Hungary has become one of the most favorable places to start business during the last few years, since the government cut the corporate tax rate to the lowest level in the EU from January 2017.
The government of Hungary attempts to facilitate foreign investments with the extremely favorable 9 % corporate tax rate, which is nearly one-third or even one-quarter compared to most member states of the European Union, e.g. the current corporate tax rate is 34 % in Belgium, 33,3 % in France, 29,79 % in Germany and 27,08 % in Luxembourg according to Trading Economics. The Hungarian rate is even lower than the 12,5 % rate of Ireland which country is often labelled as a tax haven.
The above mentioned increasingly competitive tax practices are applied to every business associations and most of the organizations with or without legal entity, as well as NGOs with their registered seat in Hungary. The Hungarian Corporate Tax Act shall be applied to non-resident taxable persons with a place of business management in Hungary. The definition of place of business in the Corporate Tax Act fundamentally corresponds to the one in the OECD Model Convention (i.e. permanent establishment through which the business of an enterprise is wholly or partly carried on).
There are several options provided depending on the business activity to be conducted: for certain activities the establishment of a Hungarian business association is not necessary, in these cases a commercial representative is enough, while for other activities establishing a branch office or a local Hungarian legal entity is preferable.
The optimum way for foreigners to operate business in Hungary is the limited liability company form (short abbreviation in Hungarian: kft.), since 100% of the shares can be owned by one member (foreign natural person or legal entity) and the liability of the members only extends to their capital contribution. The necessary capital contribution required is 3.000.000 Hungarian forints (ca. 9500 EUR). The management of the company can be performed by one or more managing directors. Third country nationals can be shareholders and managers with the same conditions as EU citizens. All executives or managers, as well as the foreign parent company of companies registered in Hungary shall have a Hungarian address where authorities and law courts may reach them, therefore the appointment of a delivery agent is required.
The registration process is quite fast and simple, the preparation and countersignature of the documents to be submitted to the Registry Court shall be accomplished by a Hungarian attorney-at-law. Once the company is established a bank account is needed to be open within 8 days which requires the personal presence of the Managing Director of the company. The government abolished the registration fee and publication cost regarding the simplified process of establishing a limited liability company, therefore there are no further costs to be expected beside the attorneys fee.
Nyiri Law Firm and our accountants working in close collaboration with the law firm welcome inquiries and happy to help you concerning tax planning and tax advising, as well as the establishment of any business facilities mentioned above.
