Doing business in Hungary, Europe?

To register a Hungarian company one or two visits to Hungary will be necessary.

Generally, the company’s founding documents must be signed by the owners and directors in the presence of a local lawyer. It is possible to have them signed without appearing before the Hungarian lawyer in person, but in this case, they must be signed in the presence of a notary public and then apostilled. At this stage, therefore, it is not strictly necessary to come, however, it is worth bearing in mind that the certification and apostilisation of documents can be rather expensive. It is worth doing some calculations and deciding whether a visit to Hungary is cost-effective instead of having to have all the documents certified.

The number of documents to be signed by the owners is small, so it may be worth having their signatures certified and apostilled to save a visit to Hungary. The director, on the other hand, needs to sign a greater number of documents. For this reason, it may be better for the director to visit Hungary during this stage as it is also necessary to pay the authorized capital of the company.

Company formation in Hungary can be achived remotely!

Companies established with a Laveco director will manage the account on the client’s behalf making it unnecessary for the client to travel to Hungary.

Where documents were made legally binding outside of Hungary, a first or second visit to Hungary would be required for the director/s and owner/s for the purpose of opening the company’s bank account.

Again, in the event the Directors are provided by LAVECO, (who will have sole control of the company bank account), a personal visit by the client is not required.

There are several forms of company in Hungary, among the most common – LLC (Kft.), JSC (Rt.) and partnership (Bt.). The more favourable in terms of costs for the creation and maintenance of the company, management and distribution of liability is the LLC.
Of course, the staff at LAVECO can also provide information on other company forms on request.

Limited Liability Company

The Limited Liability Company (LLC) is the most common form of company. The liability of its owners is limited by the company’s authorised capital.

When the company is created, the owners (shareholders) sign the Memorandum and Articles of Association of the company and appoint a managing director. Once a year, it is necessary to hold a meeting of shareholders.

Unlike countries with Anglo-Saxon law (common law), where companies are registered with the widest range of activities, in Hungary, it is necessary to indicate accurately the planned activities of the company, with each activity having its own number. It is possible to form a company with several registered activities, while only trading under some of them. It is also possible at any time to add new trading activities, by amending the appropriate amendments to the company’s Memorandum of Association.

The minimum authorised capital of an LLC is 3 000 000 HUF (about 10,000 EUR). The company’s authorised capital must be paid into the bank even before the submission of the required documents to the Court of Registration.

It is also possible to avoid paying the authorised capital, where the director of the company signs a written guarantee statemen, that the amount of the authorised capital is at his disposal and has been paid into the company’s cash desk. However, in this event the amount of the company’s authorised capital becomes accountable, and therefore, must be reflected in the company’s accounts.

And in so doing, the company’s authorised capital can be used for the running of the company.

Every Hungarian company must be registered with a valid physical address in Hungary proving Economic Substance, and by default, the company registered address cannot be a mailing box.

The company is registered by the relevant branch of the Court of Registration, in accordance with the location of its registered address, and will remain under that branch for the future. If, for example, a company has its registered address in Debrecen, the registration will be done through the Debrecen branch of the Court of Registration. If the company subsequently decides to operate in Budapest, it will then need to register a local office in Budapest.

After registration, all letters to the company from the tax authorities, banks, etc. will be sent to its registered address. Thus, when registering a company, it is necessary to determine how correspondence will be passed on to the directors and owners of the company.

LLC directors and their responsibility

A limited liability company must have at least one director, even if the company does not conduct any activity.

The number of directors are not limited.

The directors of Hungarian companies are not obliged to be citizens or residents of Hungary, and there are no restrictions on the nationality and place of residence of the directors.

The director of a Hungarian company can be both a physical person and a Hungarian legal entity. However, in the event  where the company director is a foreign company, it becomes extremely difficult to open a bank account for the Hungarian company, and furthermore, the foreign company must declare the name of the individual responsible for the management of the company. Effectively it is better to register a company with a private individual as a director.

It is not obligatory to pay a salary to the director.

The director is responsible for everything that happens in the company, and it is impossible to reduce or exclude this responsibility. In certain cases, the director may be criminally liable for the company’s misconduct in the event should this occur.

Nominee directors

Hungarian law does not recognize such a category as a nominee director. If it turns out that the company was managed by others and the director was just a figurehead, both the company and the director could face prosecution.

In this regard, nominee directors do not exist in Hungary. The director should have full information on all events taking place in the company. Moreover, the director should have the right to regulate the company’s bank account and receive bank statements. However, it is possible to establish joint signature rights for the director and the representatives of the client (for more details see the “Company’s bank account” section).

LAVECO provides local director services for Hungarian companies, but the directors will not issue general powers of attorney to conduct business. It is only possible to provide special powers of attorney for certain transactions (holding negotiations, signing contracts, opening subsidiaries, etc.), but not for the opening of bank accounts for the company and disposing of them.

The company’s financial statements are signed by the director.

LLC owners

The owners of the Hungarian LLC may be both physical and legal persons of any nationality, and it is not necessary to have Hungarian resident status.

The minimum number of owners is 1.

Hungarian banks do not look favourably on multi-level corporate structures, so it is advisable to create a company with an individual owner, open an account for it, and after a while change the ownership status from a physical person to a Legal Entity. In this event, the bank account will be opened, and the identification process of the new owner will not affect the company’s activity in any way.

