Entering the Hungary Market

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Entering the Hungary Market

Foreign companies who wish to expand into Hungary will be met with the one of the strongest manufacturing sectors in Europe, a skilled and educated workforce, attractive tax incentives, and a variety of growth incentives and collaborative opportunities for investors with the state.

However, setting up shop in an unfamiliar place comes with its own challenges. Foreign businesses must comply with employment, tax, payroll, and corporate legislation whilst ensuring that their employees are working productively and efficiently.

The alternative solution to overcoming these issues involves working with a Professional Employer Organization (PEO) such as Bradford Jacobs, using our Employer of Record (EOR) in-country experts to handle every aspect of compliance. 

Starting a Business in Hungary

Hungary’s geographical position benefits from international access to diverse marketplaces in the EU, Russia, and Asia. With a strong industrial and manufacturing sector specializing in electronics and automotive, and high-quality logistics, this creates an attractive environment for any business owner who seeks to expand their business.

To start a business in Hungary you must go through a company registration procedure, which is straightforward and designed to be executed easily. These steps can be done in person or online through the one-stop-shop Companies Register website.

The necessary steps to start a business in Hungary include:

  • Obtaining a local business address.
  • Obtaining a commercial license from the Hungarian Ministry of the Economy.
  • Opening a bank account in Hungary to deposit the appropriate share capital.
  • Obtain legal representation through a local representative or law firm.
  • Preparing the appropriate registration documents and having them translated to Hungarian or English.
  • Notarizing and legalizing the registration documents at a notary’s office.
  • Register your company at the Company Registry.
  • Register in the municipality with the Court of Registration.
  • Register for a VAT Number and a Tax Identification Number with the regional and national tax authorities.
  • Register with the National Health Insurance Fund (NEAK).
  • Register with the Central Office of Statistics (KSH).
  • Receive a company incorporation certificate, a tax identification number, and a social security number.

Expanding Business into the Hungary

Foreign companies wishing to expand into Hungary will be swept into a thriving economy with a sizable talent pool, and attractive administrative and labor costs – which is provided to all companies that enter their market. The country’s position in the center of Europe offers easy trade access to the rest of the continent, with its strong connections by air, water, land, and rail.

Hungary boasts a formidable industry sector, which contributes over 30 per cent of the gross value added and employs over 1 million workers. However, the country also does well in other sectors such as commerce, information and communication, and agriculture.

These industries have a lot of opportunity for expansion both nationally – to other popular cities such as Budapest, Debrecen, Szeged, Miskolc, Pécs, and Gyor – and internationally.

Hungary Business Facts

  • Capital City – Budapest
  • Population – 9,730,000
  • Cities – Debrecen, Szeged, Miskolc, Pécs, Győr, Nyíregyháza, Kecskemét
  • Official language(s) – Hungarian
  • Economy/GDP (2020) – $316.342 million, (53rd)
  • World Ranking (Ease of Doing Business) – 52nd
  • Leading sectors – Information technology, motor vehicles, pharmaceuticals, electronics, textiles, food processing, construction materials
  • Main exports – refined petroleum, corn, poultry meat, hot-rolled iron, vehicle parts, cars, spark-ignition engines, packaged medicines,
  • Main imports – crude petroleum, petroleum gas, refined petroleum, other iron products, raw aluminum, integrated circuits, office machine parts
  • Main trading partners – Germany, Romania, Italy, Austria, Poland, Netherlands, Czech Republic, France, Slovakia, China
  • Government – Unitary parliamentary constitutional republic
  • Currency – Forint (HUF)

Advantages and Challenges of the Hungarian Market

The Hungarian market has a variety of significant advantages:

  • Low labor costs: Labor costs are significantly cheaper in Hungary than its other European counterparts, allowing the country to integrate itself optimally into the European production chain, and is considered an efficient production hub.
  • Competitive tax system: Hungary boasts the lowest tax rate in Europe.
  • Educated workforce: Hungary’s workforce is highly educated and skilled, with an emphasis on engineering, medicine, and economics.
  • Language: The local workforce is multilingual, but the main language for business is English.
  • Ranking: Hungary ranks 1st in ‘Trading Across Borders’ for the Ease of Doing Business Survey.
  • Logistics: Hungary’s location in Europe offers a variety of logistics options such as motorways, railways, ships, and air.
  • EU Benefits: Hungary is a member of the European Union and enjoys the same trade benefits of other EU nations.

The biggest challenge facing the Hungarian market currently is the effects of COVID-19, like many other nations in the EU and around the world. Other challenges include unpredictable and sector-specific tax regulations, low talent pools, and high VAT rates, but reforms and incentives are taking place to combat these challenges.

