How to open a company in Hungary?
Hungary has become a favoured destination for entrepreneurs and businesses looking to expand within Europe. With its investor-friendly policies, low corporate tax rate, and strategic location, Hungary offers a unique mix of opportunities. To start a business in Hungary, you need to understand the country’s business environment, select an appropriate business structure, and follow all applicable laws. This article will take you through the key steps involved in establishing a company in Hungary.
Benefits of Hungary’s 9% corporate tax rate
Hungary’s 9% corporate tax rate, one of the lowest in Europe, is a major draw for businesses. This low rate minimises operational costs and boosts profitability, giving companies a competitive advantage and enabling further reinvestment into growth. Additionally, Hungary’s tax system is straightforward, reducing administrative overhead and providing clarity for businesses.
Access to the European Union market
As a member of the European Union, Hungary provides businesses with seamless access to the EU market. This means companies established in Hungary can trade freely with other EU member states without additional tariffs or trade barriers. This strategic advantage makes Hungary a gateway for businesses planning to expand their operations across Europe.
Availability of a skilled workforce
Hungary is home to a well-educated and skilled workforce. The country’s emphasis on education, particularly in technical and IT fields, ensures a steady supply of talented professionals. Additionally, the relatively lower labour costs compared to Western Europe make Hungary an attractive destination for companies seeking high-quality talent at competitive rates.
Choosing the right business structure in Hungary
Selecting an appropriate business structure is a crucial step when starting a company in Hungary. The chosen structure affects taxation, liability, and operational flexibility. Entrepreneurs have multiple options tailored to their specific needs.
Limited Liability Company (Kft.)
The Limited Liability Company (Kft.) is the most popular business structure in Hungary. It requires a minimum share capital of HUF 3 million and is particularly suitable for small to medium-sized enterprises. Shareholders have limited liability, meaning their personal assets are protected. This structure offers a straightforward setup process and flexible management options.
Joint Stock Company (Rt.)
A Joint Stock Company (Rt.) is ideal for larger enterprises planning to raise significant capital. It is divided into two types: private (Zrt.) and public (Nyrt.). While a Zrt. is privately held, a Nyrt. is publicly traded. Establishing an Rt. requires a higher minimum capital compared to a Kft., but it allows for greater access to financial markets.
General and Limited Partnerships
Partnership structures, including general and limited partnerships, cater to smaller businesses or collaborations. In a limited partnership, there are two types of partners: general and limited. General partners assume full liability, while limited partners have liability protection. Conversely, in a general partnership, all partners share equal responsibility and liability. These structures are simpler to establish but may lack the flexibility of a Kft. or Rt.
Step-by-step guide to company registration in Hungary
Registering a company in Hungary involves a series of steps to ensure compliance with local regulations. Following these steps ensures a smooth registration process and prevents delays.
Preparing necessary documentation
The first step is gathering all required documents. This includes the company’s articles of association, identification documents for shareholders, and proof of registered office. All documents must comply with Hungarian legal standards and may require translation into Hungarian if originally prepared in another language.
Registering with the Hungarian Trade Register
Once the documents are prepared, the company must be registered with the Hungarian Trade Register. This step formally establishes the business and provides it with a legal identity. The process typically takes a few days and involves submitting the documentation to the relevant court.
Obtaining tax and statistical numbers
After registration, the company is assigned a tax number and statistical code by the Hungarian tax authority. These numbers are essential for financial transactions, filing taxes, and other administrative purposes. Without these identifiers, the company cannot legally operate in Hungary.
Opening a corporate bank account in Hungary
For managing company finances and business transactions in Hungary, a corporate bank account is a necessity. Choosing the right bank and understanding the account opening process is critical.
Selecting a suitable bank
Hungary has a range of local and international banks offering corporate banking services. Factors to consider when selecting a bank include its reputation, service quality, online banking facilities, and fee structure. Popular banks include OTP Bank, K&H Bank, and Raiffeisen Bank.
Required documents for account opening
To open a corporate bank account, the company must provide its registration certificate, tax identification number, and articles of association. Additionally, banks may require identification documents of authorised signatories and proof of the company’s registered address.
Understanding bank fees and services
Banking fees vary depending on the chosen bank and the type of account. Common fees include account maintenance charges, transaction fees, and foreign exchange costs. Companies should compare offerings to select a bank that aligns with their financial needs and operational priorities.
Navigating Hungary’s tax system for your new company
Understanding Hungary’s tax system is crucial for ensuring compliance and optimising your company’s financial performance. While Hungary’s tax system is relatively straightforward, it’s crucial to understand its key elements.
Corporate tax obligations
Hungary boasts one of Europe’s most competitive corporate tax rates at 9%, applied to profits, which benefits businesses seeking to minimise tax expenses. Additionally, a local business tax is imposed, usually varying between 0% and 2% based on the municipality. It is crucial to submit tax returns and payments on time to prevent penalties.
Value-added tax (VAT) registration
Companies operating in Hungary must register for VAT if their turnover exceeds the mandatory threshold. The standard VAT rate is 27%, one of the highest in the EU, but reduced rates of 5% or 18% apply to certain goods and services. VAT registration is a crucial step for businesses involved in cross-border transactions within the EU.
Social security contributions
Employers in Hungary are required to make social security contributions on behalf of their employees. This includes contributions for health insurance, pensions, and unemployment benefits. Understanding these obligations is essential for accurate financial planning and payroll management.
Legal requirements and compliance in Hungary
Compliance with Hungarian legal requirements ensures smooth operations and prevents potential legal disputes. From employment laws to data protection, companies must adhere to various regulations.
