Hungary offers us a solid background where to establish our businesses. We are talking about a jurisdiction that provides substance in full compliance with the EU auditing requirements, but with a low corporate tax.

In this country it is possible to set up different structures such as limited liability company, limited partnership, or general partnership. Being one of the most important business centers of the region, Hungary offers unique corporate advantages such as easy incorporation and straightforward processes. Many of the auditing processes can be conducted through online platforms, reducing bureaucracy to the minimum.

Mundo´s experts recommend Hungary as the place in Europe where to establish your operating company, because, like all Central and Eastern Europe, this country presents a high-skilled labor force with low wages. Moreover, the corporate tax here is the lowest in the EU with only 9% a year and, if you transfer your dividends from an operating company to another one of your companies abroad, then you won´t have to pay withholding tax.

If you are interested in setting up your business here, this section is ideal for you. We discuss important aspects of company formation such as shares, minimal capital, auditing, branches, and others. 

The freedom of establishment and freedom to provide services allows foreigners within the EU to freely carry out business activities in Hungary. Foreigners may also carry out continuous business activities in Hungary through a Hungarian company or register a branch or representative office.

Types of Principal Forms

Foreign investors usually run business in Hungary through a company limited by shares (Rt.), which may be public (Nyrt.) or private (Zrt.) or through a limited liability company (Kft). Limited partnership (Bt.) or general partnership (Kkt.), both form required unlimited legal liability – meaning that all members of Kkt. are jointly and severally liable, and at least one member of Bt. shall have unlimited liability - may be taken.

The rights, facts and data included in the company registration records, and the data of the members and executive officers of companies are public information, and shall be published in the official journal denominated as Company Journal.

Some other facts shall be reported to the Court of Registration competent for the registered office, such as the existence of controlling interest.

A Kft. and Zrt. may be formed by one or more owners. It is not permitted to solicit others publicly to become owners. There are no restrictions on the number of shareholders or founders, or on their nationality or residence.

Capital, Contributions and Control

It is possible to establish an Rt. or a Kft. with either cash or in-kind contributions or a combination thereof.

Zrt.: Minimum capital is HUF 5 Million. The Zrt. may be founded only with in-kind contribution without any cash contributions. The amount of capital contributed in kind shall be declared in writing and must be audited by certified auditors. 

Bearer shares are not permitted, all shares shall be registered. Shares shall be dematerialized for an Nyrt., but they may be either dematerialized or printed for a Zrt. The transfer of shares of a Zrt. shall be limited in the deed of foundation. There are no limitations on foreigners acquiring shares. Other permissible types of shares include voting or divided-reference shares, shares with management appointment rights, employee shares, interest-bearing shares and convertible shares.

A simple majority vote is sufficient for most decisions; however, a majority of at least 75% is necessary for major decisions, such as amending the deed of foundation, deciding on transformation or termination of the company without a legal successor, modifying the rights attached to shares or converting shares from one class to another class of shares. Shareholders of an Rt. representing at least 5% of the shares with voting rights may ask the board of directors to call a shareholder’s meeting.

Kft.: Minimum capital is HUF 3 million. A Kft. may not be filed for registration until at least half of each cash contribution has been paid and all in-kind contributions have been transferred. All outstanding cash contributions must be fully paid no later than one year from the registration. In case the value of the in-kind contribution reaches half of the registered capital, the in-kind contribution shall be provided upon the foundation in full volume. In case the in-kind contribution was not provided upon foundation, it shall be provided within three years following the incorporation.

Ownership in a Kft. is in book-entry form, recorded in the articles of association and at the Court of Registration. Ownership quotas shall be minimum HUF 100,000 par value. The amount of capital contribution shall be divisible by HUF 10,000. Every quota holder shall have one quota with a defined value, although there may be joint ownership of a single quota. 

A simple majority vote is generally sufficient but a majority of at least 75 % of the quota holders is sometimes necessary, such as to change the articles of association or remove a managing director.

