A foreigner looking to start a company in Hungary can be perplexed by the many forms of business offered by the country. The most popular one is undoubtedly the Ltd (Kft in Hungarian), but there are many more, each with different benefits and limitations. Read on to learn about the most relevant options for foreigners who already have an enterprise outside of Hungary.
Commercial representative (kereskedelmi képviselet)
A commercial representative is an outpost of a foreign enterprise. It is neither a separate legal entity nor part of the company registry. As such, commercial representatives are very limited in what they can do. They are only allowed to perform three kinds of activities in Hungary: promotion, contract mediation, and contract preparation. A commercial representative cannot sign contracts: that right is reserved for the parent company.
Knowing the limitations, you may wonder what the benefits are. First are foremost, this form of business is not subject to either corporate tax or local business tax, since it is presumed that the parent company is paying corporate tax where it is registered. Moreover, commercial representatives are not liable for any damages, since the liability is assumed by the parent company.
Branch office (fióktelep)
A branch office is formally a Kft or a Zrt, but also an outpost of a foreign enterprise. Setting it up takes 30 days but does not require any capital. The name of a branch office must include the name of the parent company, and the two cannot be separated, meaning that the branch office cannot be sold, and if the foreign business is shut down, the branch office is deleted as well. A branch office can sell products and sign contracts, but only on behalf of its parent company. This means that when you buy something from a Hungarian branch office, you are buying the product of a foreign enterprise. The parent company also finances all the expenses of the branch office, and (as in the case of a commercial representative) assumes liability for any damages. The latter is an important factor to consider. However, the unlimited liability of the parent company may also generate trust towards the branch office: that is why banks in Hungary are usually established as branch offices.
As this brief description shows, a branch office is similar to a commercial representative, but it has more rights. Of course, this comes with more obligations: branch offices must be registered in the company registry and audited on a yearly basis. (We are happy to help you with company registration and yearly audits as well.)
If neither a commercial representative nor a branch office suits your needs, you can set up a subsidiary: that means starting a company owned by a foreign enterprise. The most popular option, the Ltd (Kft in Hungarian) requires a minimum capital of HUF 3 million (EUR 8,600). A less frequent form of business, the Zrt requires a minimum capital of HUF 5 million (EUR 14,300). It is not mandatory to deposit the money to the corporate bank account upon company registration, but you have to declare in writing that you possess it. Please note that if the capital is not spent on company expenses, you need to be able to demonstrate to the authorities that it is in the possession of the enterprise.
You can also set up a limited partnership (Bt in Hungarian) without investing anything. However, that form of business comes with several limitations, for example:
- Two members are needed to establish a Bt, whereas starting a Kft only requires one person
- At least one member of a Bt will have unlimited liability, as opposed to limited liability in a Kft (meaning that the owners are only liable for their share of the capital)
Setting up a subsidiary in the traditional way requires legalizing and translating the documents of the parent company. However, if time is an important concern, you can form an independent company, owned by you as a private individual, then sell it to your foreign business, thus making it a subsidiary.
Subsidiaries are not outposts, but separate legal entities. As a result, they must be registered in the company registry and pay taxes as well. However, they are not subject to dividend tax in Hungary since their profits go directly to the parent company abroad.
Whatever form of business you choose, you can count on us
When moving your business to Hungary, consider how much freedom and how much responsibility you want to give it. If you would like to know more about forms of business in Hungary, contact your English-speaking accountant at Helpers Finance for a detailed breakdown.