Employment laws and contracts
Hungarian labour law mandates clear and fair employment contracts. These contracts must outline terms such as wages, working hours, and job responsibilities. The employer’s responsibilities include ensuring a safe working environment and adhering to minimum wage requirements.
Data protection regulations
Data protection is a priority for companies operating in Hungary due to the General Data Protection Regulation (GDPR). This includes obtaining proper consent, securing personal data, and ensuring transparency in data usage. Reputational damage and significant fines can result from non-compliance with GDPR.
Annual reporting and auditing
Hungarian law requires companies to submit annual financial statements and undergo audits, depending on their size and turnover. Accurate record-keeping and timely submission of these reports are critical for maintaining compliance and demonstrating financial transparency.
Hiring employees for your Hungarian company
Recruiting the right talent is vital for the success of your business in Hungary. Understanding local recruitment strategies, labour costs, and employee welfare is key to building a strong workforce.
Recruitment strategies in Hungary
Hungary offers various recruitment channels, including online job portals, recruitment agencies, and university career centres. Networking and attending job fairs can also help connect with potential employees. Offering competitive salaries and clear career progression opportunities attracts skilled professionals.
Understanding labour costs
Businesses are drawn to Hungary because of its comparatively lower labour costs than Western Europe. However, employers must account for gross salaries, social security contributions, and other benefits when planning their budget.
Employee benefits and welfare
Job satisfaction and employee retention are improved by providing employee benefits such as paid leave, health insurance, and performance incentives. Hungarian labour law mandates certain benefits, including annual leave and maternity leave, which must be factored into employment contracts.
Leveraging incentives and grants for businesses in Hungary
Hungary offers numerous incentives and grants to encourage business growth and innovation. Capitalising on these opportunities can lead to substantial cost savings and facilitate growth.
Government support programs
The Hungarian government provides support programs for startups and SMEs, focusing on innovation, technology, and export-oriented industries. These programs often include financial assistance, training, and access to business networks.
EU funding opportunities
As an EU member, Hungary benefits from European funding programs such as Horizon Europe and the European Regional Development Fund. These funds support projects in areas like research, development, and sustainability. Companies must meet specific eligibility criteria to access these grants.
Tax incentives for startups
Hungary offers various tax incentives for startups, including exemptions and reduced rates for innovative companies. These incentives aim to promote entrepreneurship and make Hungary a competitive hub for emerging businesses.
Understanding residency permits through business ownership
Establishing a company in Hungary can pave the way for obtaining residency permits. This option is particularly appealing for non-EU entrepreneurs seeking to live and work in Hungary.
Eligibility criteria for entrepreneurs
Entrepreneurs must meet specific criteria to qualify for residency permits. These include owning a legally registered business, demonstrating sufficient financial resources, and contributing to the Hungarian economy. Proof of the company’s activities and future plans is often required.
The application process for residence permits
The submission of required documentation, such as proof of business registration, financial statements, and a valid passport, is a key part of the application process. Applicants must also provide evidence of accommodation in Hungary. Processing times vary, but ensuring all documentation is complete accelerates the process.
Benefits of Hungarian residency
Hungarian residency grants access to the Schengen Area, allowing visa-free travel across 27 European countries. It also provides opportunities to establish long-term roots in Hungary, including access to local healthcare and education systems.
Common challenges when opening a company in Hungary and how to overcome them
While establishing a business in Hungary presents certain obstacles, understanding and proactively addressing these challenges can simplify the setup process.
Language barriers and cultural differences
Navigating Hungarian bureaucracy and legal processes can be challenging due to language barriers. Hiring a local consultant or translator helps bridge this gap and ensures accurate communication. Understanding cultural nuances also facilitates better relationships with local partners and authorities.
Navigating bureaucratic procedures
Hungary’s administrative procedures can sometimes be complex and time-consuming. Staying organised and working with experienced professionals, such as lawyers and accountants, streamlines the process. Familiarising yourself with required documentation and deadlines reduces delays.
Accessing local business networks
Building connections within Hungary’s business community is essential for growth and success. Joining chambers of commerce, attending industry events, and networking with local entrepreneurs provide valuable insights and opportunities.
FAQs
What are the main benefits of opening a company in Hungary?
Hungary offers a 9% corporate tax rate, access to the EU market, and a skilled workforce at competitive labour costs. The business environment is further enhanced by government incentives and grants. Additionally, it is an attractive destination for entrepreneurs seeking to expand in Europe due to these factors.
How much share capital is needed to establish a company in Hungary?
The amount of share capital required to start a company depends on the type of company. Partnerships do not have a minimum capital requirement. A Limited Liability Company (Kft.) has a minimum share capital requirement of HUF 3 million. Joint Stock Companies (Rt.), especially publicly traded entities, have a higher minimum share capital requirement.
Can foreign entrepreneurs open a company in Hungary?
Yes, Hungary allows foreign entrepreneurs to establish businesses without significant restrictions. Non-EU nationals may need to meet additional requirements, such as obtaining a residence permit, but the process is generally straightforward with proper guidance.
How long does it take to register a company in Hungary?
The registration process usually takes a few days to a week, provided all required documents are complete and correctly submitted. Delays may occur if additional verifications are needed or documentation is incomplete.
Are there any specific incentives for startups in Hungary?
Yes, Hungary provides tax incentives and grants for startups, particularly those focused on innovation and technology. Government support programs and EU funding opportunities also benefit startups, making the country an excellent choice for new ventures.
