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Incorporation

Setting up a company in Hungary

When setting up a company you may want to consider these factors:

  1. Business factors

    Hungarian law allows Hungarians and foreign natural persons as well as Hungarian and foreign legal entities without a legal personality to establish a business organization under the Hungarian law. The state may participate in a business organization without any restrictions.

    You may also want to consider the following when making your decision:

    • The industry and the nature of business that will be established
    • Nationality of the headquarters/Management and employees
    • Minimum capital and conditions
  2. Regulatory framework

    There are numerous rules and regulations that govern Hungarian business organizations.

    • Act XLV of 2004 on European Company Limited by Shares
    • Act XLIX of 2003 on European Economic Interest Grouping
    • Act X of 2006 on Cooperatives
    • Act LXIX of 2006 on European Cooperative Societies
    • Act CXXXII of 1997 on Hungarian Branch Offices and Commercial Representative Offices of Foreign Registered Companies
    • Act V of 2013 (Civilian Code)
    • Act XLIX of 1991 on Bankruptcy Proceedings and Liquidation Proceedings

     

Your Options

There are seven types of business forms available for foreign companies in Hungary. Each of these business forms has unique advantages and disadvantages, as well as differing scope of approved business activities, registration requirements and minimum capital requirements. Both foreigners as well as Hungarian nationals can establish a business in Hungary. Moreover, there are no restrictions on a business organization registered in Hungary to be exclusively owned by foreign nationals. The only restriction that applies to foreign business owners is that if they do not have a residence in Hungary, an agent of service for process must be appointed in the due process.

When setting up a company in Hungary you have the following options.

  • General (unlimited) Partnership (Kkt)
  • Limited Partnership (Bt)
  • Limited Company (Kft)
  • Private Company limited by shares (Zrt)
  • Public Company limited by shares (Nyrt)
  • Branch Office
  • Commercial representative office

This article provides a general guideline for foreign businesses that seek to enter Hungary for business purposes. In particular, it looks at common pathways to establish a business presence in Hungary, generally through a Partnership, Limited Company, Commercial, or Representative Office. In addition, various economic, tax, and regulatory factors are provided throughout as a source of useful information to assist those who seek to establish a business presence in Hungary. The guide also looks at some immigration requirements such as obtaining appropriate visa status.

 

Limited Liability Company (Kft)

LLCs can be established with only one member and have pre-determined initial capital.

Members are not liable for the company’s liabilities. Members of a LLC cannot be recruited through public offerings. The members’ rights to the company’s assets are represented via quotas in the company.

All companies must have a supervisory board if

  • If the law requests so
  • If the annual average number of full time employees exceeds 200

Investment capital requirements: HUF 500,000. Capital can be contributed in cash or in kind.

Management: Is managed by one or more Managing Directors

Registration fee: HUF 100, 000

Company Limited by shares (Rt)

There are two forms for CLS.

  • Private Limited Company
  • Public Limited Company

A Company Limited by shares can be established as a sole member entity or as a large entity with several investors.

Private Company Limited by shares (Zrt)

A Company Limited by Shares (CLS) can be established via a private offering whereby the shares will be offered only to its founders.  A private CLS can issue printed share certificates. Such shares can take the form of ordinary shares, employee shares, interest-bearing shares, redeemable shares, and preference shares which have the following sub categories.

  • Dividend preference shares
  • Preference with regards to liquidation ratio
  • Preference with regards to voting rights
  • Preference with regards to the appointment of executive officers or members of the supervisory board
  • Shares providing pre emption rights

A supervisory board is required only if shareholders representing atleast 5% of the voting rights request for an advisory board or if the following mandatory cases persist.

All companies must have a supervisory board if

  • If the law requests so
  • If the annual average number of full time employees exceeds 200

Public Limited Company (Nyrt)

A public CLS maybe established via a public offering where shares are offered to the public. Public CLS’ have dematerialized shares which are registered in the shareholders security account maintained in a financial institution. Such shares can take the form of ordinary shares, employee shares, interest-bearing shares, redeemable shares, and preference shares which have the following sub categories.

  • Dividend preference shares
  • Preference with regards to liquidation ratio
  • Preference with regards to voting rights

Nyrt must have a supervisory board except in the case of a unified company management system. Shares of a Public Limited Company can be traded in the stock exchange.

Common attributes of Rts:

Auditor: Not required other than in the following cases.

  • Accounting Act requires so
  • Articles of Association prescribes the need for an auditor
  • Required by the law

 Investment capital requirements:

Private: HUF 5 million. Capital can be contributed in cash or in kind.

Public: HUF 20 million. The company cannot be established without capital contributions.

Management: Board of Directors (3 to 11 personnel) or a CEO. If the constitutive documents prescribe, the general director can manage the company.

Registration fee:

Private: HUF 100, 000

Public: HUF 600, 000

Unlimited Partnership (Kkt)

The liabilities of the members are joint and unlimited for the obligations of the Partnership.

Partners are not required to personally take part in the business activities of the Partnership. Every member is entitled to represent the Partnership unless the Articles of Association specifies otherwise. Partnership is required to have at least 2 members.

Investment capital requirements: No minimum capital required

Management: Partners

Registration fee: HUF 50,000

Limited Partnership (Bt)

A Limited Partnership must have atleast one general partner and atleast one general partner.

The general partner has unlimited liability (multiple general partners are jointly and severally liable). The Limited Partner has limited liability based on the capital contribution. Only the general partner is authorized to represent the Limited Partnership unless if the articles association specifies otherwise.

Investment capital requirements: No minimum capital required

Management: General partner

Registration fee: HUF 50,000

Commercial Representative office

Foreign investors can perform business functions such as contract negotiation, advertising and exhibiting products and other forms marketing on behalf of the parent company

However, the representative office is prohibited to pursue core business activities.  A representative office does not have a legal personality. A commercial representative office is an unincorporated organizational unit of a foreign company established upon its entry into the Company Register. Representative offices are obliged to keep their monetary assets in a bank account.

Investment capital requirements: Not applicable

Management: Not applicable

Registration fee: HUF 50,000

Branch Office

A branch office is an organizational unit of a foreign company which is authorized to carry out independently business activities. However, it does not have a legal personality.

A branch office may carry out business activities, acquire property, exercise certain rights and assume liabilities in its own name. A branch office may not act as a representative or agent of a foreign company or a branch of a foreign company. The only exception is a branch set up by a foreign company in any EEA member state. Branch offices must be registered by the Court Registry and are obliged to keep their monetary assets in a bank account.

Investment capital requirements: Not applicable

Management: Not applicable

Registration fee: HUF 50,000

Outsourcing Employment Through a GEO Employer of Record Service

Whether to incorporate in Cambodia, and what sort of entity to setup are just two of the many choices companies must make when expanding into a new market.

If the company intends to have staff in Hungary they must also decide whether they will administer that employment internally or use a Global Employment Organization to handle payroll and Employer of Record responsibilities.  A GEO Employer of Record solution is an attractive alternative where

  • the company is looking to setup an office quickly
  • the company wants to work within a defined budget
  • the company wants to limit its initial commitment in Hungary
  • the company needs help with tax, employment, immigration and payroll compliance in Hungary

The complexity of employment regulations in Hungary makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, for example the drafting of local contracts for workers.

Shield GEO provides a comprehensive service in Hungary allowing companies to deploy their staff quickly with reasonable, clearly stated costs and timeframes. The company contracts directly with Shield to employ and payroll their staff on their behalf in Hungary.

Shield GEO then becomes the Employer of Record. Shield GEO assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Hungary. Read more about outsourced employment through Shield GEO.

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