Incorporate in Hungary: A Step-by-Step Guide to Business Setup

Incorporating a business in Hungary offers several key advantages for entrepreneurs seeking to establish a foothold in the European market. Whether you're a startup, SME, or large multinational looking to expand into Central Europe, this guide provides a comprehensive overview of how to incorporate in Hungary, focusing on legal requirements, benefits, and a step-by-step process.

Why Incorporate in Hungary?

In recent years, Hungary has become a hub for international businesses looking to set up operations in Europe. The country’s pro-business environment, combined with low corporate tax rates and various governmental incentives, makes it a favorable location for companies across various industries.

1. Strategic Location

Hungary’s central geographic location makes it a strategic gateway to both Eastern and Western Europe. The country is part of the Schengen Area and the European Union (EU), giving businesses unrestricted access to the single market of more than 450 million consumers.

2. Favorable Tax Regime

One of Hungary’s standout features is its low corporate tax rate, currently set at just 9%, the lowest rate in the European Union, making it a highly attractive location for foreign investment.

3. Highly Skilled Workforce

Hungary has a strong education system, particularly in fields such as engineering, IT, and science, which contributes to a skilled labor pool. The country’s focus on innovation and technology has fostered a business environment conducive to high-tech industries.

4. Pro-Business Policies and Incentives

The Hungarian government has implemented a range of policies and incentives to encourage foreign investment, including subsidies, tax breaks, and grants for businesses that contribute to key sectors like renewable energy, manufacturing, and R&D.

Benefits of Incorporating in Hungary

Choosing Hungary as your business’s base offers multiple benefits beyond tax incentives and geographic advantages. Here’s why incorporating in Hungary could be an ideal choice for your business:

1. Access to the European Single Market

As a member of the European Union, businesses incorporated in Hungary can operate freely across all 27 member states. This not only facilitates trade but also opens doors to various European funding programs and financial instruments that are designed to support business expansion and innovation.

2. Double Taxation Treaties

Hungary has established double taxation treaties with over 80 countries, ensuring that businesses avoid paying tax in multiple jurisdictions. This is particularly beneficial for multinational corporations, which may have operations in several countries but want to avoid excessive taxation.

3. Competitive Operating Costs

Compared to other Western European countries, Hungary offers competitive operating costs in terms of wages, rent, and utilities. This makes it an ideal destination for companies that want to establish a European presence without the high operational overhead often associated with countries like Germany or France.

Legal Requirements for Incorporation in Hungary

Before you begin the incorporation process, it's essential to familiarize yourself with the legal requirements specific to Hungary. These regulations ensure that your business complies with local laws and operates within the national regulatory framework.

Types of Business Entities Available in Hungary

The first step in setting up a business in Hungary is choosing the appropriate business structure. Hungary offers several types of entities, each tailored to different business needs:

• Private Limited Company (Kft.): The most common type of company for foreign investors, offering limited liability for shareholders. The minimum share capital required is HUF 3 million (approximately €8,500).
• Public Limited Company (Nyrt.): Suitable for larger businesses that intend to list shares on the stock exchange, requiring a minimum share capital of HUF 20 million (approximately €55,000).
• Sole Proprietorship: Suitable for individual entrepreneurs, though the owner has unlimited liability for business debts.
• General Partnership (Kkt.): Partners share unlimited liability, common for smaller businesses needing close collaboration.
• Limited Partnership (Bt.): One partner has unlimited liability, while others have limited liability based on capital contributions. An LLC offers the operational flexibility of a partnership while providing the limited liability protection typically associated with a corporation. Consulting firms frequently adopt this model.

If you're deciding between forming an LLC or a C Corp, consider reviewing the differences carefully.

Eligibility and Documentation Needed

To incorporate a company in Hungary, the following eligibility requirements and documents must be prepared:

• Company Name: It must be unique and not similar to any already registered. Availability can be checked via the Hungarian Chamber of Commerce and Industry.
• Registered Office: Every company must have a registered office in Hungary for legal and tax correspondence.
• Directors and Shareholders: At least one director is required. The director and shareholders do not need to be residents of Hungary, offering flexibility for foreign business owners.
• Minimum Share Capital: Kft. requires HUF 3 million, while Nyrt. requires HUF 20 million.
• Memorandum of Association: This outlines the company’s structure, purpose, and roles of its directors and shareholders. It must be drafted and signed before a notary.

Managing multiple entities can be overwhelming, but you don’t have to do it alone. Commenda’s entity management software simplifies governance and helps you track compliance obligations across global entities.

Step-by-Step Process to Incorporate in Hungary

Once you’ve decided to incorporate your business in Hungary, follow these steps to ensure a smooth process:

1. Choose Your Business Structure

Decide on the most suitable legal structure based on your business’s needs. For most small to medium-sized enterprises (SMEs), a Private Limited Company (Kft.) is the preferred option due to its limited liability and straightforward registration process.

2. Register Your Business Name

Once you’ve chosen your business structure, you must register your company name through the Hungarian Chamber of Commerce and Industry. Ensure that your business name is unique and complies with Hungary’s naming regulations.

3. File Incorporation Documents

Submit the required documents, including the Memorandum of Association and proof of minimum share capital, to the Company Registry Court. This can be completed either through online platforms or in-person meetings. A lawyer or notary is often required to verify the documents.

4. Obtain Necessary Licenses and Permits

Some sectors, such as finance, healthcare, and food services, require specific licenses or permits to operate legally. Make sure you apply for and obtain all the necessary authorizations for your business activities.

5. Open a Corporate Bank Account

After incorporation, you’ll need to open a corporate bank account in Hungary to deposit share capital and handle all financial transactions. Be prepared to provide documentation, including your company’s registration certificate and identification documents for the directors and shareholders.

To navigate through the whole process smoothly, contact Commenda today!

Costs and Fees Associated with Incorporating in Hungary

The cost of incorporating a business in Hungary depends on the type of entity and the services required. Below is a breakdown of key expenses:

• Registration Fees: For a Kft., the fee is approximately €150, while Nyrt. companies have higher registration costs.
• Legal and Notary Fees: Professional fees range from €500 to €2,000 depending on the complexity of the business.
• Ongoing Compliance Costs: Annual compliance costs, including tax filings and financial statements, start at around €300 per year.

Common Challenges and How to Overcome Them

1. Navigating Bureaucratic Processes

Despite efforts to streamline registration, some bureaucratic hurdles may cause delays. To mitigate these, work with a local legal advisor who understands Hungarian regulations.

2. Opening a Bank Account

Some foreign entrepreneurs face challenges in opening corporate bank accounts, particularly in meeting Know Your Customer (KYC) requirements. Ensuring you have all the required documentation will help smooth the process.

Conclusion: Why Hungary Is an Ideal Destination for Your Business

Whether you’re expanding or starting anew, Hungary’s business-friendly environment makes it a compelling destination. By following the steps in this guide and seeking professional advice when needed, you can successfully incorporate and enjoy the benefits of establishing your business in Hungary.Request a demo to learn how Commenda can assist in managing your legal entities.