The 100 per cent solution is to consider the alternative to setting up a subsidiary by working with Bradford Jacobs. Our Professional Employer Organization (PEO) international recruitment specialists will find the perfect fit for the roles you need to fill. Then our Employer of Record (EOR) in-country consultants will handle all the complexities of Hungary’s employment laws, tax regulations and payroll, ensuring your Hungary expansion plans progress smoothly and effortlessly.

Limited Company/Subsidiary or Branch in Hungary

A subsidiary established in Hungary is considered a legal separate entity from the parent company, with independent administration and management, providing freedom explore the local market and create international credibility.

A branch, however, does not have any independence from the parent company, but it is taxed and reported similarly to resident entities, and is limited in its commercial activities.

The main characteristics of a subsidiary:

  • Subsidiaries require a board of directors, as well as an annual shareholders’ meeting.
  • Subsidiaries also require legal representatives.
  • A subsidiary is considered a legal entity in Hungary and can thus benefit from taxation incentives and exemptions.
  • A subsidiary requires the mandatory filing of an annual financial statement, as well as a statutory audit (under certain conditions).
  • Subsidiaries are subject to the same taxation principles as resident companies.
  • A subsidiary company benefits from independence from the parent company.
  • There are no restrictions on foreign shareholders.

Main characteristics of a branch:

  • The parent company is responsible for all liabilities of the branch office.
  • Branches also require legal representatives.
  • Reporting and auditing requirements are the same as other companies.
  • The activities of the branch must be defined by the parent company’s scope of operations.

Assessing the comparative advantages and disadvantages between a subsidiary and a branch and choosing the right option for your expansion is best done with expert guidance.

A sensible approach to have your business up-and-running in the shortest time possible is to use a Professional Employer Organization (PEO). Your company can have a presence in Hungary within days rather than months.

Legal Structures for Hungary Market Entry

Depending on the company structure you choose to set up, establishing a subsidiary or branch requires meeting certain legal requirements. A subsidiary is incorporated under Hungarian law, whereas a branch operates under certain local laws (taxation, social security etc.), but are incorporated under the laws of the parent company’s country and uses the parent company’s Articles of Association.

The legal requirements of a private limited liability company (KFT):

A limited company is most popular business structure in Hungary. For incorporation, the minimum number of people required is 1 director and 1 shareholder who can be of any nationality. The number of shareholders this company can have is unlimited.

The minimum share capital required is 3 million HUF, with at least 50% of it being paid upon registration.

After incorporation, limited liability companies must also file annual financial statements and an annual statutory audit (under certain conditions). Annual tax returns must also be filed, and all businesses are required to file and pay VAT returns.

A limited liability company must have a board of directors, a supervisory board (under certain conditions), as well as an annual shareholder’s meeting.

The legal requirements for a joint stock company (JSC):

A joint stock company is the best choice for larger companies that wish to raise public capital.

For incorporation of a public joint stock company, the minimum number of people required is at least 3 directors and 1 shareholder of any nationality.

The minimum share capital required is 20 million HUF, which must be fully paid upon registration.

Joint stock companies are required to file annual financial statements and an annual statutory audit (under certain conditions). Annual tax returns must also be filed, as well as VAT returns every month.

Both public and private joint stock companies must have a board of directors, as well as an annual shareholder’s meeting.

The legal requirements for a branch:

In Hungary, a branch must have a registered office. For incorporation, a branch needs a legal representative, 1 director, and no share capital.

Branches must comply to the local accounting laws, which requires annual financial statements, annual tax returns, monthly VAT returns, as well as annual audited financial statements (if certain conditions are met).

Open a Business Bank Account in Hungary

To do any business in Hungary, whether it is through subsidiary establishment or branch office, or relocating employees to test out the market, a local company bank account is required. An entity must deposit the requested share capital before company registration, as proof of funds.

To register for a business bank account, it is vital for foreign investors to acquire the necessary paperwork. Foreign nationals might also need to translate and notarize some of these documents. However, most banks will accept documents in Hungarian, or notarized and translated copies of the required documents in English.

It is important to check what the bank needs prior to registration, as delays can add to the complexity of registration procedures.

Generally, the documents you will need to open a business bank account in Hungary are as follows:

  • Documents Concerning Founders: passport or identification documents of directors or shareholders, a valid residence permit or work visa, an address card or proof of address such as a lease contract
  • Company Registration Documents: legalized/notarized corporate documents (including the articles of association),  a list of specimen signatures of the person/people representing the company, documents indicating the tax number, company registration number, and the statistical code

These requirements will vary, according to each case. It is best to enquire on what you need with the chosen bank, as well as with legal representatives who understand the local laws of Hungary.

The registration process for a bank account may be done online or in-person (this depends on the bank).

