Foundation of a limited liability company in Hungary

Company formation in Hungary.

Below we are going to introduce the company marked ,,Kft.” in Hungary. The following question may arise in many of you: why should we – the citizens of a country which is probably economically stronger than Hungary – do that? The answers to this and many other questions can be found out from the below article.

Business benefits and key indicators in Hungary

Hungary, as a country is certainly an attractive place for potential investors, respectively, for an entity that is willing to start a business in Hungary. As the first and not inconsiderable advantage, we can notice that there is cheap labor force, tax burdens, absence of excessive bureaucracy and a several times bigger market than ours (particularly in terms of a greater number of potential customers). In the field of business, similar types of commitments (contracts) are used as in our country. The business environment at our southern neighbors, however, offers a huge variety of business support forms. As an example, we can mention the various forms of tax bonuses (bonus for the employment of graduates, persons over 55 years, severely disabled persons, persons without vocational training). These and many other factors thus create an environment suitable for the expansion or establishment of a business abroad.

Let’s go over some basic information about Hungary. Since 2004, Hungary has been a member of the European Union. Hungary is also a member of the OECD and NATO. The currency in Hungary is the Hungarian forint (the exchange rate is about 300 HUF for 1 EUR). The trading company marked “Kft.” is the equivalent of the Slovak limited liability company (s.r.o.). A trading company owns the owner and as a statutory body acts the executive director.

The process of setting up a „Kft.“

Right at the beggining of the relatively simple process of setting up a „Kft.” company it is necessary to have the documents – required by the Hungarian legislature – prepared. In Hungary, drafting and preparation of these documents can be performed only by a member of the Hungarian Bar Association – an attorney-at-law. The same is true in case of registration of the company in the Hungarian Trade Register. At this stage of setting up the company, it is extremely important to note the absence of excessive bureaucracy, since the vast majority of the documents can be filed electronically.

The Hungarian legislature exhaustively prescribes documents that are necessary for setting up a ,,Kft.”. The foundation documents must include the following:

In this section, it should be noted that the foundation of a company can generate additional expenses. For example, there is a fee for checking signatures, respectively a fee for the registration of a company in the Trade Register (HUF 50,000).

Effective electronic communication with the state institutions

During the registration process, it is necessary to mention a number of benefits of the company foundation in Hungary. As it was already mentioned above, the great advantage is the effective performance of state administration in the field of business through the electronic access to public authorities. This eliminates the problems with unnecessary bureaucracy, unwillingness of the employees of state authorities, limited opening hours and others.

The process of setting up and registering a company itself does not take more than a few working days. There is a system in Hungary whereby it is possible to perform all the formalities in one place. As an example, we can mention that the assignment of the VAT reference number is possible right during the foundation of the business organisation in 24 hours (in the Slovak Republik, it happens in 21 days, and in the Czech Republic it can last for up to 30 days). The Tax Office registers this identifier, thereby eliminating the need to wait for the statement of the Tax Office only after the foundation of the company. So the company starts to operate as a VAT payer right after the registration. The VAT rate in Hungary was set at 27%.

Taxes in Hungary

Another advantage of doing business in Hungary is the very attractive tax environment. There is a system established in Hungary, in which the tax and contribution rates are set so that they fully support small and medium enterprises. The income tax is se tat 10% if the turnover does not exceed HUF 500,000,000. Of course, it is necessary to include also the tax that needs to be paid to the local government and which is set at 0.2%.

In case the turnover of the company exceeds HUF 500,000,000, the company is taxed by 19%. In practice, it works like this: the turnover of HUF 500,000,000 is taxed by a rate of 10% and the remaining amount, that exceeds HUF 500,000,000 is taxed by 19%. The rate of dividend tax is 16%, in case the owner of the Hungarian company is a foreign natural person. In case the owner of the Hungarian company is a foreign legal entity (for example, a Slovak LLC), the dividend tax is 0%.

The tax system is thus set up to promote entrepreneurship. As concerns the not insignificant advantages, it is necessary to include also the possibility of taking advantage of EU funds that are set up to promote entrepreneurship, agriculture, culture or even industry. The aim of business support in Hungary is mainly the creation of added value, reduction of unemployment and promotion of regions.

The advantage of doing business is also the current situation on the real estate market. Due to the receding economic crisis, the prices are at their long-term minimum level, therefore it is the right time to invest. We could recommend investments in office buildings, industrial parks or residential units. The low price of real estate creates ideal conditions for the location of business units right in Hungary. These positive factors clearly support a decision to conduct business in Hungary and they make this country a very attractive partner. The geographical location of the country is advantageous, as well, meaning a good accessibility to all major industrial regions in Europe. Furthermore, another advantage is the newly built highway network and the availability of air transport. The good infrastructure played a determining role in the decision of many foreign investors who moved their business to Hungary.

BASIC INFORMATION ABOUT HUNGARY

BASIC INFORMATION

Capital city: Budapest

Population: 9,861,673

Area: 93,030 km2

Currency: Hungarian forint (HUF)

WAGES IN HUNGARY

Gross minimum wage: HUF 122,000

Gross average wage (2015): HUF 247,800

Gross median wage (2015): HUF 176,500

INCOME TAX AND VALUE ADDED TAX

The income tax rate is 10% up to a turnover level of HUF 500,000,000.

The income tax rate is 19% over the turnover level of HUF 500,000,000.

The value added tax is 27%.

The tax payable to local government is 0.2%.

The dividend tax rate is 16%, in case the owner of the Hungarian company is a foreign natural person. In case the owner of the Hungarian company is a foreign legal entity (for example, a Slovak LLC), the dividend tax rate is 0%.

EVALUATION

Position in the world in the year of 2016

The simplicity of starting a business: 55

Difficulty of obtaining a building permit: 88

Availability of electricity:117

Payment of taxes: 95

Cross-border trade: 1

Law enforcement: 23

OTHER

Procedure: Hiring a lawyer to represent the business organisation, including the preparation of legal documents

Duration: 1 day

Costs: from HUF 100,000 to HUF 260,000, depending on the complexity

Procedure: Opening of a bank account

Duration: 1 day

Costs: free of charge

Procedure: Registration of the company at the Court of Registration

Duration: 2 days

Costs: HUF 50,000

Procedure: Registration for Social Insurance

Duration: 1 day

Costs: free of charge