Landlocked between 7 countries, Hungary is a central European country sharing its land borders with Slovenia, Serbia, Slovakia, Croatia, Romania, Austria, and Ukraine. Hungary has a very complex economy relying heavily on exports. Major exports of the country are machinery, locomotives, consumer goods, textile, iron, steel, and wine. The business environment is conducive for locals and foreigners alike, permitting various business structures to suit the needs of investors.
Types of business structures in Hungary
Forming a company in Hungary is favorable for investors as it allows access to the lucrative markets of Central Europe. Additionally, Hungary enjoys robust trade ties with the region, thus allowing exemptions in taxes, exports, production, etc. Similarly, the availability of raw materials and skilled labor makes production cost-effective.
The below table reflects the legal business structures and basic details:
| S# | Type of business structure | Local name | Min.paid-up capital required (approx.) |
| 1. | Limited Liability Company – L.L.C. | Korlátolt Felelősségű Társaság (K.F.T.) | €7,00 |
| 2. | Private Limited Company (Stock Company) – Pvt.Ltd. | Zártkörűen Működő Részvénytársaság (Z.R.T.) | €12,700 |
| 3. | Public Limited Company – PLC | Nyilvánosan működő részvénytársaság (Nyrt) | €50,840 |
| 4. | Limited Partnership | Betéti Társaság (B.T) | No minimum capital requirement. |
| 5. | General Partnership | Közkereseti Társaság (K.K.T.) | No minimum capital requirement. |
Limited Liability Company – K.F.T.
A limited liability company is a favored business structure of small and medium business enterprises due to its flexibility and limited nature. An LLC is a legal person that conducts business with the paid-up capital; assets, cash, or both. The owners of the company carry no legal responsibility for the liabilities arising from the business, the company assumes all such responsibility. This factor frees the owners from paying the debts, or compensating for losses through personal property, thus allowing them to enter into risky businesses openheartedly.
The contributions of all members (owners) form a working capital for the company. The amount of each member’s contribution may differ, but may not be less than €300. Usually, the title and rights of each member are determined by their share in the capital. After the registration process, the capital is distributed into shares and is distributed among the members according to their participation.
Note that the shares only have a novelty value to determine each member’s quota in profit or loss; shares can not be pledged against securities or debts.
Private Limited Company – Z.R.T
A private limited company in Hungary is a stock company registered privately. It is strictly regulated by the state hence only large enterprises with several investors prefer to form a stock company. The law binds the owners to deposit at least 30% of the minimum paid-up capital at the time of inception. Here, the liability of the owners is limited to the nominal or issued value of the shares.
A private limited company can be transformed into a Public Limited Company at a later stage, if so, capital may be distributed into shares:
- Ordinary shares
- Employee shares
- Interest-bearing shares
- Redeemable shares
- Preference shares
Partnership
A partnership is of two types; General partnership and limited partnership. The formation of both the types involves same procedure. The structural difference between the two partnerships is that the in a General Partnership, the liabilities of all its owners are unlimited. Whereby meaning that each member is responsible for losses or debts to the full extent, even if they have to compensate for their personal property.
In a limited partnership, at least one partner assumes unlimited liabilities, while others are only responsible for the extent of their contributions to the company. The law does not enforce any minimum paid-up capital restrictions on both types.
Public Limited Company – Nyrt
A Public Limited company is another subtype of a stock company. The investors pledge a certain sum of money with a commercial bank and issue ordinary shares for the public to invest. The money raised by selling shares is invested in the company. The shareholders can either hold the shares for periodic dividends or trade them at a higher value when and if favorable.
Unlike the previously discussed business models, a Public Limited Company requires most documentation, is regulated more closely, and has the highest capital requirement.
Costs involved in registering a company
The state levies various fees and duties at the time of registering a company in Hungary. The billing structure is quite complex.
Duties
- Registration (simplified electronic filing) – €127
- Registration (standard filing) – €255
- Registering branch office/representative office – €127
There are no duties levied on LLC or Partnership companies.
Publication fees
- Publication in the companies register and gazette – €13
There is no publication fee levied on LLC or Partnership companies if the simplified electronic method of registration is adopted.
Additionally, failing to comply with the deadlines may result in penalties imposed by the state. Penalties may range between €13 to €2,000 depending on the severity of the offense.
General operational expenses of a company
Expenses are costs that are recurring in nature. Some expenses are state driven while others pertain to business operations. State-driven expenses may include local taxes, municipality charges, road/vehicle tax, VAT, income tax, etc. While some taxes and fees are fixed, others may be a percentage of income, etc.
A list of operational expenses is listed below:
- Electricity – €0.12/kWh
- Office rent – €15-€25/m28Mbps internet connection – €10/month
- Landline phone – €6-€9/connection/month
- Salary (minimum wage) – €488/month/person
- Local business tax – 2% of income/month
OECD Law for permanent establishments (PE)
Establishments formed for commercial purposes, regardless of their chosen structure, are deemed Permanent Establishments or PE and are regulated according to the Organization of Economic Cooperation & Development (OECD) laws.
A PE is defined as a commercial premise that manufactures or is responsible for a company’s business activities, partially or wholly. It also includes a place for managing or representing a business, factories, mines, quarries, wells, etc. are all considered PE.
A foreigner who utilizes natural resources or immovable properties directly in lieu of consideration creates a PE. Such a person is subject to CIT in Hungary except for a real estate enterprise that is registered in the EEA region and enjoys tax exemption.