A Hungarian company must have at least one bank account in Hungary, which must be opened personally by the director within 15 days of the company’s official registration.

The number and location of bank accounts opened by a company are not limited. Hungarian companies can have any amount of bank accounts in Hungary and abroad.

Accounts can be maintained in different currencies, including the ruble, and there is no mandatory conversion to forints.

All banking services are available for Hungarian companies, including opening letters of credit, loans, etc., depending on the policy of each individual bank.

Internet banking is available in Hungarian and English. Internet banking works either using a digipass or by SMS, depending on the bank.

Most Hungarian banks have operators who speak various languages, including English and Russian.

Where the bank account is managed jointly by the director and the client’s representative, payment orders are signed by both and sent by fax. When using online banking, the bank makes a payment after it has been confirmed using the codes of both signatories.

To open a bank account, the signatories and or persons whom manage the account must visit the bank in person.

Banks provide corporate Visa and MAESTRO debit and credit cards.

Hungary is not officially seen as a tax haven, but its low corporate tax rates, easy incorporation laws, and prime location as a European Union nation make the Hungarian company an advantageous corporate vehicle for foreign investors.

Taxation of active income

Income tax
Hungarian companies must register with the tax authorities immediately after registration and automatically receive a tax number.

Corporation tax of Hungarian companies is 9%, which is a single rate, applicable irrespective of the size of the company’s turnover or profit.

In addition, in Hungary, there is also a municipal tax ranging from 0% to 2% of profits, depending on the location of the company’s business activity. In poorly developed provinces, there may be no municipal tax, but the company must be registered, have an office, and actually operate in the province. In Budapest and other major cities, the municipal tax is 2%. The municipal tax is paid annually.

When a company is formed, its director makes a forecast of the expected profit, and on the basis of this, a quarterly advanced payment of the profit tax is payable. If such payments are not made, the company will be fined, as a result of which the profit tax will be 10%, instead of the usual 9%.

Taxation of passive income

Tax on dividends
The tax on dividends in Hungary is 0% both on dividends received by the Hungarian company from its subsidiaries and on dividends paid by the Hungarian company to its owners. The absence of taxes on dividends, along with the low rate of corporation tax, makes Hungarian companies a unique tool for creating holding structures.

The dividends received by the Hungarian company are not included in the tax base, so when transferring them to the owners of the Hungarian company in the future, no profit tax is paid.

Intellectual Property Tax
Hungarian tax legislation provides privileges for certain types of intellectual property rights, such as copyrights, patents and other business affairs. In general, it can be said that intellectual property is taxed from 4.5% to 9%.

Taxation of capital gains
The tax on capital gains can be 0% under the following conditions:

the share of property in the object being sold must be at least 10%;

the seller must have owned the property being sold for at least one year;

within 75 days after the sale of the property, the transaction must be declared to the Hungarian tax office.

In other cases, the capital gains tax is 9%.

Taxation of other types of passive income (income from deposits, etc.)
The tax on other types of passive income of a Hungarian company is 9%.

Hungarian companies register for VAT, and receive their VAT number immediately after they have been incorporated. The European VAT number can be obtained immediately after the receipt of the Hungarian VAT number; there are no special conditions for obtaining it, which makes the Hungarian company particularly attractive since in most European countries the receipt of the VAT number is very slow and bureaucratic process involving the implementation of a number of conditions.

The rate of VAT in Hungary is 27%.
There are types of activities for which VAT is not paid, for example, the sale of certain educational services, software, software and other business activities, but before starting such activities, it is necessary to consult with the accountant, since certain conditions must be met to obtain an exemption from VAT.

VAT reporting is submitted monthly, regardless of whether or not the company conducted any active business.

In the event of a new registered company; VAT can be refunded, but only once the amount refundable has reached at least 1 million HUF. The VAT due on the first request will be refunded within 3 months, afterwards, the refund is independent of the amount and is made on a monthly basis.

The second visit (or the first one, if the documents were legalized at the place of residence of directors and owners) is necessary for the opening of the company’s bank account.

Once again, in the event Directors provided by LAVECO, who will have sole control of the company bank account, a personal visit by the client is not required.

In accordance with the law, the foundation documents can only be prepared and filed with the Court of Registration by a local, qualified lawyer.

Generally, the company’s founding documents must be signed by the owners and directors in the presence of a local lawyer. It is possible to have them signed without appearing before the Hungarian lawyer in person, but in this case, they must be signed in the presence of a notary public and then apostilled.

Once the founding documents of the company have been signed, a temporary bank account can be opened for the company, and the initial authorized capital is paid in to the account.

If the director decides not to pay the amount of the company’s authorized capital in to the bank account, he signs a statement confirming that the money is at his disposal in the company’s cash desk. In this case, the preliminary bank account is not opened, but the amount of the authorized capital becomes accountable and must appear in the company’s accounting records.

The company documents are then submitted to the Court of Registration electronically by the lawyer.

Company registration takes an average of 1-2 weeks, depending on the workload of the Court of Registration.

After registration, the company must then register with the tax authority, and receives a tax number and VAT number (Hungarian and, if required a European VAT number).

Within 15 days of registration, the director of the company must open a permanent bank account for the company.

As soon as it has been registered, the company must also complete an agreement with a qualified local accountant, who will provide the company with accounting support, and ensure the transmission of company correspondence.