The overall environment for foreign investment in Hungary is very good. Foreigners may have up to 100% ownership in Hungarian legal entities. Repatriation of Hungarian profits in resident foreign entities is permitted. In addition, there are no minimum investment requirements and no trade restrictions for foreign investors. Foreign companies, as with all companies in Hungary, must register with the local court of registration, the tax authorities and the social insurance authorities.

Certain types of investment incentives may be available for foreign investors, and should be investigated through the use of qualified legal or tax counsel.

Establishing a company in Hungary is a simple procedure, and usually it can be completed within a day. The basic procedure is as follows:

1. The company’s Articles of Association (a contract between the members of the company and list of activities of the company) and the application for company registration need to be prepeared by your lawyer and signed in front of him*.

2. The name of the new company, its seat, and the personal data of the owner(s) must be recorded.

3. After the preparation of the Articles of Association, specimens of signature need to be signed in front of a public notary (passport must be presented), then a bank account must be opened and the necessary deposit, as the company’s capital must be put on it according to the chosen company form.

4. Then all the documents, forms, authorizations and invoices must go to an accountant who will take care of all the administration and begin to prepare the required reports. The lawyer will acquire the company’s registration number, its tax number and its statistical code from the Court of Registry (open from Monday to Thursday 08.30-13.00). Your company will be fully registered within 3-6 weeks, but the company can buy and sell during this period, too. VAT may be reclaimed only after the registration is fully done.

*Note: It is not necessary to be in Hungary in order to sign the Articles of Association; the procedure can be done at any Hungarian Embassy abroad but this can be a slow process.

Q: What are the legal expenses of establishing and running a company?

A: The initial fee (legal assistance, public notary, etc) is 600-1000 Euro plus 25% VAT. There is an annual fee of about 160-800 Euro plus 25% VAT depending on what company form you chose, for accounting and tax purposes if the company is not actively trading.

Q: Do I have to register for Hungarian social security if I am the managing director of a Hungarian company?

A: Not necessarily. Investors ask this question because of the high social security tax (44% of the salary) and other taxes to be paid after each employee. A company does not need to have employees, it can operate through subcontractors, who invoice the company for their services.

THE MOST IMPORTANT BUSINESS FORMS

:: Limited Liability Company (Korlátolt felelősségű társaság - Kft)

The most popular form of incorporation with foreign investors. Although the number of shareholders is unlimited, the Kft is best suited for a relatively small number of shareholders who intend to participate in business operations.

MINIMUM CAPITAL REQUIREMENT: 3 million HUF (cca. 12.000 Euro) (this may be comprised of both cash and contributions in kind but a minimum of 1 million HUF must be in cash (as a deposit in the company’s bank account).

RELIABILITY: Shareholders have limited liability limited to their contribution. However, the shares must not be traded publicly. A single-shareholder Kft is also permitted by law.

AUDITING: The Kft must have an auditor in case it has only one member or its registered capital or sales exceeds 50 million HUF (200.000 Euro).

REGISTRATION: The establishment of the Kft must be reported at the Court of Registration (the registration fee is 80.000 HUF (cca.320 Euro) and the publication fee is 20.000 HUF(cca.80 Euro)).

MANAGEMENT: The Kft is managed by one or more directors who are elected for 5 years extendable without restrictions. A supervisory board is obligatory in case the registered amount is over 50 million HUF (200.000 Euro) or the number of employees exceeds 200 persons. All Kfts are obliged to prepare a yearly financial report and call a member’s meeting.

:: Joint Stock Company (Részvénytársaság - Rt)

The most strictly regulated form for companies. All publicly traded companies must be incorporated under this structure. However, not all companies incorporated under this structure are public trading companies. Although stock companies may have as few as one shareholder, a board of three members is required. Banks and insurance companies must form this type of legal entity to operate in Hungary.

MINIMUM CAPITAL REQUIREMENT: A minimum initial investment of 20.000.000 HUF (80.000 Euro) but at least 30% of the registered capital (and the minimum of 10 million HUF should be in cash).

RELIABILITY: The liability of the shareholder is limited to the amount according to his shares.
AUDITING: must have an independent auditor who certifies financial statements.

REGISTRATION: Upon 30 days of the foundation the Rt must be registered at the Court of Registration. The procedure takes maximum 60 days and the registration fee is 600.000 HUF (2.400 Euro) for public and 80.000 HUF (320 Euro) for close corporations.

MANAGEMENT: The Rt is managed by the Board of Directors (three to eleven persons) and its members can be elected for 5 years. At least yearly a shareholders meeting must be called together and the use of profit must be approved. The Rt must also have a supervisory board, and also an independent auditor who certifies financial statements. Rts should prepare yearly financial reports.

PARTNERSHIPS

The Companies Act requires a minimum of two partners for a partnership, and there is no maximum limit on the number of partners. The partners may be natural persons or legal entities. A partnership (Bt or Kkt) may not serve as general partner with unlimited liability in another partnership, and natural persons only act as general partner in one partnership at a time. Hungarian company law distinguishes between limited and unlimited partnerships.

:: Limited Partnership (Betéti társaság - Bt)

CAPITAL REQUIREMENT: There is no minimal capital requirement.

RELIABILITY: at least one general partner with unlimited liability and at least one limited partner with restricted liability according to his contribution. It means that the unlimitedly liable partner might lose not only his contribution to the Bt, but also his/her personal wealth in the event of bankruptcy. Therefor this company form is not suggested for high risk businesses.

AUDITING: It must authorize an auditor in case its total annual sales exceed 50 million HUF (200.000 Euro) for two years.

REGISTRATION: It must be registered at the Court of Registration.

MANAGEMENT: Those partners with limited liability may not manage the partnership.

:: Unlimited Partnership (Közkereseti társaság – Kkt)

CAPITAL REQUIREMENT: There is no minimal capital requirment.

RELIABILITY: It consists of two or more individuals or companies with each member fully responsible for the debts incured by the Kkt.

AUDITING: It must authorize an auditor in case its total annual sales exceed 50 million forints for two years.

REGISTRATION: It must be registered at the Court of Registration.

This form might be abolished soon.

:: Branch Office (fiók telep)

A foreign company may operate in Hungary through a branch office. The registration fee for a branch office is 250.000 HUF (cca. 1.000 Euro). Brach offices are treated as other companies except for the need for permissions for acquiring properties (and the trading of properites is not allowed).

The annual report of the foreign company must be published. Brach offices must be registered by the Court of Registration, tax authorities and social security authorities. According to most double taxation agreements there is no witholding of tax on dividends in Hungary.