Company Formation Hungary

There are 6 major company forms in Hungary:

  • Private Limited Liability Company (KFT)
  • Joint Stock Company (RT)
  • General Partnership (KKT)
  • A Limited Partnership (BT)
  • Branch Office
  • Representative Office

The company formation process varies according to the company type, but the standard registration procedure is as follows:

  • Obtain a local business address and prepare the documents for registration.
  • Obtain a commercial license for the Ministry of Economy (if applicable).
  • Prepare registration documents and translate them to Hungarian.
  • Notarize and legalize the founding documents at a registered notary’s office.
  • Opening a bank account in Hungary and deposit the appropriate share capital.
  • Register the company at the Company Registry, receive a tax number, as well as an incorporation certificate.
  • Register with the regional and national tax authorities for a tax identification number and a VAT Number.
  • Register with National Insurance Board (NEAK) for a social security number.
  • Register with the regional Court of Registration.

Find an office in Hungary

In Hungary, property prices are low, and the country possesses a large supply with a variety of commercial types to choose from, depending on your needs – commercial rent and sales, industrial spaces, co-working spaces, and virtual offices.

Acquiring an office in Hungary involves engagement of a local real estate office – but finding the right agency and agent may take time and involves certain barriers, such as language and business customs.

This is where Bradford Jacobs can step in and act as an office broker for companies wishing to expand into Hungary. With our experience in international expansion, we can find the right space for you in no time and prevent the stress and complications that can accompany a property search.

Finding a Hungary Manufacturer

Hungary possesses a robust manufacturing sector, due to its centralized location, low production costs and skilled workforce. The local infrastructure is rigorous, and the country supports the growth of this sector with attractive government incentives and opportunities for foreign investment, as well as quality education and training in IT, engineering, mathematics, economics, and physics.

Hungary’s industrial and manufacturing sectors specialize in electronics, vehicles, information & communication technology, and medical technology. In 2017, the automotive industry’s production value amounted to EUR 26.1 billion, and the production value of the electronics industry was EUR 17.4 billion.

With great cost-to-quality ratios, high employment rates, and a variety of suppliers to choose from, the manufacturing sector in Hungary makes a great impact on the economy. Any business seeking to partner with a local manufacturer need only select the most beneficial choice for their interests.

The country has a variety of large-scale and medium-scale manufacturing companies and research and development centers to choose from, with some popular names such as Audi, Bosch, Mercedes-Benz, AVL, Valeo, Samsung, Huawei, and Continental. Finding the right fit, then, should not be too difficult. As a business owner, it is important to ask potential manufacturers about their capabilities, target dates and delivery times.

Working with the right manufacturer will have a significant effect on the success of your expansion into the Hungarian market, and beyond. It is a long-term commitment and relationship, which must be treated with significance and care. Ask your local business associates or contacts about which companies to consider as you begin your search – the business community in Hungary is very close-knit, so your contacts can help point you in the right direction.

Finding a Hungary Distributor

Successful integration into the Hungarian market is not complete without a local distributor. The distributor you choose will have a great impact on your business and its objectives.

Hungary has a variety of options for product distribution, due to its robust infrastructure. Hungary boasts one of the highest motorway densities in Europe, with its location being at a crossroads of four main European transportation corridors, an extensive railway network, a number of international airports, and excellent waterway connections with Danube linking Hungary to the seaports of Hamburg, Bremerhaven, Rotterdam, and Antwerp.

The capital city, Budapest, is the major distribution center of the country. There is a variety of options to choose from in the retail sector. Hungary has a variety of small, independent stores in more rural locations, as well as well-established and medium-sized discount chains. The most successful distributors in Hungary involve international chains such as Tesco, Lidl, and Aldi.

In cities such as Budapest, the retail sector is dominated by prestigious superstores, shopping centers, hypermarkets, and supermarkets. Typical distribution channels involve importer-wholesalers servicing retailers and end-users directly.

To find the right distributor, you must work with the local business customs and understand the local culture. Business culture in Hungarian values trust and close relationships that partake in with their business associates – an understanding of Hungarian can also go a long way. Treat distribution partnerships as long-term relationships.

Enter New Markets with Bradford Jacobs

Bradford Jacobs opens the door for companies like yours seeking to explore new markets in your new territory. Hungary offers expansion into a variety of markets, as well as growth and development support.

Part of this exploration includes recruiting the right staff to assist with your expansion plans. Our Professional Employer Organization (PEO) specialist teams have in-depth global knowledge of how to expand into and recruit in new territories – and our Employer of Record (EOR) services will guarantee your company complies with local registration and recruitment law, taxation, and payroll. This is essential for Hungary, where employment regulations depend on a mix of labor legislation, and collective arrangements with trade unions and work councils.

We also provide ongoing consultation on human resources based on our understanding of individual cultures and customs of every country being targeted for global expansion. Work with Bradford Jacobs to expand your company and ensure the best people are on your team. Contact us today!