Hungary

Hungary is located in Central Europe, bordered by Austria, Slovenia, Croatia, Serbia, Romania, Ukraine and Slovakia. Lake Balaton is the largest lake in Central Europe and the main attraction.

Capital

Budapest

Official language

Hungarian

Currency

Hungarian forint (HUF)

Government

Hungary is a parliamentary republic. All fundamental rights and duties of companies and individuals are based on the acts of the Parliament. Multiparty elections are held every four years.

Economy

Despite the fact that the population of Hungary is small, the country has registered more than 500,000 companies. The Hungarian government has always been interested in attracting foreign investment. Hungary currently serves as an investment centre, not only in Central and Eastern Europe, but also the European Union. More and more foreign companies form joint ventures providing logistical, financial, licensing services. Hungarian commercial banks and the financial system is one of the best developed in Central and Eastern Europe.

Legal system

Hungary is a jurisdiction of civil law, which is based on written laws adopted in accordance with the Constitution.

Corporate law

  • Act V of 2013 on the Civil Code which also contains provisions on business associations
  • Act LXXXI of 1996 on Corporate Tax and Dividend Tax
  • Act XCII of 2003 on the Rules of Taxation
  • Act C of 2000 on Accounting

Types of companies

  • General Partnership (Kkt)
  • Limited Partnership (Bt)
  • Limited Liability Company (Kft)
  • Company Limited by Shares (Rt)

Limited Liability Company (Kft)

  • Limited Liability Company (“korlátolt felelősségű társaság" in Hungarian, abbreviated to "kft.") are business associations established with a registered capital consisting of capital contributions of a pre-determined amount, in the case of which the obligation of the quotaholders (i.e. shareholders or members) to the company extends only to the provision of their capital contributions, and to other possible contributions as set forth in the articles of association (or deed of foundation in case of a single-member companies).
  • The statutory minimum of the registered capital of a limited liability company is HUF 3 million. The registered capital may consist of cash contribution and contribution in kind.
  • The registered capital of the limited liability company consists of "business quotas". Each quotaholder has a single quota equalling to the percentage of capital it holds.
  • The contribution in-kind may consist of any transferable asset. The permitted categories of contributions in kind are any transferable assets with real value, any intellectual property, "know-how" or any other pecuniary right, including admitted debts or claims based on binding judicial orders.
  • The articles of association may contain that a member is required to provide less than half of his respective cash contribution before the application for registration is submitted, or the articles of associations may provide for a time limit of more than one year from the date of registration of the company for making available the part of the cash contribution that was not paid before the application for registration is submitted. However, in these cases, the company shall not be allowed to pay any dividend as long as the unpaid profit calculated for the members’ quota according to the provisions on the payment of dividends reaches the initial capital together with the cash contributions which the members have already paid up. If a Kft is created by only one member, the founder shall provide the in-kind contribution at the company’s disposal in its entirety before the application for registration is submitted.
  • A Kft does not issue shares. The capital contributions of members may differ in terms of value, however, the amount of a contribution may not be less than HUF 100,000. The business quota represents the whole of rights and obligations arising in connection with the capital contribution.
  • The names of the members are public information and appear in the Hungarian Companies Register. The members of the company shall be liable towards the company only to the extent of their capital contributions, and to other contributions set out in the articles of association. Unless otherwise provided for in the Civil Code, members shall not bear liability for the company’s obligations.
  • A Kft shall have one or more managing directors, who shall be of legal age and shall have full legal capacity in the scope required for discharging his functions. If the managing director is a legal person, such legal person shall designate a natural person to discharge the functions of the director in its name and on its behalf. The supreme body of the Kft is the members’ meeting, which is the decision-making organ of the members. In the members’ meeting, the personal presence of the members is not required, they may exercise their rights in meetings by mean of electronic communications or through a proxyholder.
  • A supervisory board shall be established if the annual average number of full-time employees employed by the Kft exceeds 200, and the works council did not waive employee participation in the supervisory board. The supervisory board shall consist of 3 members. If establishing a supervisory board is mandatory, any provision of the articles of association according to which the supervisory board consists of less than 3 members shall be null and void.
  • The company must maintain a standard accounting and financial reporting. The auditing of books shall not be compulsory for companies whose annual net sales (calculated for the period of one year) and the average number of employees does not exceed HUF 300 million and 50 persons on the average of the two financial year preceding the financial year under review. In the case of a newly created Kft, an estimated revenue from sales for the first year shall be taken into account.
  • The name of the company shall contain the selected company form, and at least a “lead word”.
  • Information on the company are available at the request of third parties: names, addresses, mother’s name and tax numbers of managing directors and members, as well as the registered address of the company, the value of contributions of members, the registered capital is published in the Official Company Gazette (Cégközlöny). Furthermore, the information mentioned are also available in the Companies Register free of charge to anyone.
  • The company must have one registered corporate seat in Hungary as the place of its (i) central business administration or (ii) registered office ("mailbox-seat" which is not a place of substantive decision-making).
  • Kft and Rt shall open a bank account in a Hungarian bank.

