Setting up a company in Hungary

Being a rapidly developing country in the center of Europe and a member of the European Union, Hungary offers great opportunities for companies from all over the world to invest in the country.

Hungary's main strong points are its low employment rate, excellent IT and communications infrastructure.

Furthermore, Hungary, along with Malta and Cyprus, offers the lowest tax rates for foreigners in the EU.

The government of the state is creating favorable conditions for entrepreneurs. Doing business is comfortable and profitable due to the convenient geographical location of the country, the well-thought-out tax system and low prices for office rental. Another advantage is that you can get a residence permit and citizenship if you have your own company. Standard registration of the company for a non-resident in Hungary requires the presence of the director twice in the country of registration. In the process of drawing up incorporation documents of the company, as well as for opening a corporate bank account. In case of using the services of a local director, the founder does not need to travel to Hungary.

There are several, different forms of companies in Hungary, from which you can choose the most suitable one for your commercial activities in Hungary, depending on the annual turnover of your company, the number of your transactions and the number of your employees.

TYPES OF COMPANIES

In Hungary there are several corporate forms of company registration:

• Kft – Private Limited Company;
• Kkt – General Partnership;
• Bt – Limited Partnership.

Based on the experience there are two of the most popular legal forms for setting up a company in Hungary:

Kft – Private Limited Company;

Bt – Limited Partnerships.

PRIVATE LIMITED COMPANY (Kft)

LTD (Kft) is the most beneficial corporate form in Hungary for small and medium-sized businesses. It is a type of business organization, which begins with a share capital with a certain amount of capital contributions. The authorized capital for a Kft. is 3.000.000 forints (about 10.000 EUR), which can be spent on company related expenses after incorporation. Even one member is sufficient to establish a Kft in Hungary. The obligations of the members extend to an amount equal to the amount of their contribution. Managing director has unlimited liability with all his property for the debts of creditors in case of intentional damage. The highest body of the Kft is the members' meeting, which must be convened at least once a year. The managing director is obliged to provide the members with information about the company's data. The English equivalent of a Kft is LTD, German and Austrian is GmbH.

KEY REQUIREMENTS FOR LTD REGISTRATIONS:

• The status and residency of the shareholders and director does not matter;
• The company may have shareholders whose liability is limited to shares in the capital of the company;
• There must be at least 1 director, who can be an individual or a legal entity;

• The amount of the authorized capital starts from HUF 3,000,000. The paid-up part at the time of establishment must be at least 50%. Additional capital can be contributed to ‘Capital reserve’;
• Shares may not be publicly traded;
• Two obligatory bodies – General Meeting, Executives Board. Supervisory Board facultative;
• Bank account obligatory;
• The company is registered only with a valid Hungarian address.

LIMITED PARTNERSHIP (Bt)

Limited Liability Partnership ("betéti társaság" or "Bt") is an ordinary form of company for small businesses in Hungary. Its greatest advantage is that it has no minimum registered capital, unlike a Private Limited Company ("Kft" in Hungarian) and can be established in a simplified procedure in just a few days. However, its main disadvantage is that the general partner ("beltag") is liable for any damages incurred by the company to the full amount of its individual assets. Before September 2022 Limited Liability Partnerships are permitted to pay taxes according to the KATA tax regime. Since Limited Liability Partnerships are small businesses with few members and low income, the KATA scheme is perfect for them. Normally the general partner would be the managing director, who also did the work necessary for the functioning of the company, and who would only have to pay the monthly KATA fee.

KEY REQUIREMENTS FOR LTD REGISTRATIONS:

• The partnership is established by at least two partners;
• There are two types of partners: general partners and limited partners;
• General partner can be a managing director;
• Equality of general partners is declared. Their liability for debts and obligations is equal and unlimited;
• The transfer of shares to third parties is prohibited without a general resolution of the meeting;
• The general partners are managed in accordance with the provisions of the Memorandum of Association;
• No minimum capital requirement;
• Bank account is obligatory;
• The company is registered only with a valid Hungarian address.

TAXES FOR LTD AND LP

REPORTS AND AUDITS

All companies registered in Hungary are required to compile financial statements. There are two methods of financial statements for companies in Hungary:

• Annual financial statements consisted of a balance sheet, income statement, statement of cash flows, notes to the financial statements, balance sheet, income statement, statement of cash flows, and business report.
• Simplified Annual financial statements. In this case, no business report is required. The balance sheet, income statement and notes to the accounts are less detailed.

The annual financial statements must be filed electronically at the Ministry of Justice in Hungarian. Auditing of the financial statements is compulsory for all companies unless Annual sales income does not exceed HUF 300 million on average for the two financial years preceding the financial year under review.

COMPANY’S BANK ACCOUNT

There are no obstacles for foreigners to open a bank account in Hungary.

Foreigners, who registered companies in Hungary and employ foreign employees, should be aware of the advantages of opening a bank account in Hungary. It gives the company the flexibility and the ability to control the necessary payments in this jurisdiction. Most banks in Hungary require a minimum number of documents from foreigners who want to open a bank account. In one month from the date of registration, the client receives a ready-made company and access to an active corporate bank account.

Qualified experts of Key2Law can help to open a bank account in the shortest time.

WHAT IS A COMPANY REGISTRATION FEE IN HUNGARY?

Company registration in Hungary takes from 1 week. You can find out the price of registration and other nuances of starting a business in this jurisdiction by signing a form on our website.

TRUST IN HUNGARY

The Civil Code governs the trust (in Hungarian: "bizalmi vagyonkezelési szerződés") among the contracts of mandate type. The concept of this new legal instrument derived from the English model of trust.

The Hungarian trust agreement is a form of mandated contract that obligates the trustee to hold the trust assets solely for the benefit of the beneficiary named in the trust deed. This indicates that the beneficiary has a contractual right against the trustee with respect to the trust assets. In the Hungarian type of trust, only the trustee gains title to the trust assets. Whereas the trustee is the sole owner, the beneficiary named in the trust deed also has rights to the trust assets.

KEY REQUIREMENTS FOR TRUST REGISTRATION:

• The trust agreement must be in writing form;
• The trustee must not be the sole beneficiary;
• The assets of the trust must be segregated from the personal assets of the trustee and the assets of other trusts;
• The duration of the trust is limited to a period of 50 years.

WHAT ISSUES MAY ARISE DURING THE REGISTRATION PROCESS?

Setting up a company in Hungary is not an easy process, especially for those who are engaged in such a procedure for the first time. There are many legal subtleties that will have to be considered. Problems may arise at the very first stage - choosing a name. Checking its uniqueness is the responsibility of the business owner. Complications sometimes arise at the stage of paperwork as well. You need to consider many nuances known only to qualified professionals.

Registering a company in Hungary can offer several benefits for foreign investors, including a strategic location, a skilled workforce, a favorable tax system, access to funding, and a business-friendly environment. However, there are also some challenges that investors may face during the registration process, including a language barrier, obtaining a tax number, meeting capital requirements, navigating complex regulations, and a limited market. With proper planning and guidance, these challenges can be overcome, and investors can take advantage of the opportunities that Hungary has to offer. The Key2Law is ready to offer you the following assistance in the setting up a company in Hungary and other countries.

We have extensive experience in the procedure of setting up a company, opening bank accounts in any country and in the other ambitious questions. Our qualified experts will provide professional assistance in setting up a company and explain the advantages and disadvantages of distinct types of activities in Hungary. Similarly, we can help with the purchase and sale of existing companies in this jurisdiction.

In order to find out more information, you can use the opportunity to order a consultation on the regulation of activities in Hungary from our specialists. You can contact us using the feedback form or the contacts listed on the website.