Management

A director of a company shall be an individual, a natural person. Managing director(s) for a Kft.; members of the board of directors for a Zrt. A person who has been sentenced to imprisonment by final verdict for committing a crime may not be an executive officer of a company until relieved from the detrimental legal consequences related to his criminal record. Any person who has been banned by a final court verdict from accepting an executive office may not be engaged as an executive officer under the duration of such ban.

Any person who has been banned by a final court verdict from any profession may not be engaged as an executive officer in a corporation whose main business activity covers such profession. For a period of two years after cancellation of a company from the register of companies based on winding-up proceedings, a person who, during the calendar year preceding such cancellation served as an executive officer of the terminated company, may not be an executive officer of another corporation.

A person may not be a managing director of another company, whose liability for claims not being satisfied during a liquidation proceeding has been declared by a court in a final decision – as the liability of the managing director of the liquidated company or of any owner thereof having at least majority controlling influence – and who has not fulfilled its payment obligations according to the final ruling. The above ban shall be effective for five years calculated from the end of an unsuccessful execution proceeding.

Unless otherwise prescribed in the articles of association, executive officers shall be elected for a fixed term of maximum five years, or designated in the articles of association. 

Zrt.: Management is conducted by the board of directors, consisting of 3–11 members elected by the shareholders at the general meeting. It is possible to elect a chief executive officer instead of a board.

Kft.: Management may be conducted by one or more managing directors elected by the members; alternatively, the articles of association may provide that all equity holders are entitled to manage the Kft. as managing directors. 

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Supervisory Board

An Rt. is required to have a supervisory board elected by the shareholder’s meeting only if it is a public Rt. not operating under rules for unified company management, if it is a private Rt. in which 5% of shares with voting rights request it or if otherwise required by law.

In case of a Kft. a supervisory board of at least three members is permitted but no longer required unless the number of full-time employees exceeds 200.

No restrictions apply to nationality or residence of supervisory-board members.

Auditor

As a general rule, companies in Hungary are not obliged to appoint an auditor. An exception applies for companies with turnover of more than HUF 300 million in the preceding two years and the average number of employees of the preceding two financial years exceeding 50 people, in which case at least one auditor must be appointed. 

If the law requires, in context with protection of creditors and public founds the auditor obligation expands. The auditor shall be a legal person or an individual registered with the Hungarian Chamber of Auditors.

Registered seat and Meetings

Every Hungarian company is required to have a registered office and address in Hungary. A law firm can also provide a service for registered office.

Annual board meetings and shareholders’ meetings (called as members’ meeting in case of a Kft.) should be held at least once a year. The place of the meeting must be in the registered seat, unless arranged otherwise.

Members and shareholders may be represented in the meeting by persons so authorized. Managing Directors, company secretaries, Supervisory Board members and the auditor may not be representatives.

Authorization shall be drawn up in a notary’s document or private document representing conclusive evidence.

Members may pass resolutions without holding a members' meeting if the articles of association allow it.

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Branch Office

All foreign companies operating in Hungary shall establish either a locally registered company or a branch office.

Branches of nonresident companies must be registered with the Court of Registration, but they may commence operation as a "preliminary branch" before completing registration. The registration documents are similar to those for a limited liability company. There are no capital requirements, but branches in the financial sector shall have the same initial share capital as that required for domestically registered companies. The foreign founder and the branch have joint and several liability for obligations of the branch.

In general, Hungary treats domestic companies and foreign branches equally regarding their establishment, operations and taxation. Branches may be involved in all types of business activities, but they are not permitted to conduct representative or agency activities on behalf of their foreign founders.

Foreign companies may establish representative offices in Hungary, which are subject to special rules. Such offices are entitled to provide direct commercial representation for nonresident firms, including the arrangements of trade agreements with foreign partners, prepare and sign trade contracts on behalf of their foreign parents, and provide Information and advertising services.

