Hungary is one of the most beautiful countries in Central Europe that also offers excellent business opportunities. Its popularity among the international business sector is growing in such a way that it´s becoming the preferred European destination for business even before Cyprus. Moreover, with the Cypriot CBI program suspended, many international investors are starting to consider other options in Europe.

Hungary has been a member of the EU since 2004 and is part of the Schengen area, thus opening the doors to the European market. It also serves as a gateway to Europe from the Asian market as many Chinese products enter the old continent through Hungary. 

With the lowest corporate tax rate in the EU, a legal system that enforces foreign rulings subject to bilateral treaties, of which there are only a few, and excellent asset protection structures such as the trust, the foundation and the AMF (asset management foundation), Hungary offers unique business advantages for businesspeople not only from Europe but from the whole world. Mundo has chosen Hungary for its business environment, its protective legislation, its rich culture, and its picturesque cities.

It is quite easy for foreigners to set up a bank account and open a company in this beautiful country which is known for being one of the business friendliest in the region. If you want a place with easy incorporation, low cost, and favorable business environment, you have come to the right place. 

This country is open for business from all over the world, even from countries that are not easily allowed everywhere, like the case of Ukraine. 

The banking system is very good, and it will improve since the government is aware of the region´s growth and will most likely promote the development of the banking sector. This sector is adapting very well to the changes and general growth of the economy since in the last year there has been an increase in capital within the region. 

Next, we will go through the main characteristics of Hungary as a business center in Europe.

Why Hungary

Tax optimization 

One of the things that we cherish the most bout Hungary is that it has an exceptionally low tax rate. This country is the ideal place to establish and run a company because the annual tax rate is only 9%, which is the lowest in the whole EU and the second lowest among the OECD countries.

Moreover, this benefit does not apply only to companies. If you want to establish a trust and hold your assets under a Hungarian trust structure, then the trust assets will be considered tax residents and will be subject to corporate tax. It is the writer´s opinion that holding your assets in a safe, whitelisted OECD European country, and paying an annual 9% rate on corporate tax on them, is a bargain. This is especially true if you consider the increasing regulations on international business and the global tendency of rising taxes in the major jurisdictions. 

Your company will be subject to local taxes, but these will vary according to the region where you are registered. For a specific consultation about the different tax rates in different areas of Hungary we recommend contacting our experts. 

The VAT is maybe not the most appealing with a 27% rate.

Likewise, the personal taxes are not the best if you live in Hungary or if you transfer your company’s profit directly to yourself. For this reason, Mundo has consulted with our panel of experts and they offered us a great option for legally optimizing your profits. If you set up a company in Hungary and you own it directly and pay yourself dividends, you will be subject to a 15% withholding tax unless it´s reduced with a tax treaty or other incentive. In other words, you will be subject to 9% corporate tax plus 15% withholding tax.

However, the transaction will not be subject to withholding tax if it´s made through a legal entity rather than an individual. For this reason, we recommend establishing your operating company here and keep the dividends in the company or transfer them to a holding company outside of Hungary. Thus, you won´t be subject to withholding tax. Establishing an office in Hungary with local staff can also be advantageous for you since this country has still a low salary (especially in comparison with Western Europe) and a good and well-educated workforce.

Investment opportunities and real estate

In Hungary there is currently a fertile soil for business development with a vibrant economy and a growing real estate sector. The real estate sector here is one of the strongest of the region.

Although the real estate prices are not as cheap as they were ten years ago, you can still find good prices and properties at lower costs than those you can find in other important capitals of the region like Vienna or Prague. Moreover, due to the tendency of raising property value, it is likely that your investment in Hungarian real estate will bring a good ROI in the future as your property´s value will increase. 

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Life quality 

The author of this country focus is very fond of Eastern and Central European capitals because they offer a unique balance between culture, history, entertainment, local friendliness, and cost of living. The life quality is great in Hungary, especially in Budapest, the capital city, and the costs of living are lower than in Western Europe and the United States. 

Hungary has an exceptionally good gastronomy, friendly population and, for those who don´t speak Hungarian (which I heard is a difficult language), in Budapest there are plenty of English speakers. This means that you won’t encounter any issues with communicating with the locals and getting around the city. 

Due to the country´s geographical position, the food and restaurant offer is excellent with a unique mixture of different cultures and cuisines. Here you can find delicious German, Italian, French and Turkish dishes creating a unique offer especially for visitors who are not used to such variety.

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Citizenship and residency

Hungary used to have an RBI program a few years back, but this is not available anymore. Although there is no official scheme for acquiring citizenship by investment, it can be acquired but at remarkably high costs. Moreover, this is not a country that is generally open for immigration and, although not the highest in Europe, personal taxes are slightly high in our opinion, especially if you add them to the corporate tax. 

Considering the high expenses for citizenship, the country´s tendency towards immigration and the personal tax rates, Mundo does not particularly recommend Hungary as a place where to get official residency. If you would like to conduct business here, we recommend acquiring another European or Schengen passport and establishing your operating company in Hungary. 

