capital is 3 million HUF.

- A joint-stock company: private JSC (shares are not intended for trading at a stock exchange) or public JSC (shares are listed with the stock exchange). Requirements for the share capital: 5 mln HUF at least for the private JSC and 20 mln HUF at least for the public JSC.

- A general partnership defines that all its members are jointly liable for the obligations of business; no requirement for a minimum share capital.

- A limited partnership: some members are fully liable, some have limited liability; no requirement for a minimum share capital.

- A sole trader: a physical person who has legal capacity and has registered his/her business with the Companies Register.

4. Specifics of Taxation in Hungary

CIT is applicable to the worldwide profits of the Hungarian resident taxpayers. Non-resident companies are subject to CIT on their profits generated in Hungary. As of 2017, the CIT rate stands at a flat 9%. Dividends received are not applicable to taxation. CIT includes capital gains with certain exemptions.

The standard VAT rate is 27% with reduced rates of 5% for most pharmaceutical products and some food, and 18% catering, restaurants, bakery and dairy products, accommodation services, internet providers, and event admission tickets.

Social security contributions apply on employment income at a flat rate of 17.5%. Capital gains are taxed at a flat rate of 15%.

5. List of Required Documents For Company Formation in Hungary

Your filing for company registration in Hungary should include a set of the following documents:

• company’s constituent documents: M&AA or deed of foundation, or statutes depending on the chosen legal form.
• bank receipt to record the initial capital deposit,
• managers’ IDs and specimen signatures.
• a license of the respective office is required for certain business operations.

The above set of documents for filing is generic, it varies case by case.

6. Starting up a Business in Hungary with the Support of Prifinance

For support with company formation in Hungary, please contact Prifinance lawyers and we would be delighted to assist you.