Doing Business in Hungary

Doing Business in Hungary

Doing Business in Hungary 2021 is a practical handbook for companies and individuals thinking about Hungary from a business point of view. The approach running through the guide makes it an essential resource for those considering establishing – and those already operating – a business entity in Hungary.

This three-part guide highlights the most important laws to be aware of during the establishment and operation of a business in Hungary, as well as numerous other issues which may arise during the “life” of a business, such as intellectual property and competition law issues.

You may wonder what makes this guide unique and different to other guides. Well, in addition to having a very business-focused approach, although written by lawyers, it is not full of legal jargon. This guide is, we hope, easy to understand, informative and filled with frequently asked questions which arise when setting up and running a business in Hungary.

We hope that our handbook provides you with many valuable tips and all the information you need on how to do business in Hungary.

 

What is the Content of the Handbook?

The table of contents provides a good overview about the topics covered. Please, click the TOC to see the original contents.

 

Overview of the main parts of Doing Business in Hungary

 

Establishing a Business Entity

This part depicts the aspects you should consider when deciding on the actual form and process of investing in Hungary (How to Invest?), and also presents the main forms of companies which can be established in Hungary (Companies). You can find in this part some practical information regarding the start of your business activity (Setting up an Office) and about the investments classified into different categories (Branch Office and Commercial Representative Office, Mergers and Acquisitions, Real Estate Law). In addition, this part shares some useful thoughts in the area of financial security in Hungary (Financial Stability) and also gives you an overview of special rules of investing in strictly regulated sectors like energy or telecommunication (Strictly Regulated Sectors).

How to Invest?

In this chapter, we present the most important factors to consider when deciding on the form of your investment. The table on page 32 summarises some of the advantages and disadvantages of the relevant company types to help you decide which company type best suits your needs.

Companies

This chapter deals with the most popular Hungarian company forms. There is no legal requirement to have a Hungarian owner or co-owner in the company.

Setting up an Office

Registering an official seat and opening a bank account are unavoidable obligations for every new business entity. In this chapter, we will discover basic information about these activities.

Branch Office and Commercial Representative Office

This chapter briefly introduces two additional forms of undertaking reserved only for foreign investors who wish to establish and pursue business activities in Hungary without having to set up a local entity that is formally independent of their parent companies.

Mergers & Acquisitions

This chapter highlights the key points of a merger and acquisition (“M&A”) transaction from a Hungarian perspective. This includes the general principles for M&A transactions and a description of the usual processes and parties’ obligations.

Real Estate

This chapter highlights the main points of Hungarian real estate regulation and some insights from an investor’s perspective.

Financial Stability

This chapter aims to provide you with a brief overview of certain foreign exchange and financial regulatory characteristics due to Hungary not yet being a member of the Eurozone.

Strictly Regulated Sectors

Every form of company in Hungary needs to be registered. However, in certain cases, the founding of a company is also subject to special sector-based foundation licences. This means that certain companies may only apply to register with the Court of Registration if they have already obtained a foundation licence. In other cases, already founded and registered companies may only pursue business activities subject to licensing after they have obtained a special sector-based activity licence. These rules apply to industries with detailed sector-targeted rules and where special authorities are entitled to control, aut-horise and even regulate the given industry. Apart from applying for licences, companies active in these industries need to comply with sector-based statutory rules or report certain fields of their activities to the competent Hungarian authority. In this section, we aim to give a brief practical insight into some of the main strictly regulated sectors (i.e. the financial, energy, telecommunication and pharmaceutical sectors), particularly in terms of the key compliance regulations, competent regulatory authorities and licences that companies must obtain for their foundation or operation.

 

Operating a Business Entity

This part briefly outlines the most important administrative burdens (Taxation, Accounting and Auditing) of an existing Hungarian business entity. In addition, this part highlights the most important rules regarding the establishment, maintenance and termination of an employment relationship (Working in Hungary) and also gives an overview of some financial issues, such as crediting, state subsidies, insolvency (Financing matters).

Taxation

In this chapter, we introduce the Hungarian tax authorities and their competencies, followed by an overview of the main building blocks of Hungarian state revenue, i.e. corporate tax, personal income tax and value-added tax (“VAT”). We also explain the anti-avoidance rules that influence tax optimisation and provide an insight into double tax treaty schemes with a view towards the growing importance of cross-border transactions.

Accounting

This section aims to introduce the basic structure of the Hungarian accounting system. It summarises the general rules and concepts of bookkeeping and financial reporting as well as filing and publication obligations.

Auditing

This section gives an overview of Hungarian auditing requirements and introduces the basic rules related to engaging auditors.

Working in Hungary

This chapter provides employers with useful information on the main rules of working in Hungary. It explains under what conditions foreign citizens can be employed in Hungary, what are the main working conditions the employers must ensure for their employees, how employment relationships can be terminated and finally, which rules must be followed if there is a change of employer.

Financing Matters

This chapter aims to summarise various financial issues, e.g. how to secure bank credit in Hungary, whether there are any obstacles to repatriating profits realised in Hungary and the incentives for investment the Government ensures. Additionally, in this chapter, we also briefly introduce the possible implications of insolvency, e.g. bankruptcy and liquidation procedures.

 

Other Issues in Business Life

The third part of the handbook highlights some issues not necessarily arising during the life of a business entity. However, these topics are also worth noting, in particular the rules of Hungarian and European competition law (Competition Law), the new screening procedure with regard to foreign investments harming Hungary’s security interests (National Security Screening of Foreign Investment) as well as some thoughts about the protection of intellectual property (Intellectual Property and Data Protection) and the main aspects of the private wealth planning (Private Wealth).

Competition Law

In Hungary, significant changes took place in the economy in the nineties and the earlier, thoroughly regulated market was forced into change. In its place arose a market based on competition based on entirely different rules. Currently, Hungarian competition law follows that of the EU, similar areas have the attention of the competition watchdog, e.g. agreements restricting competition, abuse of dominant market behaviour, merger control and lastly unfair commercial practices. In this chapter, we will give you an overview of all of these areas.

National Security Screening of Foreign Investment

In matching the trend of recent years of establishing foreign investment review mechanisms, Hungarian legislation has followed the example of the United States, China, Russia, Germany and a dozen other EU countries, in line with the adopted EU regulation in force since 11 October 2020. Within the framework of the state of emergency, Hungary has introduced several provisions that supplement or partially overwrite the existing foreign direct investment (“FDI”) regime. Moreover, a parallel temporary FDI regime has been established for the state of emergency, summarised in the FAQ.

Intellectual Property

Intellectual property is a key asset of businesses, especially for those operating in the information technology, communication and health sectors. This chapter introduces the structure of intellectual property as a whole and we provide a practical overview of the issues that may emerge when operating a business in Hungary.

Data Protection

As an EU Member State, Hungary must comply with Regulation 679/2016/EU on the protection of natural persons regarding the processing of personal data and on the free movement of such data. The Regulation is commonly referred to as the General Data Protection Regulation or the GDPR. The GDPR establishes both general and detailed data protection rules and creates transparency and an expected homogeneity of law enforcement throughout the EU.

Private Wealth

Private wealth planning is becoming more and more popular in Hungary. High-net-worth individuals and families are seeking solutions to preserve their wealth and to plan for business succession.