Company Formation in Hungary: setting up your Business

Establishing a business in Hungary presents an attractive proposition for many foreign investors due to its central location in Europe, favorable tax rates, and business-friendly environment. This comprehensive guide will walk you through the entire process of company formation in Hungary, including the types of companies you can establish, registration procedures, and the benefits of doing business in Hungary.

Why Choose Hungary for Company Formation?

Hungary offers several advantages for foreign investors looking to establish a business. Here are some of the main benefits:

Strategic Location: Situated in Central Europe, Hungary serves as a gateway to both Western and Eastern European markets.
Favorable Tax Rates: Hungary boasts one of the lowest corporate tax rates in Europe, making it an attractive destination for businesses.
Skilled Workforce: The country has a highly skilled and educated workforce, particularly in technology, engineering, and business services.
Business-Friendly Environment: Hungary has streamlined its administrative procedures, making it easier and faster to set up a business.

Types of Companies in Hungary

Before diving into the registration process, it's essential to understand the different types of corporate structures available in Hungary:

Limited Liability Company (Kft.): This is the most common form of business entity in Hungary. It requires a minimum share capital and offers limited liability to its shareholders.
Joint Stock Company (Rt.): Suitable for larger businesses, this type of company is divided into Public Limited Company (Nyrt.) and Private Limited Company (Zrt.).
Branch Office: A branch office allows foreign companies to operate in Hungary without establishing a separate legal entity.
Representative Office: This type of office can only perform non-commercial activities, such as market research and liaison tasks.

Company Formation Process in Hungary

Pre-Registration Steps

Choose a Company Name: The first step is to select a unique name for your company. The name must comply with Hungarian naming conventions.
Draft the Articles of Association: This document outlines the company's structure, operations, and governance.
Open a Bank Account: You will need to open a bank account in Hungary to deposit the initial share capital.

Registration Procedure

Submit the Application: The application for company registration must be submitted to the Court of Registration. This includes the Articles of Association, proof of share capital, and other required documents.
Obtain a Tax Number: Upon registration, your company will receive a tax number, allowing it to operate legally in Hungary.
Register for VAT: If your company’s activities require VAT registration, you will need to apply for a VAT number.

Post-Registration Steps

Register with the Chamber of Commerce: All companies in Hungary must register with the local Chamber of Commerce.
Register Employees: If you plan to hire employees, you must register them with the Hungarian social security system.
Set Up Accounting: Establish a robust accounting system to ensure compliance with Hungarian financial regulations.

Frequently Asked Questions (FAQs)

What is the minimum share capital required for a Kft.?

The minimum share capital for a Limited Liability Company (Kft.) in Hungary is HUF 3,000,000 (approximately EUR 8,500).

How long does the company registration process take?

The registration process typically takes between 5 to 15 business days, depending on the complexity of the application and the efficiency of the Court of Registration.

Do I need a local director for my company?

No, Hungary does not require companies to have a local director. Foreign nationals can serve as directors of Hungarian companies.

Benefits of Hungary's Corporate Tax System

Hungary offers one of the lowest corporate tax rates in the European Union, currently set at 9%. This competitive rate makes Hungary an attractive destination for businesses looking to minimize their tax burden. Additionally, Hungary has a wide range of tax treaties with other countries, reducing the risk of double taxation.

Banking and Financial Services

Opening a Bank Account

To open a bank account in Hungary, you will need to provide the following documents:

Proof of Identity: Passport or national ID card.
Proof of Address: Utility bill or rental agreement.
Company Documents: Articles of Association and registration certificate.

Hungarian banks offer a variety of services tailored to businesses, including corporate accounts, online banking, and financial advisory services.

Accounting and Taxation

Hungarian companies are required to maintain accurate financial records and submit annual financial statements. The Hungarian tax system includes several types of taxes that companies must be aware of, including:

Corporate Tax: As mentioned earlier, the corporate tax rate is 9%.
Value Added Tax (VAT): The standard VAT rate is 27%, with reduced rates of 5% and 18% for certain goods and services.
Local Business Tax: This tax is levied by municipalities and varies between 0% and 2%.

Setting Up a Virtual Office

Setting up a virtual office in Hungary can be an excellent option for businesses that do not require a physical presence. A virtual office provides a professional business address, mail handling services, and meeting room facilities. This is particularly beneficial for startups and small businesses looking to minimize overhead costs.

Legal and Compliance Requirements

Legal Representation

While it is not mandatory to have a local lawyer, it is highly recommended to seek legal advice during the company formation process. A lawyer can help draft the Articles of Association, ensure compliance with Hungarian laws, and assist with the registration process.

Client Gate

The Client Gate (Ügyfélkapu) is an electronic administration system that allows individuals and companies to interact with various government services online. Registering for a Client Gate account can streamline many administrative tasks, such as submitting tax returns and accessing official documents.

The Role of the Chamber of Commerce

The Chamber of Commerce plays a crucial role in supporting businesses in Hungary. It provides various services, including business networking, training programs, and advocacy. Registering with the Chamber of Commerce can offer valuable resources and support for new companies.

Why to open a company in Hungary then?

Forming a company in Hungary offers numerous benefits, from its strategic location to its favorable tax environment. By understanding the types of business entities available, the registration process, and the legal requirements, you can successfully establish and grow your business in this vibrant European country.

Whether you are a startup looking to enter the European market or an established company seeking expansion, Hungary provides a conducive environment for business success. With the right preparation and professional assistance, you can navigate the company formation process smoothly and take advantage of the opportunities Hungary has to offer.

Ready to start?

Ready to start your business in Hungary? Contact us today for a free consultation and let our experts guide you through the company formation process.