Company Limited by Shares (Rt)

  • Any limited company whose shares are listed on a stock exchange shall be recognized as a public limited company (in Hungarian abbreviated to “Nyrt”). The share capital of a public limited company may not be less than HUF 20 million.
  • Any limited company whose shares are not listed on any stock exchange shall be recognized as a private limited company (in Hungarian abbreviated to “Zrt”). The share capital of a private limited company may not be less than HUF 5 million.
  • Limited companies shall be managed by a management board. The management board is comprised of 3 natural persons. The articles of association of private limited companies may provide for that a single general director shall function as the chief executive officer in exercising the powers of the management board.
  • The public limited company shall establish a supervisory board if the annual average number of full-time employees employed by the Nyrt exceeds 200, and the works council did not waive employee participation in the supervisory board. The public limited company shall also establish a supervisory board if the company does not use the so-called one-tier system.
  • All public limited companies shall engage a permanent auditor. The auditing of books of a private limited company shall not be compulsory only for those private limited companies whose annual net sales (calculated for the period of one year) and the average number of employees does not exceed HUF 300 million and 50 persons on the average of the two financial year preceding the financial year under review.

Taxation

In Hungary, the corporate income tax rate up to a tax base of HUF 500 million (about EUR 1.6 million) is 10%, and 19% for the excess. Hungarian resident companies are obliged to pay income tax on the proceeds from all over the world. If the taxpayer’s pre-tax profit or the tax base (whichever is larger) does not reach the so called “profit-minimum”, then (i) the taxpayer shall make a detailed declaration to the tax authority as to its tax base, or (ii) it has to pay its tax based upon the profit-minimum regarded as its tax base, instead of calculating the tax in accordance with the general rules. The profit-minimum is 2% of the total revenue adjusted by certain decreasing and increasing items described by the act.

Corporate income tax incentives include:

  • 50% of royalty revenues are exempt from corporate income tax regardless of whether received from a related or unrelated party.
  • Intellectual property acquired or developed by a Hungarian entity may be sold tax-free, provided that the taxpayer acquiring the intellectual property has reported the acquisition to the tax authority and the sale is completed after the elapse of a one-year holding period.
  • A maximum HUF 500 million tax deductible “development reserve” set aside for material investments may apply.

Dividends received by Hungarian companies either from Hungarian or from foreign subsidiaries are exempt from corporate income tax. There is no withholding tax on interest paid to a legal entity.

Hungarian companies are also subject to a turnover based municipality tax at a maximum rate of 2% of the modified turnover. Municipalities are also entitled to introduce other local taxes. The subject and rate of such local taxes vary within a wide range and published on the website of the Hungarian State Treasury.

The standard value added tax (VAT) rate in Hungary is 27%, however, in respect of certain medicinal products, books, animals and animal products a reduced rate of 5% and for certain milk and basic food products, accommodation services a reduced 18% rate is applied.

Treaties on avoidance of double taxation

Hungary has entered into tax treaties on the avoidance of double taxation with 75 countries, including the EU Member States and other countries such as Canada, China, Japan, USA, Kazakhstan, Ukraine, Moldova and Russia. The new double taxation convention between Hungary and the United States has not yet entered into force. Such new convention includes special rules on the limitation on benefits, the purpose which is to determine whether a resident of a treaty country has a sufficient connection with that country to justify entitlement to treaty benefits.