Assets protection and wealth management through Hungarian trusts

One of the most interesting opportunities that Hungary offers lies in the trust. The trust in Hungary is based on the Anglo-Saxon structure but with some differences inherent to any civil law country. In civil law shared ownership is not allowed, meaning that the assets under a Hungarian trust will belong exclusively to the trustee and the beneficiaries can access them through contractual claims. This is different to common law trusts where the trustee is considered the legal owner and the beneficiary the beneficial owner of the trust´s property. 

Moreover, the Hungarian trust is based on a contractual agreement while the Anglo-Saxon trust is based on equity law. This makes Hungarian trusts more efficient when it comes to asset protection as the beneficiaries are not owners of the property but have a contractual claim towards the trustee. You can read more about this topic in our trust section. 

In any way, trusts in Hungary are an excellent asset protection tool as this country enforces foreign rulings subject to bilateral treaties of which there are only a few and provides interesting tax advantages. The trust assets, for example, will be considered a tax resident in Hungary and will be subject to corporate tax. This is excellent news as Hungary´s corporate tax is the lowest in the EU with a flat rate of only 9% a year.

Assets protection and wealth management through an AMF (asset management foundation)

The implementation of the asset management foundations gave a whole new level of asset protection to this country. This unique structure is a hybrid between a foundation and a trust and one of its advantages is that it has less restrictions.

The typical foundation in Hungary can be created for the benefit of a family member only if the funds are meant to cover educational costs or to support the person´s scientific, artistic, or literary works. The trust is a much more flexible structure, but it has, however, some restrictions that you won´t find in the asset management foundations.

The trust in Hungary can be created only for a limited period (50 years) and the asset information is confidential but must be disclosed upon authorities´ requirement. On the other hand, AMFs do not present any time limitation and are not subject to an automatic exchange mechanism of tax information of any authority.

Finally, through an AMF a person can have more control of its assets. While in a trust the settlor and beneficiaries are not allowed to give instructions to the trustee, in an AMF the founder can give instructions to the foundation board regarding asset management.

Accounting in accordance with the OECD and EU

One of the great advantages of doing business in Hungary is that the country’s laws are in accordance with European Commission (EC) Regulation No. 1606/2002, which requires the application of IFRS in the preparation of consolidated financial statements. This means that all listed companies and financial institutions must prepare financial statements according to the IFRS standards. 

This strict regulating environment may be an advantage or a disadvantage. On one hand, complying with strict regulations is harder, but this can be solved by hiring a good local accountant who knows the legislation in depth. However, once you become accustomed to these high regulating standards you get many benefits. Opening an account or registering a company abroad will become much simpler because it will be easier to prove that you are tax compliant and that your income comes from a legal source.

Think about it like this, when you are complying with the tight accounting regulation policies of the OECD and the EU, you are also preparing your due diligence papers for your future company in Panama or Belize. This is, of course, in a figurative way.

Having your trust or business in a prestigious EU country will definitely bring advantages for you and your company.

High tech solutions for reporting processes

Contrary to what one may intuitively guess, Hungary is very advanced when it comes to high technology. The government has given important steps towards implementing the latest technology for the legal and reporting processes, showing a clear innovative tendency. Many of these processes can be done through an online platform without having to visit any office and without wasting time in long lines. This can definitely save you time and money by significantly reducing the bureaucratic burden. 

These are some of the processes that can be done online:

• Personal & company annual tax returns 
• VAT returns
• Company registration (via an attorney-at-law)
• Statistical data provision
• Customs declaration, etc.

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Business friendly environment

Mundo recommends Hungary as a place where to conduct business as it has a European financial infrastructure and solid banking. Hungary offers a lot of support for PSP businesses and great choices for investment with high returns.

Hungary is the most business friendly country in the region, with easy company incorporation, straightforward processes, low operational costs, solid banking, easy to set up bank accounts and the lowest corporate tax in Europe. 

Language barrier and salaries

One characteristic that can be a disadvantage in Hungary is the language barrier. Hungarian language is a unique and very hard-to-learn language. Hungarian does not really belong to a group of languages and it´s only related to Finnish and Estonian. The reason for this is that these three ethnic groups share the same ancestors that came from the current Siberian territory and divided into three different migration groups that settled in the territories of today´s Hungary, Estonia and Finland. 

Thus, if you want to set up you business in Hungary be aware that either you have to put a great effort to learn the language or you need to have a very reliable and trustworthy translator. 

However, at Mundo we like to see the glass half full. The language barrier can stop you as much as it can stop any of your creditors. In most cases, if a creditor wants to attack your trust assets, he will have to do it through the Hungarian legal system. Therefore, he will have to deal with the language barrier, presenting his case and proofs before Hungarian authorities with the due translation, and he will have to work with local Hungarian lawyers who may or may not speak good English. 

Another disadvantage are the labor costs. Although this is a disadvantage only for those who come to work in Hungary as employees. On the contrary, if you are looking to set up your operating company, low salaries will make your business enterprise more profitable. 

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