Hungary – Ready Made Shelf Companies – Company Formation

Hungary

Hungary is situated in Central Europe, bordering with Slovakia, Austria, Slovenia, Croatia, Serbia, Romania and Ukraine.

The country has a tumultuous history, yet from 1989 it started transformation through which Hungarian People’s Republic was changed into the democratic Republic of Hungary, and administrative command economy was replaced with free-market economy. In April 2011, a new constitution was proclaimed, which came into effect in 2012, as a result of which, e.g. the name of the country was changed from the Republic of Hungary to Hungary, thus establishing the Fourth Republic.

Because of low labour cost and attractive tax system, there are many international companies, mainly from car motor, domestic appliances, home electronics, and food processing sectors, that have their manufacturing plants in Hungary. The Hungarian government year by year introduces successive reforms that aim to attract foreign investors. Company formation is quick here and fiscal system is entrepreneur-friendly.

Hungary belongs to UN, NATO and the European Union. The official currency is forint (HUF) and the official language is Hungarian.

Trade law in Hungary has been regulated by the following acts: Act V of 2006 on Public Company Information, Company Registration and Winding up proceedings and Act IV of 2006 on Business Associations.

In Hungary, it is possible to form several types of companies:

• A limited liability company ((Kft, Korlátolt Felelõsségû Társaság)
• A limited partnership (Bt, Betéti Társaság)
• A joint-stock company (Rt, Részvény tarsasag)
• A branch (fióktelep)

The most popular structure among foreign investors is limited liability company – Kft. There are no restrictions with regard to establishing Kft by non-residents, which means a company may be fully managed and controlled by foreign board members and shareholders.

The most important document regulating company activity are its Articles of Association, which have to include: company name, address, information on the subject of business activity, share capital amount, amount of contributions made by every shareholder and other information important from the point of view of business activity.

The minimum share capital in the case of Kft is 3 million forints (approx. 10 thousand EUR) and this is the capital amount that companies are most often established with. The capital does not have to be deposited in a bank account, but every company should have a bank account, for instance for tax purposes. In the case of one-person companies, share capital should be paid in full prior to registration. A company is liable for its obligations up to the amount of company assets, and shareholders are in fact exempt from such liability, risking only the contributions they paid into the company. To set up a company, all you need is one person who may be a shareholder and a director. Company shareholders may be both legal and physical persons, while the director has to be a physical person.

Every Kft has to have a name differing from the names of other registered entities and a registered office in the territory of Hungary. We encourage you to use our virtual office services, where apart from providing you an address we will collect, scan and translate all correspondence from Hungarian to English.

Hungary is a country with one of the lowest tax rates. From 1 January, corporate income tax is only 9%, personal income tax is 16% and VAT tax is 27%.

In Hungary, dividends received from other member states are exempt from income tax, just like dividends paid to foreign shareholders in a Hungarian company (even from offshore jurisdictions). Hungary has a holding regime. Participation exemption is applied to dividends received from subsidiaries meeting the following conditions: participation 10% at the most, participation held for at least one year, participation reported to Hungarian fiscal authorities within 75 days of acquisition.

Hungarian companies have to keep accounting books and submit annual financial reports. Audit is required only in certain cases.

Hungary is a free-market developing country that underwent transformation from administrative command economy in 1990’s. Currently, Hungarian economy is ranked 50^th in the world in terms of GDP and purchasing power parity. Right after the transformation, Hungary forged numerous trade links with Western European countries, mainly with Germany, but also with Italy, France, Poland, United Kingdom, and the neighbouring countries: Austria, Romania and Slovakia.

Due to soil fertility, agriculture, which is one of the most efficient in Europe, is an important sector of the economy. The main crops grown here are corn, wheat, barley, oat, rye, tobacco, sugar beet, sunflower and grapevine. Fruit and vegetable farming and animal husbandry are well-developed as well.

The main industry sectors are electrical and food sectors. There are many car manufacturing brands that have their plants here: General Motor, Ford, Suzuki, Audi. Domestic appliances and home electronics are produced here as well.

Hungarian political system was shaped during the so-called Hungarian Round Table Talks in 1989 and the current constitution from 2011. Hungary is a democratic republic with a parliamentary cabinet system. The legislative power is exercised by a one-chamber parliament. The president is elected by the parliament and holds executive power together with the government formed by the leader of the winning political party.

Two parties dominate in the country’s political system: Fidesz, from which the current president originates from, and WRL – post-communist Hungarian Socialist Party.

Hungarian banking system is stable, and the assets deposited in the accounts are safe. Both local and international banks have their branches here. Examples of banks operating in the country: OTP Bank, MKB Bank, Raiffeisen Bank, Unicredit Bank, Citi Bank, BNP Paribas, K&H bank.