Registration Process

As mentioned above, a single owner may form a limited liability company. Such a company may not publicly solicit others to become owners. The minimum capital requirement is HUF 3,000,000 and the company may not file for registration until at least one-half of each cash contribution has been paid (although there is no minimum cash requirement).

The deadline for payment of in- kind contributions and remaining cash contributions must be established in the articles of association, but if in-kind contributions account for more than one-half of the total capital, they must be transferred at the time of registration. Any outstanding cash contributions must be fully paid no later than one year from registration, and outstanding in-kind contributions within three years.

Other requirements include an official statement of company authorization to sign on behalf of the company; certification by a bank regarding the deposit of cash contributions of capital as specified in company articles; a statement by the managing director regarding the status of in- kind contributions; and declarations of acceptance of the executive officers, members of the supervisory board and auditor (If required), including statements on any conflicts of interest.

When a foreign company is one of the owners of the company to be registered, an extract from the Registrar of Companies of the foreign country and its official translation in Hungarian must be enclosed. Foreign persons registered in the Company Register (i.e. members or officers of the company) must have a delivery agent with an address in Hungary, who possesses power of attorney. Investments that are deemed to have an environmental impact must be accompanied by an environmental permit before registration may be completed.

A Hungarian lawyer shall countersign the articles of association, although this may be an electronic signature for an electronic registration. Documents executed outside Hungary require additional formalities. The application for registration must be submitted within 30 days of signing the company's founding documents. If the applicable laws require an official license for the establishment of the company, it must be attached to the application form. The incorporation documents also may be submitted electronically.

New entities may begin business as a "pre-company" upon signing the foundation documents. Any documentation or contract produced by the company during this preliminary period must identify the company as "under registration". From 2012 should indicate the TEÁOR number in the registration applications. If the company has not member or managing in Hungary, the agent for delivery is required. The agent for delivery shall receive the documents, created in connection with the operation of the company delivered by court or any other authority, and handed over to the company.

The Court of Registry shall examine all registration applications for compliance with formal requirements within three working days from the date when received. The competent court of registry shall examine within eight working days following the date of receipt of the application as to whether the data which are prescribed mandatory by the law for the type of company, and the documents which are required to be enclosed in support of the instrument of constitution and the application for registration, or other documents which need to be enclosed where applicable, are in compliance with the relevant statutory provisions.

For registration process a comprehensive client due diligence are needed. The attorneys on power shall require notarized copy of personal identification documents with Apostil, reference letter from a reputable bank, notarized certificate of address and curriculum vitae (CV) of the members and the managing director. In our office we may give you more information about comprehensive client due diligence.

Simplified process is where an application for a Kft. or Zrt. is accompanied by an instrument of constitution drawn up on a standard contract form as illustrated in the Act. The competent court of registry shall adopt a decision concerning an application for registration within one hour of receipt of the application.

For registration of Kft. and Zrt. the fee shall be HUF 100,000, in the case of simplified process the fee shall be free of charge for Kft. and HUF 50,000 for Zrt.

Publication fees for registration: HUF 5,000, even in the case of simplified process. 

A company limited by shares may be founded or held by a single shareholder, although this must be reported to the Court of Registration. Such a shareholder has unlimited liability in the event of failure to comply with this reporting requirement.

For a public offering to establish a public company limited by shares, a foundation memorandum must be prepared through which the shares of the company are subscribed. The foundation memorandum must detail the full plan for subscription and operations of the company, and must be in an official, private and notarized document. Subscribers must pay at least 10% of the amount for which they have subscribed into a bank account designated by the founders at the time of subscription.

A statutory general meeting must be convened within 60 days of the closing date of the subscription, at which point subscribers must increase the amount paid up on their shares to 25%. The shareholders' meeting must produce the articles of association and elect a board of directors, a supervisory board and an auditor for the first year. The shareholders' meeting must also approve or refuse the oversubscription procedures.

Since Hungary's accession to the Ell, businesses may also be established in three other legal forms: the European corporation, European business association and the European co-operative. Contact us for more information on Hungary´s services. 

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