Hungary has become an increasingly popular destination for foreign entrepreneurs in recent years: EU membership, a relatively low tax burden (9% corporate income tax) and a fast, largely electronic incorporation procedure attract a lot of interest. If you are a foreign national considering starting a business in Hungary, this guide walks you through the key concepts and steps.
Which company form should you choose?
The vast majority of foreign investors set up a limited liability company (kft.), because it is flexible, the liability of the members is limited to their capital contribution, and the minimum capital requirement is relatively low. Other forms exist (bt., zrt., sole proprietorship company), but this article focuses on the practice of setting up a kft., as that is the most common choice.
The role of the lawyer – why is it mandatory?
In Hungary, a company cannot be set up without a lawyer. Under the law, the company must be represented by a lawyer or a notary public in the registration procedure (and in most change-registration procedures), and the deed of foundation must also be countersigned by a lawyer. The lawyer:
- drafts and countersigns the deed of foundation (articles of association),
- files the registration request electronically with the Court of Registration,
- helps compile the required declarations and annexes,
- coordinates the certification of signatures if the members are abroad.
Since practically the entire procedure runs through a lawyer, it is worth choosing one early in the planning phase who has experience with company formation for foreign clients and who can communicate in English (or in your own language).
Required documents
The exact list depends on the type of company and the circumstances of the members and owners, but typically the following are needed:
- a copy of the identity document (passport or ID card) of every member and managing director,
- a document proving the address of residence (e.g. address card, or an official certificate in the case of a foreign address),
- the deed of foundation / articles of association, prepared by the lawyer based on the members' details and agreement,
- a specimen signature or signature certification from the managing director(s),
- a document proving the right to use the registered seat (title deed, lease agreement or registered-seat service contract),
- if a foreign legal entity is founding the company: a company extract with a certified translation, and often an apostille certificate,
- a delivery agent agreement, if any member has no Hungarian address (see below),
- tax and NAV declarations as annexes to the registration request (see below).
These documents are compiled by the lawyer and the accountant, and are typically submitted electronically to the Court of Registration.
Registered seat – where should the company's official address be?
Every Hungarian company must have a registered seat, that is, a Hungarian address that serves as the company's official contact point and that must also appear in the company register. The registered seat does not have to be the place of actual operation – common solutions are:
- an owned or rented office or property, which can be used as a registered seat with the consent of the owner or landlord,
- using a registered-seat service: among foreign founders this is one of the most popular solutions, as it requires no physical presence or own office in Hungary – a specialised provider supplies the registered address and receives and forwards postal mail.
It is important that the company must be genuinely reachable at the registered seat (e.g. the company sign must be displayed, official documents must be receivable), so it is worth choosing a reliable provider.
Delivery agent – if a member has no Hungarian address
If any member (or executive officer) of the company has a foreign address, Hungarian law requires a delivery agent to be appointed. The point is that authorities and courts should have a Hungarian address to which official documents can be delivered, since delivery to a foreign address would be slower and more complicated.
The delivery agent can be:
- an accounting, legal or corporate services firm with a Hungarian seat that concludes a contract specifically for this purpose,
- or a private individual resident in Hungary who undertakes the role.
The agreement with the delivery agent must be attached to the registration request, and the agent's details are also recorded in the company register. In practice this means that foreign members and managing directors do not need a Hungarian address in order to set up a Hungarian company – it is enough to appoint a suitable delivery agent.
Tax declarations and reporting to the tax authority
As part of the registration procedure, the company also makes tax declarations through the lawyer, which the Court of Registration forwards to the National Tax and Customs Administration (NAV). These declarations cover, among others:
- the VAT status (e.g. choosing exemption for small businesses, or general VAT liability),
- whether the company will engage in intra-Community trade within the European Union (which requires an EU VAT number),
- the chosen taxation regime (corporate income tax, or the small business tax KIVA),
- cash accounting or other special taxation methods, where relevant.
These declarations determine the tax number and the tax conditions under which the company starts operating, so it is worth consulting an accountant or tax advisor before incorporation about which structure best fits the planned activity.
Share capital – how much starting capital is needed?
Setting up a kft. requires share capital, that is, starting capital provided to the company by the members. The statutory minimum is currently HUF 3 million, provided by the members in the form of capital contributions divided between them.
A few important points:
- the share capital may consist of cash and non-cash (in-kind) contributions, if the members bring assets, property or other items of value into the company instead of money,
- the full amount does not necessarily have to be paid in immediately when the registration request is filed – subject to certain conditions it can be provided in instalments, but the exact rules are worth discussing with the lawyer for the specific transaction.
The incorporation process in brief
- Preparation: deciding on the company form, company name, scope of activities, members and ownership ratios – ideally in consultation with a lawyer and an accountant.
- Arranging the registered seat and the delivery agent, if needed.
- Compiling the documents: the deed of foundation, specimen signatures and declarations, prepared with the lawyer.
- Filing the electronic registration request with the Court of Registration through the lawyer.
- Registration: in the simplified (fast-track) procedure this typically takes a few working days, and can even be completed within a few hours if all documents are in order; otherwise it may take a few weeks.
- Follow-up tasks: opening a bank account and paying in the share capital (or undertaking to do so within the statutory framework), registration with the Chamber of Commerce (MKIK) and the Central Statistical Office (KSH), Cégkapu registration, setting up an invoicing system, engaging an accountant, and obtaining any further permits depending on the scope of activities.
Summary
Setting up a company in Hungary is a predictable and relatively fast process for foreigners too, provided the necessary parties – lawyer, registered-seat provider, delivery agent, accountant – are involved in good time. The key points in summary:
- company formation is not possible without a lawyer,
- the company must have a Hungarian registered seat, which can also be arranged through a registered-seat service,
- if a member has no Hungarian address, a delivery agent must be appointed,
- tax declarations must be made to NAV as part of the registration procedure,
- setting up a kft. requires at least HUF 3 million in share capital.
If you prepare for these steps in good time and work with experienced professionals, company formation in Hungary can be completed in a matter of days.
Our office offers a full company formation service, involving lawyers, accountants and other specialists, so we accompany our foreign clients through the whole process, from the first consultation to a fully operating company. Book a consultation and we will go through your situation together.
